In terms of section 2 (61) of CGST bill Input Service Distributor (ISD) is an office of supplier which receives tax invoice towards receipts of input services and distributes the credit of central tax, state tax or union territory tax paid on the said services under a prescribed documents to its own ‘recipient office of credit’ who is the supplier under the same PAN as that of ISD.
In other words, a business may have one central office and several other offices at various locations for smooth distribution or supply of goods or services. There may be a situation where tax invoices are raised by the supplier on central office only, consequently, input tax credit gets accumulated at central office and supply takes place from other locations. Obviously, the tax will be payable by the offices from where supply is effected. In such cases, distribution of credit of input tax will be done by central office to its other offices proportionately as per the prescribed provisions and procedure which is briefly outlined below
- Input Tax Distributor is compulsorily required to be registered under GST irrespective of threshold limits.
- Existing ISDs (under service tax) shall be required to obtain fresh registration under GST
- Input tax credit of input services shall be distributed only amongst those registered persons who have used the input services in course or furtherance of business.
- Distribution can be done under a prescribed document ISD Invoice under Rule 4 of Input Tax Credit Rules read with Rule 7 of Invoice Rules containing the prescribed details.
- Credit attributable to a particular recipient only shall be distributed to that recipient only
- Credit attributable to more than one recipients or all the recipients: shall be distributed amongst all such recipients on pro-rata basis of the turnover in a state or turnover in a Union territory of such recipient during the relevant period to the aggregate of the turnover of all such recipients (to whom credit is attributable) in the relevant period.
- Amount of distribution cannot be more than amount of credit available
- In case input credit is increased due to issuance of debit note to an ISD by supplier then it shall be distributed in the same manner as above, conversely, if it is decreased on account of credit note issued by supplier then reduced ITC shall be apportioned to each recipient in the same ratio in which ITC contained in original invoice was distributed.
- Wrong or excess distribution will attract the penal provisions for recovery with interest and prescribed implications.
- A taxpayer can have multiple ISD
- Input tax Credit available for distribution in a month shall be distributed in same month. Details of tax invoices on which credit has been received and those issued, distributed shall be furnished in Form GSTR-6 which shall be made available to recipient in Part B of Form GSTR 2A who can include the detail in his Form GSTR 2
Relevant period: If the recipients of credit have turnover in their State or UT in the financial year preceding the year of distribution, the said financial year shall be the relevant period.
In case if some or all recipients doesn’t have turnover in their State or UT in the preceding financial year of distribution then the last quarter previous to the month of distribution when the details of turnover of all recipients are available shall be the relevant period.
Turnover: With respect to a registered person turnover refers to the value of turnover reduced by amount of any duty or tax levied under :-
a. entry 84 of List I (State List) of seventh schedule to the Constitution i.e. duties of excise on tobacco and other manufactured goods in India except alcoholic liquors, opium, Indian hemp, etc.
b. entry 51 & 54 of List II (Union List) of seventh schedule to the Constitution i.e. duties of excise on goods manufactured in the State like alcoholic liquors, opium and other narcotic drugs.
Disclaimer: The article is a brief insight of the concept, therefore, before arriving at any conclusion it is essential to examine the minute details of provisions on case to case basis.
Can input tax credit transferred from branch to HO, as per ISD provisions ?