INPUT SERVICE TAX DISTRIBUTOR UNDER GST REGIME

[Mr. M. GOVINDARAJAN]

Input Service Distributor

The concept of Input Service Distributor (‘ISD’ for short) was introduced in CENVAT Rules, 2004.  Rule 2(m) of CENVAT Credit Rules, 2004 defines the term ‘input service distributor’ as an office of the manufacturer or producer of final products or provider of output service, which receives invoices issued under rule 4A of the Service Tax Rules, 1994 towards purchases of input services and issues invoice, bill or, as the case may be, challan for the purposes of distributing the credit of service tax paid on the said services to such manufacturer or producer or provider or an outsourced manufacturing unit], as the case may be;

GST also retain the concept of ISD.  Section 2(61) of the Central Goods and Services Tax Bill, 2017 (‘Bill’ for short)  defines the term ‘input service distributor’ as an office of the supplier of goods and/or services which receives tax invoices issued under Section 31 towards receipt of input services and issues a prescribed document for the purposes of distributing the credit of central tax, State tax, integrated tax or Union territory tax paid on the said services to the supplier of taxable goods or services or both having the same PAN as that of the said office.

Registration

Rule 3(1) of Service Tax (Registration of special category of Persons) Rules, 2005 provides that the input service distributor shall make an application to the jurisdictional Superintendent of Central Excise in such form as may be specified, by notification, by the Board, for registration within a period of thirty days of the commencement of business or the 16th day of June, 2005, whichever is later.

Section 24 of the Bill deals with compulsory registration in GST regime in certain cases.  Section 24(viii) provides that input service distributor, whether or not separately registered under this Act shall be required to be registered under this Act.

Tax invoice

Rule 4(2) of Service Tax Rules, 1994 provides for the issue of invoice by ISD.  The said Rule provides that every input service distributor distributing credit of taxable services shall, in respect of credit distributed, issue an invoice, a bill or, as the case may be, a challan signed by such person or a person authorized by him, for each of the recipient of the credit distributed, and such invoice, bill or, as the case may be, challan shall be serially numbered and shall contain the following, namely:-

• the name, address and registration number of the person providing input services and the serial number and date of invoice, bill, or as the case may be, challan issued under sub-rule (1);
• the name and address of the said input service distributor;
•  the name and address of the recipient of the credit distributed;
• the amount of the credit distributed.

in case the input service distributor is an office of a banking company or a financial institution including a non-banking financial company providing service to any person an invoice, a bill or, as the case may be, challan shall include any document, by whatever name called, whether or not serially numbered but containing other information in such documents as required under this sub-rule

In GST Regime, Rule 5 provides that a tax invoice issued by an ISD shall contain the following-

• Name, address and GSTIN of the Input Service Distributor;
• A consecutive serial number containing only alphabets and/or numerals, unique for a financial year;
• Date of its issue;
• Name, address and GSTIN of the supplier of services, the credit in respect of which is being distributed and the serial number and date of invoice issued by such supplier;
• Name, address and GSTIN of the recipient to whom the credit is distributed;
• Amount of the credit distributed; and
• Signature of the digital signature of the supplier or his authorized representative.

Where the ISD is an office of a banking company or a financial institution including a non banking financial company, a tax invoice shall include any document in lieu thereof, by whatever name called, whether or not serially numbered but containing the information as prescribed above.

Manner of distribution of credit by ISD

Rule 7 of CENVAT Credit Rules, 2004 provides the manner of distribution of CENVAT credit as detailed below.  The input service distributor shall distribute the CENVAT credit in respect of the service tax paid on the input service to its manufacturing units or unit providing output service or an outsourced manufacturing units, as defined in Explanation 4, subject to the following conditions, namely :-

• the credit distributed against a document referred to in rule 9 does not exceed the amount of service tax paid thereon;
•  the credit of service tax attributable as input service to a particular unit shall be distributed only to that unit;
• the credit of service tax attributable as input service to more than one unit but not to all the units shall be distributed only amongst such units to which the input service is attributable and such distribution shall be pro rata on the basis of the turnover of such units, during the relevant period, to the total turnover of all such units to which such input service is attributable and which are operational in the current year, during the said relevant period;
• the credit of service tax attributable as input service to all the units shall be distributed to all the units pro rata on the basis of the turnover of such units during the relevant period to the total turnover of all the units, which are operational in the current year, during the said relevant period;
• outsourced manufacturing unit shall maintain separate account for input service credit received from each of the input service distributors and shall use it only for payment of duty on goods manufactured for the input service distributor concerned;
• credit of service tax paid on input services, available with the input service distributor, as on the 31st of March, 2016, shall not be transferred to any outsourced manufacturing unit and such credit shall be distributed amongst the units excluding the outsourced manufacturing units.

Section 20 of the bill deals with the manner of distribution of credit by ISD.  Section 20(1) provides that the ISD shall distribute the credit of central tax as central tax or integrated tax as integrated tax, by way of issue of a document containing the amount of input tax credit being distributed in such manner as may be prescribed.   In this regard rule is to be framed.                      

Conditions for input service distribution

Section 20(2) provides that the ISD may distribute the credit subject to the following conditions-

• the credit can be distributed to the recipients of credit against adocument containing such details;
• the amount of the credit distributed shall not exceed the amount of credit available for distribution;
• the credit of tax paid on input services attributable to a recipient of credit shall be distributed only to that recipient;
• the credit of tax paid on input services attributable to more than on recipient of credit shall be distributed only amongst such recipients to whom the input service is attributable and such distribution shall pro rata on the basis of 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 such input service is attributable and which are operational in the current year, during the said relevant period;
• the credit of tax paid on input services attributable to all recipients of credit shall be distributed amongst such recipients and such distribution shall be pro rata on the basis of 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 recipients and which are operational in the current year, during the relevant period.

Relevant period

The term ‘relevant period’ is defined in the explanation (a) to Section 20(2) that shall be-

• if the recipients of the credit have turnover in their States or Union territories in the financial year preceding the year during which credit is to be distributed, the said financial year; or
• if some or all recipients of the credit do not have any turnover in their States or Union territories in the financial year preceding the year during which the credit is to be distributed, the last quarter for which details of such turnover of all the recipients are available, previous to the month during which credit is to be distributed.

Recipient of credit

The term ‘recipient of credit’ is defined in the Explanation (b) to Section 20(2) as the supplier of goods and/or services having the same PAN as that of ISD.

Turnover

The term ‘turnover’ is defined in the Explanation (c) to Section 20 (2) in relation to any registered person engaged in the supply of taxable goods not taxable under this Act, the value of turnover, reduced by the amount of any duty or tax levied under Entry 84 of List I of the VII Schedule to the Constitution and entry 51 and 54 of List II of the said schedule.

Entry 84 of List I of the VII Schedule to the Constitution – Duties on excise on tobacco and other goods manufactured or produced in India, except-

• alcoholic liquors for human consumption;
• opium, Indian hemp and other narcotic drugs and narcotics,

but including medicinal and toilet preparations containing alcohol or any substance included in sub-paragraph (b) of this entry.

Entry 51of List II of the VII Schedule to the Constitution - Duties of excise on the following goods manufactured or produced in the State and countervailing duties at the same or lower rates on similar goods manufactured or produced elsewhere in India:-
            (a) alcoholic liquors for human consumption;

 (b) opium, Indian hemp and other narcotic drugs and narcotics, but not including medicinal and toilet preparations containing alcohol or any substance included in sub-paragraph (b) of this entry.

Entry 54 of List II of the VII Schedule to the Constitution - Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92A of List I. (92A - Taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce. )

Manner of recovery of credit distributed in excess

Section 21 of the Bill provides that where the ISD distributes the credit in contravention of the provisions contained in Section 20 resulting in excess distribution of credit to one or more recipients of credit, the excess credit to distributed shall be recovered from such recipients along with interest, and the provisions of Section 73 or Section 74, as the case may be, shall mutatis mutandis, apply for determination of amount of tax to be recovered.

Section 73 of the Bill provides for the determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized for any reason other than fraud or any willful misstatement or suppression of facts.

Section 74 of the Bill provides for the determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized by reason of fraud or any willful misstatement or suppression of facts.

Return by ISD

Rule 9(10) of CENVAT Credit Rules, 2004 provides that the input service distributor, shall furnish a half yearly return in ST-3 form giving  the details of credit received and distributed during the said half year to the jurisdictional Superintendent of Central Excise, not later than the last day of the month following the half year period.

Every ISD shall, after adding, correcting or deleting the details contained in Form GSTR-6A, furnish electronically a return in Form No. GSTR-6, containing the details of tax invoices on which credit has been received and those issued, through the Common Portal.