CONCEPT OF INPUT SERVICE DISTRIBUTION IN GST

[Dr. Sanjiv Agarwal]

Input Service Distributor (ISD) in GST

The term ‘Input Service distributor’ has been defined in section 2(61) of the CGST Act, 2017 to mean:

(a)   An office of the supplier of goods and/or services or both,

(b)  Which receives tax invoices issued under Section 31,

(c)   Towards receipt of input services,

(d)  Who issues tax invoices or such other documents for distributing the credit of CGST, SGST, IGST paid on such services,

(e)   To supplier of taxable goods and services having same PAN as that of such office.

For the purpose of distribution of such credit, such ISD shall be treated as supplier of services.

Thus, an ISD could be understood as a corporate or any such office of a multi unit registered dealer where the corporate of any such office known as ISD is providing service to other units having the same PAN, which are involved in supply of taxable goods and/or services. The ISD is entitled to take credit of services used by it and further, ISD has been made eligible for distributing the credit of ITC so accumulated to various other units proportionately.

ISD is a person or an office which is assisting other registered taxable persons who have the same PAN as the ISD and who are engaged in the supply of goods and services. The number of such persons or entities depends on the need of the registered taxable persons having same PAN. There is no restriction of having multiple ISD of a registered taxable persons.

Input tax credit of goods

The definition of ISD itself provides that an ISD is meant for receiving taxable services and is eligible for taking and distributing credit of eligible services. An ISD is not eligible to take credit of any goods received by ISD.

Input tax credit of services

As per the provisions of the GST Act, an ISD is eligible to take and distribute input tax credit of all eligible services received by it. But point no. 4 of GSTR 6, the monthly return to be filed by ISD prescribes as

“ISD will not have any reverse charge supplies. If ISD wants to take reverse charge supplies, then in that case ISD has to separately register as Normal taxpayer.”

Thus, though there is no bar in the GST Act or rules for an ISD to receive services on which reverse charge is payable, but the restriction provided in return form GSTR 6, is in line with procedural restriction. In view of this restriction, it can be concluded that ISD is not eligible to receive any service like that of an Advocate, on which tax is payable on reverse charge basis.

Claiming and Distribution of Credit

Any input service distributor (ISD) is required to be registered under the provisions of GST law. It claims the input tax credit on all the input services availed by it. It will distribute the balance of input tax credit lying with it to all the suppliers under the same PAN as ISD and for the facilitation of whom ISD is working. Similarly it will distribute the ineligible input tax credits to all the suppliers to whom eligible input tax credit has been distributed.

Manner of distribution by ISD for distribution of credits to its various recipients

In case various units of the ISD are located in the same State where such ISD is located, it will distribute the input tax credits of CSGST and SGST in the following manner:

(a)   As per rule 39 of the GST Rules, in case recipient units are located in the same State as that of ISD, then the CGST and SGST credits will be distributed as CGST and SGST credits to different recipient units.

(b)  As per rule 39 of the GST Rules, in case recipient units are located in different states than the location of ISD, than the credits of CGST and SGST will be distributed as IGST among various recipient units.

(c)   The input tax credit of integrated tax (IGST) shall be distributed as input tax credit of IGST to every recipient.

The manner of distribution can be better understood by the following table:

Location of Recipients	Particulars of the GST Act	Nature of GST credits	To be distributed as
Same State as ISD	CGST	CGST	CGST
	SGST	SGST	SGST
Different State than ISD	CGST	CGST	IGST
		IGST
	SGST	SGST	IGST
Transfer of IGST credit	GST	IGST	IGST

Conditions to be satisfied by an ISD

The input service distributor (ISD) has to comply with the following conditions as laid in section 20(2) of the GST Act:

(a)   The credit can be distributed by issue of invoice or any other prescribed document, such document will contain details as may be prescribed.

(b)  The amount of credit distributed shall not exceed the amount of credit available with ISD.

(c)   The credit of tax on some services attributable to a recipient will be distributed to that recipient only.

 (d) The credit of input services distributable to more than one recipients will be distributed amongst those recipient units in proportion to their turnover during the relevant period to the aggregate turnover of all such recipient units to whom such input tax credit is attributable.

Tax Invoice by ISD

According to Rule 54 of the CGST Rules, 2017, an input service distributor will have to issue a tax invoice or credit note which should certain the following details:

1. name, address and Goods and Services Tax Identification Number of the Input Service Distributor;
2. a consecutive serial number not exceeding sixteen characters, in one or multiple series, containing alphabets or numerals or special characters- hyphen or dash and slash symbolised as- “-”, “/” respectively, and any combination thereof, unique for a financial year;
3. date of its issue;
4. name, address and Goods and Services Tax Identification Number of the recipient to whom the credit is distributed;
5. amount of the credit distributed; and
6. signature or digital signature of the Input Service Distributor or his authorised representative.

It may however, be noted that in case of an input service distributor being a banking company or financial institution or a non-banking finance company (NBFC), a tax invoice shall include any document in lieu thereof, by whatever name called, whether or not serially numbered but containing the information as mentioned above.

In terms of sub-rule (1A) of Rule 54, inserted w.e.f. 23.01.2018, a registered person, having the same PAN and State code as an Input Service  Distributor, may issue an invoice or, as the case may be, a credit or debit note to transfer the credit of common input services to the Input Service Distributor, which shall contain the following details:

1. name, address and Goods and Services Tax Identification Number of the registered person having the same PAN and same State code as the Input Service Distributor;
2. a consecutive serial number not exceeding sixteen characters, in one or multiple series, containing alphabets or numerals or special characters -hyphen or dash and slash symbolised as ―-‖ and ―/‖ respectively, and any combination thereof, unique for a financial year;
3. date of its issue;
4. Goods and Services Tax Identification Number of supplier of common service and original invoice number whose credit is sought to be transferred to the Input Service Distributor;
5. name, address and Goods and Services Tax Identification Number of the Input Service Distributor;
6. taxable value, rate and amount of the credit to be transferred; and
7. signature or digital signature of the registered person or his authorised representative.

It is however, to be kept in mind that the taxable value in the invoice so issued shall be same as value of common services involved.

 ‘Relevant period’ in reference to distribution of input tax credit of ISD

The input tax credit has to be distributed by ISD in reference to turnover of the recipient units in the relevant period. The relevant period has been defined in explanation to section 20(2) of the GST Act as to mean:

(a)   All recipient having turnover in the preceding financial year – Financial year preceding the current period for which input tax credit is required to be distributed.

(b)  All recipients not having turnover in the preceding financial year – the last quarter preceding the period for which input tax credit is required to be distributed.

Consequences of excess credit distributed

As per section 21 of the GST Act, in case an ISD distributes input tax credit in contravention of provisions in this regard in section 20 of the GST Act, which results into excess distribution of credit to one or more recipients of credit, the excess amount so distributed will be recoverable from such recipients along with interest and the provisions of determination of liability as per section 73 and 74 will become applicable.