In the existing law of Input Service Distributor, an office of manufacturer or service provider who procures services which are used by or intended to be used by the different factories/offices (collectively called ‘units’) of the said manufacturer/service provider can distribute the respective input credit on such services to the units to which such credit may be attributed, by using the ISD mechanism provided in the CENVAT Credit Rules, 2004 (CCR). The Input Service Distributor (ISD) has been defined under Section 2 (61) as follows:–

(61) “Input Service Distributor” means an office of the supplier of goods or services or both which receives tax invoices issued under section 31 towards the 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 a supplier of taxable goods or services or both having the same Permanent Account Number as that of the said office;

The above definition of ISD is almost similar to the one in the earlier regime with the difference being that recently in the existing regime, distribution of input service credit has been allowed to an outsourced manufacturing unit also, while the ISD in GST regime is to distribute credit only to the supplier having same PAN, that means the credit can be distributed only to the units of the same entity. The reason of non inclusion of outsourced manufacturing unit for the purpose of credit distribution seems to be that – in the GST regime, ‘manufacture’ is not a taxable event, and tax liability would arise only at the time of supply, which would be ultimately paid by the principal in this case when the respective input credit can be used.

Manner of distribution of credit by Input Service Distributor.

(1) The Input Service Distributor shall distribute the credit of central tax as central tax or integrated tax and integrated tax as integrated tax or central tax, by way of issue of a document containing the amount of input tax credit being distributed in such manner as may be prescribed.

(2) The Input Service Distributor may distribute the credit subject to the following conditions, namely:––

(a) the credit can be distributed to the recipients of credit against a document containing such details as may be prescribed;

(b) the amount of the credit distributed shall not exceed the amount of credit available for distribution;

(c) the credit of tax paid on input services attributable to a recipient of credit shall be distributed only to that recipient;

(d) the credit of tax paid on input services attributable to more than one recipient of credit shall be distributed amongst such recipients to whom the input service is attributable and such distribution shall be pro rata on the 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 such input service is attributable and which are operational in the current year, during the said relevant period;

(e) 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 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 recipients and which are operational in the current year, during the said relevant period.

Explanation.– For the purposes of this section,–

(a) the “relevant period” shall be–

(i) if the recipients of 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

(ii) 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;

(b) the expression “recipient of credit” means the supplier of goods or services or both having the same Permanent Account Number as that of the Input Service Distributor;

(c) the term ‘‘turnover’’, in relation to any registered person engaged in the supply of taxable goods as well as goods not taxable under this Act, means the value of turnover, reduced by the amount of any duty or tax levied under entry 84 of List I of the Seventh Schedule to the Constitution and entries 51 and 54 of List II of the said Schedule.

Transitional Provision for Input Service Distributor

The input tax credit on account of any services received prior to the appointed day by an Input Service Distributor shall be eligible for distribution as credit under this Act even if the invoices relating to such services are received on or after the appointed day.

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