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).
In the ISD mechanism proposed in the MGL, the same concept has been carried forward and an ISD has been defined under Section 2 (56) as follows –
“input service distributor” means an office of the supplier of goods and/or services, which receives tax invoices issued under section 23 towards receipt of input services and issues tax invoice or such other document as prescribed for the purposes of distributing the credit of CGST (SGST in State Acts) and/or IGST paid on the said services to a supplier of taxable goods and / or services having same PAN as that of the office referred to above.
Explanation – For the purposes of distributing the credit of CGST (SGST in State Acts) and / or IGST, Input Service Distributor shall be deemed to be a supplier of services.
The above definition provides that, an ISD –
(i) is the office of supplier of goods and / or services;
(ii) the said office receives tax invoices towards receipt of input services;
(iii) the said office distributes credit of CGST/ SGST/IGST to a supplier of goods/services having same PAN;
(iv) the said office issues tax invoice or other prescribed document for distribution of credit.
The above definition of ISD is almost similar to the one in the existing 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.
FAQs on Concept of Input Service Distributor in upcoming GST Law
Q 1. What is Input Service Distributor (ISD)?
Ans. As per Section 2(56) of MGL, ISD means an office of the supplier of goods and / or services which receives tax invoices issued under section 23 towards receipt of input services and issues tax invoice or such other document as prescribed for the purposes of distributing the credit of CGST (SGST in State Acts) and / or IGST paid on the said services to a supplier of taxable goods and / or services having same PAN as that of the office referred to above. For the purpose of distributing the credit, ISD is deemed as supplier of services.
Q 2. What are the requirements for registration as ISD?
Ans. An ISD is required to obtain registration as a deemed supplier of services [section 19 read with para 5(vii) of Schedule III]. The threshold limit of registration is not applicable to ISD. The registration of ISD under the existing regime (i.e. under Service Tax) would not be migrated in GST regime. All the existing ISDs will be required to obtain fresh registrations under new regime in case they want to operate as an ISD.
Q 3. What are the conditions/restrictions for distribution of credit?
Ans. The distribution of credit would be done subject to the following conditions:
- Credit should be distributed through tax invoice or other document as prescribed;
- Amount of credit distributed should not exceed the amount of credit available;
- Credit should be distributed only to such suppliers to whom such services are attributable;
- Credit in respect of services attributable to more than one supplier should be distributed proportionately on the basis of turnover of respective supplier during the preceding financial year.
Q 4. Is the ISD required to file return?
Ans. Yes, as per Section 27(6) of MGL, ISD is required to file monthly return by 13th of the following month in form GSTR-6.
Q 5. Can a company have multiple ISD?
Ans. Yes, different offices like marketing division, security division etc. may apply for separate ISD.
Q 6. What are the provisions for recovery of excess/ wrongly distributed credit by ISD?
Ans. Sections 18(1) and 18(2) provide for recovery of excess/wrongly distributed credit by initiating action against the ISD itself or against the recipient of credit so distributed under section 51 of the Model GST Law.
Q 7. Whether CGST and IGST credit can be distributed by ISD as IGST credit to units located in different States?
Ans. Yes, CGST credit can be distributed as IGST and IGST credit can be distributed as IGST by an ISD for the units located in different States (Section 17(1)).
Q 8. Whether SGST credit can be distributed as IGST credit by an ISD to units located in different States?
Ans. Yes, an ISD can distribute SGST credit as IGST for the units located in different States.(Section 17(2)
Q 9. Whether the ISD can distribute the CGST and IGST Credit as CGST credit?
Ans. Yes, CGST and IGST credit can be distributed as CGST credit by an ISD for the units located in same State.
Q 10. Whether the SGST and IGST Credit can be distributed as SGST credit?
Ans. Yes, ISD can distribute SGST and IGST credit for the units located in same State.
Q 11. What are the documents through which the credit can be distributed by an ISD?
Ans. The document under which the credit can be distributed is yet to be prescribed. The Act provides that the credit can be distributed only through prescribed document.
Q 12. How to distribute common credit among all the units of an ISD?
Ans. The common credit used by all the units can be distributed by ISD on pro rata basis i.e. based on the turnover of each unit to the aggregate turnover of all the units to which credit is distributed.
Q 13. The ISD may distribute the CGST and IGST credit to recipient outside the State as_______
Ans. (a) IGST.
Q 14. The ISD may distribute the CGST credit within the State as____
(d) Any of the above.
Ans. (b) CGST.
Q 15. The credit of tax paid on input service used by more than one supplier is ________
(a) Distributed among the suppliers who used such input service on pro rata basis of turnover in such State.
(b) Distributed equally among all the suppliers.
(c) Distributed only to one supplier.
(d) Cannot be distributed.
Ans. (a) Distributed among the suppliers who used such input service on pro rata basis of turnover in such State.
Q 16. Whether the excess credit distributed could be recovered by the department?
Ans. Yes, excess credit distributed could be recovered along with interest from an ISD by the department.
Q 17. What are the consequences of credit distributed in contravention of the provisions of the Act?
Ans. The credit distributed in contravention of provisions of Act could be recovered from the unit to which it is distributed along with interest.