Input Service Distributor under Goods and Services Tax
Introduction : It is important to know the concept of Input service distributor, how credit will be distributed by him i.e. manner and amount. Further what will be registration process for him or what will be compliance that is required to be fulfilled by him. What if input service distributor has been issued with credit and debit notes. In this article we will discuss all the above concepts.
Definition : In simple words input service distributor means an entity registered under GST and which will receive the tax invoices for supply of service that is availed by the various unit of entity including any common service availed by multiple unit of entity (Different units registered under same PAN) and will distribute input credit availed on such service to the various units of entity.
Important Points : The CGST Rules, 2017 prescribes the procedural conditions to be complied with by Input Service Distributor and Manner in which such credit will be distributed. Further along with this it also prescribes formula that is to be used to determine quantum of Input tax credit (ITC) to be distributed by Input Service Distributor.
Further it is important to note that whenever Input Service Distributor receives invoice relating to service that is specifically procured by any particular unit of entity credit of such service shall be distribute only to that unit.
However, if input tax credit on input services availed by input service distributor is attributable to more than one recipient of service then it shall be distributed amongst such recipients to whom the input service is attributable and such distribution shall be pro rata on the basis; i.e. turnover in a State or turnover in a Union territory during the relevant period of such recipient to whom credit is to be distributed, is divided by aggregate of the turnover during the relevant period of all such recipients who are eligible for credit distribution to whom such input service is attributable. It shall be noted that for becoming eligible unit for distribution purpose it is necessary that such unit is operational during the relevant period.
Turnover of relevant period means if in case the units to which credit is distributed has turnover in preceding financial year than turnover of preceding financial year is considered, however in case if figure of turnover of previous financial year is not available then in that case turnover of last quarter is to be considered. Even if turnover of single unit is not available for preceding financial year then also for all the unit’s turnover of preceding quarter is considered.
Also, while determining both taxable and non-taxable supplies for calculation of “turnover” it shall exclude Central excise duty, State excise duty and Value added Tax (VAT). There are also some other points which are worth noting
- The ISD shall separately distribute credit pertaining to different head i.e. by distributing under IGST, CGST and SGST.
- It shall separately distribute credit attributable to a recipient (i.e. unit under same PAN) even if such unit is unregistered or is engaged in making exempt supplies.
- The amount of block credit as per section 17(5) of CGST Act, 2017; shall be separately distributed.
- Credit of IGST will be distributed as IGST even in case where input service distributor and unit to which credit is distributed is located in same state or union territory.
- Every Input Service Distributor registered under GST is required to furnish GSTR-6 on or before 13th of next Month.
Illustration : BD Ltd has its Head office located in Delhi and it is registered as ISD. The company has five units, three of them located in same state (Delhi) and two of them located in different states (Chennai and Kolkata). Unit located in Chennai is un-operational during the year. Further one of the units located in Delhi is engaged in providing exclusively exempt supply. Turnover of two unit of preceding financial year is not available but turnover of preceding quarter of all units is available except the Chennai unit which is un-operational during the year.
Turnover of units are as follows DELHI 1 (engaged in exclusively exempt supply): Rs. 20,00,000/-,DELHI 2: Rs. 8,00,000/-, DELHI 3: Rs. 12,00,000/-, KOLKATA unit Rs. 10,00,000/-.
During the year following transaction of has been undertaken by BD Ltd.
- Received invoice from supplier outside Delhi showing credit of Rs. 40,000/-. The said service has been utilized by all the units located in Delhi.
- BD Ltd. serviced invoice from supplier located in Delhi showing credit of Rs. 12,000/- of CGST and Rs. 12,000/- of SGST. The service has been used by only on the unit (named D2).
- BD Ltd. has received invoice in respect of credit which is blocked by virtue of section 17(5) of CGST Act, 2017. Amount of credit is Rs. 6,000/- of CGST and Rs. 6,000/- of SGST.
- BD Ltd. has received service which is exclusively used by unit located in Kolkata; credit of Rs. 4,000/- of CGST and Rs. 4,000/- of SGST has been shown in such bill.
How the input tax credit is to be distributed by input service distributor?
In the given case the credit is to be distributed in following manner.
|Particular||DELHI 1||DELHI 2||DELHI 3||KOLKATA|
|Transaction (c) (17(5))||2,400||2,400||–||960||960||–||1,440||1,440||–||–||–||2,400|
- Credit will be distributed only amongst operational unit and therefore no credit will be distributed to Chennai unit.
- In case service has been exclusively used by particular unit then credit relating to such will be distributed only to that particular unit. If it has been commonly availed or availed by all the unit then in that case it will be distributed on pro-rata basis i.e. based on turnover of relevant period i.e. if turnover of previous financial year is available then of that is taken. However, if turnover of any of unit of previous year is not available then for above calculation turnover of previous quarter is to be considered for all the units.
- Credit will be distributed even if particular unit is unregistered or is engaged in exclusively supplying exempt supply.
- Credit will be separately distributed in case credit is blocked by virtue of section 17(5) of CGST Act, 2017.
- Credit relating to CGST and SGST will be distributed as IGST in case if it has been distributed to unit located outside the state in which ISD is located.
- Credit of IGST will be distributed as IGST even in case if it has been distributed to unit located in same state where ISD is located.
What if in given case ISD receives credit note/debit note in respect of any of the above transaction?
In that case credit which is distributed by ISD is required to be reversed of in the same manner in which it has been distributed, therefore BD Ltd. will also be required to reverse the credit in the manner in which it has been distributed.