SEPTEMBER 19, 2017

By Chirag Kagzi, CA

1. Background:

THE concept of ISD under GST emerged from Service tax law which provides that the supplier of goods or services or both to distribute common Input Tax Credit available to his other units having separate GSTIN on same PAN, since there is no concept of centralized registration in GST.

2. Meaning of ISD (Section 2(61)):

ISD is an office for which separate registration has been obtained. An ISD shall receive the invoices pertaining to common inputs services availed by other units and shall distribute the eligible input tax credit (ITC) to the units receiving such input services.

As per Section 2(61) of the CGST Act, "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."

3. Registration Requirements (Section 24):

3.1. ISD shall be mandatorily required to get separate registration under GST Act and registration of ISD under erstwhile regime would not be migrated to GST regime

3.2. Multiple offices/units of a supplies may apply for separate registrations as ISDs

4. Procedure and conditions for distribution of ITC (Section 20, 21):

4.1. ISD shall distribute the input tax credit in the following manner:

- IGST shall be distributed as IGST

4.2. The credit shall be distributed only to those units which have availed the input services and such distribution shall be pro rata on the basis of turnover of the recipients in respective states. The same can be calculated from the formulae given under:

Credit to be distributed to a certain unit = (Turnover of a certain unit in a state ÷ Aggregate turnover of all the recipient units) × Total credit available

4.3. ITC available for distribution in a month shall be distributed in the same month and hence no credit can be carried forwarded to the next period

4.4. ISD shall distribute the ineligible ITC (as given under Section 17(5) of CGST Act) and eligible ITC separately as IGST, CGST and SGST in table 4 of FORM GSTR-6

4.5. The credit shall be distributed to the recipients against an ISD invoice clearly indicating that it is issued only for distribution of ITC. Further, ISD shall issue an ISD credit note in case credit already distributed gets reduced for any reason.

4.6. Any additional ITC on account of debit note received by ISD shall also be distributed in the month in which debit note is recorded in return filed by ISD

4.7. Any reduction in ITC on account of credit note received by ISD shall be apportioned in the similar manner in which original credit was distributed

4.8. Incase credit is distributed to a wrong location, ISD shall be required to issue an ISD credit note to such location and ISD invoice to the recipient entitled to such credit. Further, such ISD credit note and ISD invoice shall be required to be included in the ISD return i.e., GSTR-6 of the month in which such credit note and invoice were issued

4.9. Distributed credit should not be more than the available credit with ISD

4.10. ISD cannot have any input services liable to tax under reverse charge. In case, ISD is receiving such services, it will have to take separate registration as a normal taxpayer and the credit of thesame shall not be allowed to be distributed to other units.

Some clarification points:

i) The turnover to be used shall be the turnover of recipients in the state of the previous Financial Year (FY) and where such turnover is not available, turnover of last quarter can be used. Further, Turnover shall not include central excise, state excise and CST levied thereon.

In terms of Section 2(112) of CGST Act, "turnover in State" or "turnover in Union territory" means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis) and exempt supplies made within a State or Union territory by a taxable person, exports of goods or services or both and inter-State supplies of goods or services or both made from the State or Union territory by the said taxable person but excludes central tax, State tax, Union territory tax, integrated tax and cess "

ii) ISD can only distribute the credit to the units having the same PAN as of ISD

5. Furnishing of Returns (Section 39(4)):

5.1. Every ISD shall, on the basis of details contained in FORM GSTR-6A [auto populated], and where required, after adding, correcting or deleting the details, furnish electronically the return in FORM GSTR-6 for every calendar month which can be filled only after 10th and before 13th of the succeeding month and no separate statement of outward and inward supplies are required to be filled by an ISD

5.2. ISD details will flow to Part B of GSTR-2A of the Registered Recipients Units on filing of GSTR-6

5.3. Invoice wise details (GSTIN of the supplier, invoice no., invoice date, invoice value, tax rate, taxable value, amount of tax and cess) are required to be given for all the invoices received by ISD of input services in table 3 of FORM GSTR-6.

5.4. Mismatch liability between GSTR-1 and GSTR-6 will be added to ISD and further ISD taxpayer has to issue ISD credit note to reduce the ITC distributed earlier to its registered recipients units

5.5. Further, ISD is not required to file annual return under GST (clarified by FAQs released by CBEC)

6. Transitional Provisions (Section 140(7)):

ITC related to services received before 1st July 2017 shall also be eligible for distribution as credit even if the invoices relating to such services are received on or after 1 st July 2017

7. Contents required in ISD invoice/credit note (Rule 54 of CGST Rules):

7.1. name, address and Goods and Services Tax Identification Number of the Input Service Distributor;

7.2. 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;

7.3. date of its issue;

7.4. name, address and Goods and Services Tax Identification Number of the recipient to whom the credit is distributed;

7.5. amount of the credit distributed; and

7.6. signature or digital signature of the Input Service Distributor or his authorised representative

8. Illustration:

A Limited as an ISD in Delhi has eligible input service credit of 35 lakhs (10 lakhs CGST and 10 Lakhs SGST and 15 Lakhs IGST paid) and 15 lakhs (7.5 Lakhs CGST and 7.5 Lakhs SGST paid) of ineligible credit as per Section 17(5) of CGST Act.

Said input are used by more than one units and hence to be distributed among recipient units X (Delhi), Y (Haryana) and Z (Punjab)

The turnover in the state of X, Y, Z in preceding financial year, is 10 crores, 15 crores and 5 crores respectively

The credit of 5 lakhs out of eligible credit (2.5 Lakhs CGST and 2.5 Lakhs SGST paid) pertains to input service received only by Z

- The credit attributable to X, Y, Z shall be as follows:

Amount (in Rupees)

- Credits are distributed in the ratio of 10:15:5 between X,Y and Z respectively (as per turnover in their states)

- INR 5,00,000 from eligible credits (CGST and SGST paid) is directly distributed to unit Z and remaining credit has been distributed in the ratio of turnover

- Ineligible credit is distributed separately in the same ratio

- All the credits have been distributed separately for CGST, SGST and ISGT as per the provisions of law

9. Some examples where credit may be distributed by ISD:

- Audit fees of all the units

- Consultant fees related to whole entity

- Advertisement/ sales promotion activities

- Market research activities

- Human resource related services

- Accounting/financing services

- Credit rating services

- Share registry services

- Computer networking services etc.

(The author is Assistant Manager in Deloitte Haskins & Sells LLP and the views expressed are strictly personal.)