According to section 2(61) of CGST Act, 2017, Input service Distributor(ISD) means an office of supplier of goods and 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.
Purpose of ISD
Formation of ISD is for distribution of Input tax credit on common input services whose invoice has been raised to such ISD. Input tax credits of goods are not eligible for distribution.
Example: X Ltd, of Mumbai, hires an HR consultancy firm for its branches at Kolkata, Delhi, and Patna. HR Consultancy firm raises an invoice of Rs.11200/-(10k + 12% GST) in the name of X Ltd. In this case, X ltd can distribute GST portion (Rs.1200) among its branches.
Further ISD should not receive supplies of either goods or services on which the provision of RCM applies because an ISD is formed just to distribute ITC and due to which an ISD is incapable to paying taxes to the govt. In order to receive RCM supplies ISD should take separate GST registration as a Normal taxpayer.
An ISD should compulsorily take GST registration by applying in form GST REG 1. Turnover threshold for GST registration is not applicable to an ISD. However a Separate GST regn. as a normal taxpayer can also be taken.
A person already registered under GST can take ISD regn. by filling Form GST REG 29 ( to cancelling old regn.) and again file Form GST REG-01 (fresh regn.) and choose ISD in the field “Reason to obtain registration”. Read: GST Registration
Taxonomy or Terminology of ITC distribution
The ITC of CGST and SGST/UTGST in respect of branches (recipient) located in the state of ISD shall be distributed as CGST and SGST/UGST respectively. Say ITC of Head office in Patna can distribute ITC to its branches in Bihar as SGST and CGST only.
The ITC on account of CGST and SGST/UTGST tax shall, in respect of branches (recipient) located in a State/UT other than the state of ISD, be distributed as IGST. Say ITC (1000 as CGST and 1000 as SGST) of Head office in Patna can distribute ITC to its branches in West Bengal as IGST of Rs.2000/-(1000+1000).
The ITC on account of IGST shall be distributed as IGST. Say ITC (2000 as IGST) of Head office in Patna can distribute ITC to its branches in Bihar or West Bengal as IGST of Rs.2000/- only.
Note: ITC of IGST can’t be distributed as either CGST or SGST. Also, ITC of CGST can’t be distributed as SGST and vice versa.
Manner of ITC distribution
- In case of services used at particular branch/branches, ITC in such case should be distributed. Distribute Both Eligible and Ineligible ITC u/s 17(5) of CGST Act separately only to the branch/branches to which the supply is directly attributable to.
- In case of services commonly used by all branches, ITC in such case should be distributedDistribute Both Eligible and Ineligible ITC u/s 17(5) of CGST Act separately to all the branches in the pro-rata basis of turnover in the State/Union Territory.
Example: X Ltd, of Mumbai, is registered as ISD. It has three units in different states namely ‘Mumbai’, ‘Patna’ and ‘Kolkata’. X Ltd furnishes the following information for the month of November 2017. (i) CGST paid on services used only for Mumbai Unit: Rs.300000/-; (ii) IGST, CGST & SGST paid on services used for all units: Rs.1200000/-
Total Turnover of the units during previous Financial Year (2015-16) are: Mumbai 5 cr. ; Patna 3 cr. ; Kolkata 2 cr. Total Turnover 10 Cr. How to distribute the above ITC to these units?
Ans: CGST paid for services used only for Mumbai Unit: Rs.300000/- should be distributed to Mumbai branch only. However, IGST, CGST & SGST paid on services used for all units of Rs.1200000/- should be distributed to all the three branches in the pro-rata basis of turnover i.e to Mumbai Rs.6 lakh (5/10*12), to Patna Rs.3.6 lakh (3/10*12), to Kolkata Rs.2.4 lakh(2/10*12).
Reversal of ITC distributed by an ISD
As per CGST rule 39(1)(j)(ii), an ISD should reverse ITC on receipt of credit note from the supplier. ITC reversal shall be done by both ISD and dealers to whom ITC was distributed in the ratio previously used for distributing ITC. Use Form GSTR-2.
ISD should issue a tax invoice in accordance with rule 46 and 54 of CGST Act. Tax Invoice should clearly indicate that it is issued only for distribution of input tax credit.
Monthly Return: ISD should file monthly returns in Form GSTR-6 (give details of ISD tax invoices) within 13 days after the end of the month. These details will be reflected in form GSTR 2A of respective branches/unit. In case of default in filling by ISD, branches can take credit of ITC allotted by ISD by making entries in GSTR 2.
Source: CGST Act, 2017, CGST Rule, 2017, CBEC-Resource.