INPUT SERVICE DISTRIBUTOR

[Mr. M. GOVINDARAJAN]

Input Service Distributor

The concept of Input Service Distributor (‘ISD’ for short)  under GST is a legacy carried over from the Service Tax Regime.  Section 2(61) of the Central Goods and Services Tax Act, 2017 (‘Act’ for short) defines the expression ‘Input Service Distributor’ as  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 essential conditions for qualifying as ISD are as below-

• The ISD should be an office of the supplier;
• Such supplier can be a supplier of goods or services or both;
• Such office should receive tax invoices issued in respect of their input services.

Supply of goods will not come under the purview of ISD.

Registration

Section 24(viii) of the Act provides that an ISD shall register under the provisions of GST law, whether or not separately registered under this Act.  Suppose a company may have various branches in a State.  The Head office may be situated at Chennai which may act as Head Office.  The Head Office may do services on behalf of the branches and issue invoices.   Such office should issue a prescribed document for the purposes of distributing credits of CGST, SGST, IGST or UTGST, to a supplier of taxable goods or services or both having same Permanent Account Number as that of the said office.GST registration may be obtained for the company as a whole.  The head office acts as an ISD.  Even though the company is a registered person, the head office is to register itself as an ISD.

The Registration form and registration procedure for ISD are the same as that of normal tax payers.    Every person being an ISD shall make a separate application for registration as such ISD.  There is no threshold limit for registration of ISDs.    The other locations may be registered separately.

Nearly 7266 ISDs have registered with the GST Authorities as on 31.01.2023.  The details of Statewise registration of ISDs are given in the following table-

Sl. No.	State Name	No. of registered persons
1	Jammu and Kashmir	10
2	Himachal Pradesh	35
3	Punjab	82
4	Chandigarh	82
5	Uttarakhand	46
6	Haryana	617
7	Delhi	1067
8	Rajasthan	116
9	Uttar Pradesh	459
10	Bihar	108
11	Sikkim	3
12	Arunachal Pradesh	2
13	Nagaland	3
14	Manipur	13
15	Mizoram	3
16	Tripura	15
17	Meghalaya	7
18	Assam	62
19	West Bengal	512
20	Jharkhand	37
21	Odisha	61
22	Chattisgarh	27
23	Madhya Pradesh	116
24	Gujarat	305
25	Dadra and Nagar Haveli	4
26	Maharashtra	1886
27	Karnataka	487
28	Goa	75
29	Lakshadweep	0
30	Kerala	92
31	Tamil Nadu	509
32	Puducherry	6
33	Andaman and Nicobar Islands	5
34	Telangana	358
35	Andhra Pradesh	55
36	Ladakh	1
TOTAL		7266

www.gst.gov.in.

ISD invoice

Rule 54 provides the procedure for issuing ISD invoice.  The ISD invoice or credit note shall contain the following-

• name, address and Goods and Services Tax Identification Number of the ISD;
• 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 symbolized as- “-”, “/” respectively, and any combination thereof, unique for a financial year;
• date of its issue;
• name, address and Goods and Services Tax Identification Number of the recipient to whom the credit is distributed;
• amount of the credit distributed; and
• signature or digital signature of the ISD or his authorized representative.

Where the ISD is an office of a banking company or a financial institution, including a non-banking financial company, a tax invoice shall include any document in lieu thereof, by whatever name called, whether or not serially numbered but containing the information as mentioned above.

A registered person, having the same PAN and State code as an ISD, may issue an invoice or, as the case may be, a credit or debit note to transfer the credit of common input services to the ISD, which shall contain the following details:-

• name, address and Goods and Services Tax Identification Number of the registered person having the same PAN and same State code as the ISD;
• 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 symbolized as “-” and “/” respectively, and any combination thereof, unique for a financial year;
• date of its issue;
• Goods and Services Tax Identification Number of supplier of common service and original invoice number whose credit is sought to be transferred to the ISD;
• name, address and Goods and Services Tax Identification Number of the ISD;
•  taxable value, rate and amount of the credit to be transferred; and
• signature or digital signature of the registered person or his authorized representative. 

The taxable value in the invoice shall be the same as the value of the common services.

Distribution of input tax credit

An ISD can distribute credit only to a unit which is a supplier of goods or services and has the same Permanent Account Number as that of the ISD. Rule 39 provides that the distribution of input tax credit by an ISD is subject to the following conditions-

1. The input tax credit available for distribution in a month shall be distributed in the same month.  The details thereof shall be furnished in Form GSTR-6.
2. The ISD shall separately distribute the amount of ineligible input tax credit and the amount of eligible input tax credit.
3. The input tax credit on account of central tax, State tax, Union territory tax and integrated tax shall be distributed separately.
4. The input tax credit that is required to be distributed in accordance with the provisions of clause (d) and (e) of sub-section (2) of section 20 to one of the recipients ‘R1’, whether registered or not, from amongst the total of all the recipients to whom input tax credit is attributable, including the recipient(s) who are engaged in making exempt supply, or are otherwise not registered for any reason, shall be the amount, “C1”, to be calculated by applying the following formula -

C₁ = (t₁÷T) × C

where,

“C” is the amount of credit to be distributed,

“t₁” is the turnover, as referred to in section 20, of person R1 during the relevant period, and

“T” is the aggregate of the turnover, during the relevant period, of all recipients to whom the input service is attributable in accordance with the provisions of section 20;

5.  the input tax credit on account of integrated tax shall be distributed as input tax credit of integrated tax to every recipient;
6.  the input tax credit on account of central tax and State tax or Union territory tax shall-

• in respect of a recipient located in the same State or Union territory in which the ISD is located, be distributed as input tax credit of central tax and State tax or Union territory tax respectively;
• in respect of a recipient located in a State or Union territory other than that of the ISD, be distributed as integrated tax and the amount to be so distributed shall be equal to the aggregate of the amount of input tax credit of central tax and State tax or Union territory tax that qualifies for distribution to such recipient in accordance with clause (d).

7.  The ISD shall issue an ISD invoice, as prescribed in sub-rule (1) of rule 54, clearly indicating in such invoice that it is issued only for distribution of input tax credit;
8. The ISD shall issue an ISD credit note, as prescribed in sub-rule (1) of rule 54, for reduction of credit in case the input tax credit already distributed gets reduced for any reason;
1. Any additional amount of input tax credit on account of issuance of a debit note to an ISD by the supplier shall be distributed in the manner and subject to the conditions specified in clauses (a) to (f) and the amount attributable to any recipient shall be calculated in the manner provided in clause (d) and such credit shall be distributed in the month in which the debit note is included in the return in Form GSTR-6;
10. any input tax credit required to be reduced on account of issuance of a credit note to the ISD by the supplier shall be apportioned to each recipient in the same ratio in which the input tax credit contained in the original invoice was distributed in terms of clause (d), and the amount so apportioned shall be-

• reduced from the amount to be distributed in the month in which the credit note is included in the return in Form GSTR-6; or
• added to the output tax liability of the recipient where the amount so apportioned is in the negative by virtue of the amount of credit under distribution being less than the amount to be adjusted.

 If the amount of input tax credit distributed by an ISD is reduced later on for any other reason for any of the recipients, including that it was distributed to a wrong recipient by the ISD, the process specified in clause (j) of sub rule (1) shall apply, mutatis mutandis, for reduction of credit.

The ISD shall, on the basis of the ISD credit note specified in clause (h) of sub-rule (1), issue an ISD invoice to the recipient entitled to such credit and include the ISD credit note and the ISD invoice in the return in Form GSTR-6 for the month in which such credit note and invoice was issued.

Section 20(2) of the Act provides that the ISD may distribute the credit subject to the following conditions-

• the credit can be distributed to the recipients of credit against a document containing such details as may be prescribed;
• the amount of the credit distributed shall not exceed the amount of credit available for distribution;
• the credit of tax paid on input services attributable to a recipient of credit shall be distributed only to that recipient;
•  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;
• 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.

Return

Every ISD shall, on the basis of details contained in Form GSTR-6A, and where required, after adding, correcting or deleting the details, furnish electronically the return in Form GSTR-6, containing the details of tax invoices on which credit has been received and those issued under section 20, through the common portal either directly or from a Facilitation Centre notified by the Commissioner.  Every ISD shall, for every calendar month or part thereof, furnish, in Form GSTR - 6, a return, electronically, within 13 days after the end of such month.