Introduction - Manner of distribution & recovery of ITC by Input Service Distributor in GST [section 20 & 21 of CGST Act] - GST Ready Reckoner - GST

Manner of distribution recovery of ITC by Input Service Distributor in GST [ Section 20 21 of CGST Act ] Purpose concept of ISD Mechanism in GST The concept of ISD under GST is a legacy carried over from the Service Tax Regime. It is important to note that the Input Service Distributor (ISD) mechanism is meant only for distributing the credit on common invoices pertaining to input services only and not goods (inputs or capital goods). Companies may have their head office at one place and units at other places which may be registered separately. The Head Office would be procuring certain services which would be for common utilization of all units across the country. The bills for such expenses would be raised on the Head Office. But the Head Office itself would not be providing any output supply so as to utilize the credit which gets accumulated on account of such input services. Since the common expenditure is meant for the business of all units, it is but natural that the credit of input services in respect of such common invoices should be apportioned between all the consuming units. ISD mechanism enables such proportionate distribution of credit of input services amongst all the consuming units. Legal Provision relating to Input Service Distributor Compulsorily Registration:- - Any office of the supplier of goods or services or both which receives tax invoices towards the receipt of input services, including invoices in respect of services liable to tax under section 9(3) or (4), for or on behalf of distinct persons referred to in section 25; - An ISD will have to compulsorily take a separate registration as such ISD and apply for the same in form GST REG-1 as per section 24(viii) of CGST Act ; - There is no threshold limit for registration for an ISD. The other locations may be registered separately; - Since the services relate to other locations the corresponding credit should be transferred to such locations (having separate registrations) as the output services are being provided there. [ section 20(1) of CGST Act ] Form and manner of submission of return by an Input Service Distributor [ Rule 65 of CGST Rules, 2017 ] - Every Input Service Distributor 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. Manner of distribution of credit by Input Service Distributor [ Section 20 of CGST Act Read with rule 39 ] [ For more Details refer this chapter ] Manner of recovery of credit distributed in excess [ Section 21 of CGST Act ] [ For more Details refer this chapter ] Penalty imposed on ISD [ Section 122(1)(ix) of CGST Act, 2017 ] - Where a taxable person who takes or distributes input tax credit in contravention of section 20, or the rules made thereunder; he shall be liable to pay a penalty of Rs. 10,000/- or an amount equivalent to the tax evaded or the tax not deducted under section 51 or short deducted or deducted but not paid to the Government or tax not collected under section 52 or short collected or collected but not paid to the Government or input tax credit availed of or passed on or distributed irregularly, or the refund claimed fraudulently, whichever is higher.