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TMI BlogInput Service Distributor-ISDX X X X Extracts X X X X X X X X Extracts X X X X ..... Input Service Distributor-ISD X X X X Extracts X X X X X X X X Extracts X X X X ..... vely for its operations as ISD) towards the receipt of input on Goods, like Capital Goods [Computers/Printers/Office Equipment etc.,] and other materials like Stationery/Printing Material items etc., what could be the accounting treatment in the Company books of Accounts, with reference to GST element in the Tax Invoices meant for supply of Goods [being used by ISD]. * Does GST element should be added to the cost of Goods [Capital Goods and/or Other Goods/items] while accounting in the Company books of Accounts, since ineligible. Reply By YAGAY andSUN: The Reply: Your question relates to the accounting treatment of GST on goods (e.g., capital goods and other consumables) received and used by an Input Service Distributor (ISD), and wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the GST component on such goods should be capitalized (added to the cost of goods) in the company's books, considering that the ISD mechanism allows distribution only of input services, not goods. Let's break this down under the relevant provisions and professional accounting principles. ✅ Legal Context: 🔹 Section 2(61) of CGST Act, 2017 - Definition of ISD: An Input Service Distributor is an office of the supplier of goods or services or both which receives tax invoices towards receipt of input services and issues a prescribed document for the purposes of distributing credit of CGST/SGST/IGST/UTGST paid on said services to a supplier having the same PAN. 👉 Key point: ISD can distribute only input tax credit (I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TC) on input services - not on goods (capital or otherwise). 🔹 Section 24(viii) - Mandatory Registration of ISD: Any office intending to distribute ITC under the ISD mechanism must register mandatorily as an ISD. 🔎 Situation in Query: Your ISD (say, Corporate Office) is: * Receiving invoices for input services (eligible for distribution via ISD mechanism), and * Also receiving invoices for supply of goods like capital goods (e.g., computers, printers) and consumables (e.g., stationery) - used by the ISD itself, not by other branches. Now the GST charged on such goods cannot be distributed via the ISD route as per the CGST framework. ⚖️ Accounting Treatment under GST & Accounting Standards (AS/Ind AS): ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 📌 1. Input Tax Credit (ITC) Ineligible for Distribution via ISD * Since ISD cannot distribute ITC on goods, and the goods are being used internally by the ISD office, the ITC becomes ineligible under GST. 📌 2. Treatment in Books of Accounts As per AS 10 (Accounting for Fixed Assets) and Ind AS 16 (Property, Plant and Equipment): "The cost of an item of property, plant and equipment comprises its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates." 👉 Therefore: The GST component (if not eligible for credit) becomes a non-refundable tax, and must be: ✅ Capitalized along with the cost of capital goods, or ✅ Expensed out with the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st of consumables (e.g., printing material, stationery), as applicable. 🧾 Practical Accounting Entry: For Capital Goods (e.g., Computers - GST ineligible at ISD): Dr. Computer/Equipment A/c Rs.1,18,000 Cr. Creditor / Bank A/c Rs.1,18,000 [Being computer purchased - GST not claimable, hence capitalized] For Consumables (e.g., Stationery): Dr. Stationery/Office Supplies A/c Rs.11,800 Cr. Creditor / Bank A/c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; Rs.11,800 [Being purchase of stationery - including GST, expensed out] ❗ Important Compliance Note: If the ISD wants to avail credit on goods used exclusively by it, it should take separate regular registration as a normal taxpayer in that State apart from ISD registration - and not claim the ITC via ISD mechanism. 🔍 ISD registration does not allow availing ITC - it only permits distribution of eligible input services ITC to other locations under same PAN. ✅ Conclusion: In your case, the GST paid on capital goods or consumables used by the ISD office (not being input services) is not eligible for credit distribution under the ISD mechanism, and therefore, the GST component ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be capitalized (in case of capital goods) or charged to P&L (in case of consumables) in the books of accounts. Disclaimer - This discussion does not constitute any Legal Opinion in any manner. *** Reply By k.lakshmipati rao: The Reply: Dear Mr. YAGAY Sir, While Thanking you for your response mail, I draw your below comments. ❗ Important Compliance Note: If the ISD wants to avail credit on goods used exclusively by it, it should take separate regular registration as a normal taxpayer in that State apart from ISD registration - and not claim the ITC via ISD mechanism. Query:- 1. Does GST Audit dept., would raise any objection for the use of Goods when the Goods are exclusively using by ISD for ISD operations (Physically ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available in ISD Office) only and not for furtherance of Business, if correlated ONE to ONE use. 2. If situation is that, except Registered Office in the same State, ISD do not have any Business operations Units or Branches within the State, but have Business operations in other States. Reply By YAGAY andSUN: The Reply: Scenario: ISD with Operations in Other States In the scenario where the ISD has business operations in other states but does not have any business operations or branches within the state of registration, the ISD is still required to comply with the provisions of the CGST Act. The absence of operations in the state of registration does not exempt the ISD from its obligations under the Act.̴ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3;
If the ISD intends to avail credit on goods used exclusively by it, it should consider obtaining a separate regular registration as a normal taxpayer in that state, apart from the ISD registration. This would allow the ISD to claim ITC on such goods directly, rather than through the ISD mechanism. X X X X Extracts X X X X X X X X Extracts X X X X
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