Input Service Distributor (ISD) means 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 the credit of central tax (CGST), State tax (SGST)/ Union territory tax (UTGST) or integrated tax (IGST) paid on the said services to a supplier of taxable goods or services or both having same PAN as that of the ISD.

ISD mechanism is meant only for distributing the credit on common invoices pertaining to input services only and not goods (inputs or capital goods).

Registration of ISD

  • An ISD will have to compulsorily take a separate registration as such ISD and apply for the same in form GST REG-1.
  • 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.

Input tax credit

For the purposes of distributing the input tax credit, an ISD has to issue an ISD invoice, as prescribed in rule 54(1) of the CGST Rules, 2017, clearly indicating in such invoice that it is issued only for distribution of input tax credit. The input tax credit available for distribution in a month shall be distributed in the same month and details furnished in FORM GSTR-6. Further, an ISD shall separately distribute both the amount of ineligible and eligible input tax credit.

What ratio will the credit be distributed by the ISD?

The credit has to be distributed only to the unit to which the supply is directly attributable to. If input services are attributable to more than one recipient of credit, the distribution shall be in the pro-rata basis of turnover in the State/Union Territory.

For example, if an ISD has 4 units across the country. However, if a particular input service pertains exclusively to only one unit and the bill is raised in the name of ISD, the ISD can distribute the credit only to that unit and not to other units.

If the input services are common for all units, then it will be distributed according to the ratio of turnover of all the units.

Example

M/s XYZ Ltd, having its head Office at Mumbai, is registered as ISD. It has three units in different states namely ‘Mumbai’, ‘Jabalpur’ and ‘Delhi’ which are operational in the current year. M/s XYZ Ltd furnishes the following information for the month of July, 2017 & asks for permission to distribute the below input tax credit to various units.

  • CGST paid on services used only for Mumbai Unit: Rs.300000/-
  • IGST, CGST & SGST paid on services used for all units: Rs.1200000/-

Total Turnover of the units for the Financial Year 2015-16 are as follows: -

Total Turnover of three units = Rs. 10,00,00,000

Turnover of Mumbai unit = Rs. 5,00,00,000 (50%)

Turnover of Jabalpur unit =Rs. 3,00,000 (30%)

PARTICULARS

CREDIT DISTRIBUTED TO ALL UNITS

 

 

 

 

TOTAL CREDIT AVAILABLE

MUMBAI

JABALPUR

DELHI

CGST paid on services used only for Mumbai Unit

300000

300000

0

0

IGST, CGST & SGST paid on services used in all units Distribution on pro rata basis to all the units which are operational in the current year

1200000

600000

360000

240000

TOTAL

1500000

900000

360000

240000

 Credit distributed pro rata basis on the basis of the turnover of all the units is as under: -

(a) Unit Mumbai: (50000000/100000000) *1200000 = Rs.600000

(b) Unit Jabalpur: (30000000/100000000) *1200000 = Rs.360000

 (c) Unit Delhi: (20000000/100000000) *1200000 = Rs.240000

Filing of return for ISD

An ISD will have to file monthly returns in GSTR-6 within thirteen days after the end of the month and will have to furnish information of all ISD invoices issued. The details in the returns will be made available to the respective recipients in their GSTR 2A. The recipients may include these in its GSTR-2 and take credit. An ISD shall not be required to file Annual return.

Reverse Charge Under ISD

An ISD cannot accept any invoices on which tax is to be discharged under reverse charge mechanism. This is because the ISD mechanism is only to facilitate distribution of credit of taxes paid. The ISD itself cannot discharge any tax liability (as person liable to pay tax) and remit tax to government account. If ISD wants to take reverse charge supplies, then in that case ISD has to separately register as Normal taxpayer.

         Thus the concept of ISD is a facility made available to business having a large share of common expenditure and billing/payment is done from a centralized location. The mechanism is meant to simplify the credit taking process for entities and the facility is meant to strengthen the seamless flow of credit under GST.

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