Definition of Input Tax Distributor under GST and existing Tax regime
The concept of Input Service Distributor under GST and related laws have been kept aligned to continue the existing position.
Under current tax regime the definition of Input Service Distributor includes
- an office of the manufacturer or producer of final products or provider of output service
- which receives invoices issued under rule 4A of Service Tax Rules, 1994 towards purchase of input services
- issue invoice, bill or challan for the purposes of distributing the credit of service tax paid on the said services to such manufacturer or producer or provider.
Hence, the available CENVAT to ISD is distributed by it to its units and outsourced manufacturers.
Input Service Distributor under GST Model includes
- an office of the supplier of goods and / or services which
- receives tax invoices issued under section 28 towards receipt of input services and
- issues a prescribed document for the purposes of distributing the credit of CGST (SGST in State Acts) and / or IGST paid on the said services to a supplier of taxable goods and / or services having same PAN as that of the office referred to above
The definition and procedural compliance are quite similar under both the models with the only few differences
Differences under both the models:
- ISD may issue document to an office bearing the same PAN as that of ISD. Unlike existing model credit cannot be distributed to outsourced manufactures or service providers. The reason could be due to the shift of taxable event from manufacture to supply. The tax liability would arise at the time of supply which would be ultimately paid by ISD on utilization of available input tax credit.
Registration and filing of Returns under GST
- Migration of existing registration would not apply to ISD, hence it is required to apply afresh for registration. Here it is worth a note that a tax payer may apply as a “Supplier of Service” and an “Input Service Distributor” simultaneously unlike the current scenario. Separate registration number would be provided for this application.
- In case being registered as an ISD return is to be filed by 13th day of the succeeding month whereas for being registered as Supplier of Service return is to be filed by 20th day of the succeeding month.
Distribution of Credit by Input Service Distributor
The credit of CGST, IGST and SGST shall be distributed, in the prescribed manner as per below chart
Conditions for distribution of Credit
- Prescribed documents must be issued to the receipts of credit containing prescribed details
- Amount of credit distributed must not exceed amount available to distribution
- Credit of tax paid on input services attributable to a recipient of credit shall be distributed only to that recipient;
- Credit of tax paid on input services attributable to all or more than one recipient of credit shall be distributed only amongst such or all recipient(s) to whom the input service is attributable and such distribution shall be pro rata on the following basis
- turnover in a State 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;
- if some or all recipients of the credit do not have any turnover in their States in the financial year preceding the year during which the credit is to be distributed, the last quarter for which details of such turnover of all the recipients are available, previous to the month during which credit is to be distributed
Recovery of inappropriate distribution of credit by Input Service Distributor under GST
Model GST Law provides that the following shall be deemed to be inappropriate distribution of tax credit by Input Service Distributor:
- credit distributed to all or any recipient in excess to the amount available for distribution
- distributed in an inappropriate ratio to all or any recipient
- distributed in excess to what a supplier is entitled
and shall be recovered from such recipient(s) along with interest, and the provisions of section 66 or 67 shall apply for effecting such recovery.
- The input tax credit on account of any services received prior to the appointed day shall be eligible for distribution as credit even if the invoice(s) is received on or after the appointed day.
- The amount of input tax credit carried forward in a return filed under earlier law would be allowed under Model GST Law
- GST regime provides for distribution of credit for such services only which were received prior to the appointed day but invoices are received later. Services which have been received after appointed date and invoice also received later, it would be booked under GST regime for the first time. and no transition provisions will apply here.
- Input tax credit would not need carry over of documents and no time limits for taking such credit
The provisions under existing tax laws have been kept aligned under Model GST Law in order to continue all the benefits available to Input Service Distributor with stability.