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Input service distributor under GST

Who is input service distributor?

As per section 2(54) of the model GST law – “Input Service Distributor” means 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;

Why there is need for separate provisions for Input Service Distributor?

Practically who happens in case service providers, services are received by such service providers at the head office and they offer their services through large number of branches located at different location of the same state or of different states.

In such scenario, head office have huge sum of input tax accumulated but no tax liability to adjust such input tax as no supply is made from the head office. On the other hand, branches have large sum of tax liability to pay GST with no or minimal amount of input tax to adjust. So, proper mechanism with proper check and balance is required so that branches providing services may adjust input tax of services received at head office.

Manner provided under law to adjust such input:

(1) The Input Service Distributor shall distribute, in such manner as may be prescribed, the credit of CGST as CGST or IGST and IGST as IGST or CGST, by way of issue of a prescribed document containing, inter alia, the amount of input tax credit being distributed or being reduced thereafter, where the Distributor and the recipient of credit are located in different States.

Hence, there is no need to issue a tax invoice to distribute such credit. As per explanation to sec 28(8) – The expression “tax invoice” shall be deemed to include a document issued by an Input Service Distributor under section 21

The Input Service Distributor shall distribute, in such manner as may be prescribed, the credit of CGST and IGST as CGST, by way of issue of a prescribed document containing, inter alia, the amount of input tax credit being distributed or being reduced thereafter, where the Distributor and the recipient of credit, being a business vertical, are located in the same State.

Conditions as to distribution of credit (Sec 21):

1. The credit can be distributed against a prescribed document issued to each of the recipients of the credit so distributed, and such document shall contain details as may be prescribed;
2. The amount of the credit distributed shall not exceed the amount of credit available for distribution;
3. The credit of tax paid on input services attributable to a recipient of credit shall be distributed only to that recipient;
4. The credit of tax paid on input services attributable to more than one recipient of credit shall be distributed only amongst such recipient(s) to whom the input service is attributable and such distribution shall be pro rata on the basis of the 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;
5. 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 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.

Manner of recovery of credit distributed in excess:

Where the Input Service Distributor distributes the credit in contravention of the provisions contained in section 21 resulting in excess distribution of credit to one or more recipients of credit, the excess credit so distributed shall be recovered from such recipient(s) along with interest, and the provisions of section 66 or 67, as the case may be, shall apply mutatis mutandis for effecting such recovery.

Manner of filing return:

Every taxable person registered as an Input Service Distributor shall, for every calendar month or part thereof, furnish, in such form and in such manner as may be prescribed, a return, electronically, within thirteen days after the end of such month.