Input Service Distributor

  What is ISD (Input Service Distributor)?

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.

What is the registration process under GST for 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. The concept of ISD under GST is a legacy carried over from the Service Tax Regime. All the existing ISDs will be required to obtain fresh registration under new regime in case they want to operate as an ISD.

Situations where ISD is not applicable

ISD cannot distribute the input tax credit:

Paid on Inputs e.g Raw materials and capital goods e.g Machine purchased

To outsourced manufacturers or service providers.

 Is the ISD required to file return?

Yes, ISD is required to file monthly return by 13th of the following month in form GSTR-6.

Annual return & reverse charge mechanism is required for ISD?

An ISD shall not be required to file Annual return. 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.

Concept of distribution of Tax credit by ISD

Let’s take an example to understand this

 The Corporate office of ABC Ltd., is at Bangalore, with its business locations of selling and servicing of goods at Bangalore, Chennai, Mumbai and Kolkata. Software license and maintenance is used at all the locations, but invoice for these services (indicating CGST and SGST) are received at Corporate Office. Since the software is used at all the four locations, the input tax credit of entire services cannot be claimed at Bangalore. The same has to be distributed to all the four locations. For that reason, the Bangalore Corporate office has to act as ISD to distribute the credit.

Whether the excess credit distributed could be recovered from ISD by the department?

No. Excess credit distributed can be recovered along with interest only from the recipient and not ISD. The provisions of section 73 or 74 would be applicable for the recovery of credit.

What are the consequences of credit distributed in contravention of the provisions of the Act?

The credit distributed in contravention of provisions of Act could be recovered from the recipient to which it is distributed along with interest.

 Comprehension between the GST and the earlier tax structure

Point of Difference	Earlier Regime	GST Regime
1.  Who can be Input service distributor?	An office of the manufacturer or producer of final products or provider of output service	An office of the supplier of goods and/or services
2.  Document based on which credit can be distributed	Receives invoices issued under rule 4A of Service Tax Rules, 1994 towards purchase of input services	Receives tax invoices issued by supplier towards receipt of input services
3. How to distribute credit?	By issuing invoice, bill or challan for the purposes of distributing to such manufacturer or producer or provider.	By issuing an ISD invoice  for the purposes of distributing to a supplier of taxable goods and/or services having the same PAN as that of the office referred to above
4. Type of tax credit that can be distributed	The credit of service tax paid on the said services	The credit of CGST (SGST in State Acts) and/or IGST paid on the said services
5. To whom can it be distributed?	To its units and outsourced manufacturers	To supplier having the same PAN. i.e credit cannot be distributed to outsourced manufacturers or service providers.