Amendment in respect of Input Service Distributor:

ISD new definition:

In the Central Goods and Services Tax Act, 2017 (hereinafter referred to as the Central Goods and Services Tax Act), in section 2, for clause (61), the following clause shall be substituted, namely:––

Amendment of section 2.

‘(61) “Input Service Distributor” means an office of the supplier of goods or services or both which receives tax invoices towards the receipt of input services, including invoices in respect of services liable to tax under sub-section (3) or sub-section (4) of section 9, for or on behalf of distinct persons referred to in section 25, and liable to distribute the input tax credit in respect of such invoices in the manner provided in section 20;’.

Old definition:

(61)”Input Service Distributor” means an office of the supplier of goods or services or both which receives tax invoices issued under section 31 towards the receipt of input services and issues a prescribed document for the purposes of distributing the credit of central tax, State tax, integrated tax or Union territory tax paid on the said services to a supplier of taxable goods or services or both having the same Permanent Account Number as that of the said office;

Amendment in Section 20 of the CGST Act, 2017:

For section 20 of the Central Goods and Services Tax Act, the following section shall be substituted, namely:

“20. (1) Any office of the supplier of goods or services or both which receives tax invoices towards the receipt of input services, including invoices in respect of services liable to tax under sub-section (3) or sub-section (4) of section 9, for or on behalf of distinct persons referred to

in section 25, shall be required to be registered as Input Service Distributor under clause (viii) of section 24 and shall distribute the input tax credit in respect of such invoices.

(2) The Input Service Distributor shall distribute the credit of central tax or integrated tax charged on invoices received by him, including the credit of central or integrated tax in respect of services subject to levy of tax under sub-section (3) or sub-section (4) of section 9 paid by a distinct person registered in the same State as the said Input Service Distributor, in such manner, within such time and subject to such restrictions and conditions as may be prescribed.

(3) The credit of central tax shall be distributed as central tax or integrated tax and integrated tax as integrated tax or central tax, by way of issue of a document containing the amount of input tax credit, in such manner as may be prescribed.”.

Old provision:

20. (1) The Input Service Distributor shall distribute the credit of central tax as central tax or integrated tax and integrated tax as integrated tax or central tax, by way of issue of a document containing the amount of input tax credit being distributed in such manner as may be prescribed.

(2) The Input Service Distributor may distribute the credit subject to the following conditions, namely:—

(a)        the credit can be distributed to the recipients of credit against a document containing such details as may be prescribed;

(b)        the amount of the credit distributed shall not exceed the amount of credit available for distribution;

(c)        the credit of tax paid on input services attributable to a recipient of credit shall be distributed only to that recipient;

(d)        the credit of tax paid on input services attributable to more than one recipient of credit shall be distributed amongst such recipients to whom the input service is attributable and such distribution shall be pro rata on the basis of the turnover in a State or turnover in a Union territory 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;

(e)        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 or turnover in a Union territory 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.

Analysis and Impact of amendment in Section 2(61) and Section 20:

• Earlier, the Head Office (HO) had an option to distribute ITC in respect of such common input services either by following ISD mechanism or cross charge. After applicability of new amendment, common ITC can be distributed through ISD only and it will be mandatory to take the input service distribution registration for registered persons having more than one registration on same Permanent Account Number.
• New provisions specifically prescribe that services liable to tax under reverse charged shall also be distributed through ISD, however, there was lack of clarity whether credit of reverse charged can be distributed through ISD because ISD was unable to pay tax under reverse charged mechanism through GTR-3B.
• Old definition of “input service distributor” requires issuing a prescribed document for credit distribution, however, new definition of ISD does not require to issue prescribe document, but emphasizes compliance with the distribution process outlined in section 20. Moreover, Section 20(3) states that tax shall be distributed by way of issue of a document containing the amount of input tax credit. Hence, for distributing the tax ISD would be required to issue document containing the amount of input tax credit.