Distribution of credit by Input Service Distributor (ISD):
Once a person gets registered as ISD in the GST regime, he would be eligible to transfer or distribute credit as per provisions of Section 17 of the MGL. As per this provision, an ISD would be able to –
Distribute credit of CGST/SGST and IGST to the supplier to whom such services
may be attributed.
In case of inter-state transfer of input credit where ISD and recipient are located in different States:
a) under the CGST law, components of CGST and IGST can be transferred as IGST.
b) under the SGST law, components of SGST and IGST can be transferred as IGST.
Note: It is important to note that ITC of CGST cannot be utilized for payment of SGST. However, for inter-state transfer of input credits, there could be no other mechanism because SGST of one State cannot be transferred and used in the other State. Further, if it is presumed that the distribution by ISD to its own supplier unit constitutes a taxable supply, the appropriate tax would have been IGST only, against which the distributor would have been in a position to claim input credit of CGST/SGST/IGST. In other words, ITC of CGST, SGST as well as that of IGST can be distributed as ITC of IGST.
In case of intra-state transfer of input credit where ISD and recipient (business verticals having obtained separate registrations in same State):
a) under the CGST law, components of CGST and IGST can be transferred as CGST.
b) under the SGST law, components of SGST and IGST can be transferred as SGST.
Note: Distribution of credit through ISD would be required within the same State when the taxable person is having more than one tax registration within the State which is possible only if the taxpayer has opted for separate registrations for separate business verticals under the provisions of section 19(2) of the MGL. In other words, ITC of CGST & IGST can be distributed as ITC of CGST while ITC of SGST & IGST can be distributed as ITC of SGST.
The conditions and manner of distribution of credit by ISD are same as are there in the present service tax regime, and the same are summarized as follows:
1. The credit would be distributed through tax invoice or other document as prescribed;
2. The amount of credit distributed shall not exceed the amount of credit available for distribution;
3. If the credit is attributable to one supplier, it shall be distributed only to that supplier;
4. The credit of tax paid on input services attributable to more than one supplier shall be distributed only amongst such suppliers to whom a given input service is attributable. The manner of allocating the amount for distribution is governed by clause (d) of section 17(3) of the MGL. As per this provision –
a. the distribution would be pro rata the value of turnover in a STATE of such supplier to the aggregate of turnover of all such suppliers to whom the input service is attributable.
b. for the purpose of computing distribution ratio, the turnover of respective suppliers for preceding year is to be taken. In case any of the supplier was not operational in the preceding year, the turnover of immediately
preceding quarter from the month of distribution is to be taken as basis. (as per ‘explanation’ to section 18 of the MGL, ‘relevant period’ has been defined in this manner).
Once the credit is distributed by an ISD in the prescribed manner by way of a prescribed document, the supplier(s) to whom such credit is distributed get credit in their Electronic Credit Ledger and can use it for payment of their output taxes.
An ISD is required to file its Return by 13th of the month succeeding the month in which the credit has been distributed. When ISD files his return, the amount of credit gets credited in Electronic Credit Ledger of the Supplier.