Input service distributor is an office of the manufacturer or producer of final products or provider of output service, who receives invoices issued under the rule 4a of the Service Tax Rules, 1994 towards the purchases of input services and distributes such credits to its units providing taxable services or manufacturing excisable goods.
After making the payments of service charges and Service tax, Input service distributor could avail the credit provided service received is input service and distribute it to the different manufacturing units or service providing units.
For an input service distributor, it is necessary to take a separate registration. They have to acquire registration from the Service Tax Authorities within a period of 30 days. They have to make an application in Form ST –1 and have to obtain Registration Certificate in Form ST-2 within a specified period of 7 days, under normal circumstances.
A fresh registration is necessary to be obtained in the case of transfer of business to another person. And if the assesses ceases to provide the taxable services, then surrender the registration certificate immediately.
The Input Service Distributor is required to file a return, on half-yearly basis, giving details of the credit received and distributed in the ST-3 Form duly signed by the Authorized Signatory.
The Input Service Provider can distribute the service tax paid by it subject to the following conditions mentioned below.
- The credit distributed will not exceed the amount of service tax paid by it.
- The credit of the service tax attributable to the service used in a unit exclusively engaged in the manufacturing of exempted goods or providing of exempted services will not be distributed.
It is significant to note that there is no requirement to distribute the credit in a proportion. The Input Service Distributor could distribute to different units as the circumstances warrants. There are no rules pertaining to the periodicity of the distribution.
Documents required for claiming ITC
As per the ITC Rules, Input tax credit (ITC) can be claimed by any input service distributor on the basis of any of the following documents given below:
- An invoice which is issued by the input goods and services or both by their supplier as per the provisions of Section 31 of the act.
- Debit note which is issued by the supplier specifying any increase in the contract price.
- Copy of the invoice issued in accordance with the provisions of clause (f) of sub-section (3) of section 31 of the act.
- Any bill of entry.
- Any ISD Invoice/ ISD credit note issued by the Input Service Distributor in accordance with the provisions of sub-rule (1) of rule invoice 7 of the act.
- Any document issued by an Input Service Distributor, as mentioned in clause (g) of sub-rule (1) of rule 4 of the act.
Procedure of Distribution
Rule 4 of ITC Rules which are issued by the Government; specify these conditions and procedures that are to be followed by any Input Service Distributor while distributing input tax credit (ITC):
- Input tax credit (ITC) which is available for distribution in any month must be distributed in the same month. And a return relating to the same should be furnished in the Form GSTR-6 on the 13th of the subsequent month.
- Input Service Distributor must distribute the eligible as well as ineligible ITC separately. Items on which the ITC is not available are specified in sub-section (5) of section 17 of the act.
- Input Tax Credit (ITC) on account of CGST, SGST, Union Territory tax and IGST will be distributed separately in accordance with the provisions of clause of the act
- In case of input tax paid in relation to input attributable to more than one or all of the recipients, input tax credit (ITC) to be distributed to such recipients is calculated based on the following formula given below.
C1 = C × (T1/ T)
C1 =ITC share of the specific recipient
C= Total ITC which is to be distributed
T1=Turnover of the specific recipient
T= Total turnover of all the recipients
- ITC of IGST paid has to be distributed as the Input Credit of IGST to all recipients.
- In case of Input credit relating to CGST and SGST, following rules which are given below are to be followed:
- If the recipient of input goods or the services and ISD are situated in the alike state then it is to be distributed as ITC of CGST and SGST respectively.
- If the recipient of input goods or services and ISD are not situated in the same state then the ITC is to be distributed as IGST. And such amount distributed should be equivalent to the aggregate of input credit of central as well as the state tax.
- Input Service Distributor will issue an ISD invoice as per the provisions specified in sub-rule (1) of Invoice Rule 7, which must clearly declare that it is for the purpose of distribution of ITC. Following are the details to be mentioned in the invoice:
- GSTIN, name, and the address of the Input service distributor.
- GSTIN, name, and the address of recipient of credit.
- Date of the issue.
- Serial no.
- The amount of the credit distributed.
- Signature of the ISD, or DSC of the person authorized to do so.
- Input Service Distributor will issue an ISD credit note as per the provisions specified in sub-rule (1) of Invoice Rule 7, which should clearly state that the reduction in ITC due to any reason like reduction of contract price.
- In case any credit note has been issued by the supplier reducing the Input credit, ISD shall apportion such an amount to every recipient in the same ratio in which input tax credit (ITC) contained in the original invoice was distributed. Such amount has to be reduced from the amount which is to be distributed in the month when information of such credit note is included in the Form GSTR- 6.
- Any additional amount of the ITC which is a result of the issue of any of the debit note by the supplier is to be distributed by the input service distributor as per above-stated rules and regulations. This amount of ITC is to be distributed in that month when the details of the debit note are to be disclosed in the returns filed in the FORM GSTR-6.
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