23.04.2022- Learn the concept Input Service Distributor under GST

Learn the concept Input Service Distributor under GST

The concept of Input Service Distributor is a mechanism for businesses, which have of common expenditure/billing/payment done from a centralized location. The mechanism is meant to simplify the credit taking process for entities and the facility will strengthen the seamless flow of credit under GST.

Let us understand the said provision through the practical Case Scenario.

Case Scenario

XYZ company, through its ISD registered under GSTIN 05ABCDE1234F1ZQ, received a credit of Rs. 5,00,000 on input services. It wants to distribute the same amongst its branches as follows:

S. No. Branch Name GSTIN GST (in Rs.)
1.     XYZ Infra Services 02ABCDE1234F1PZ 1,00,000
2.    XYZ footwears 06ABCDE1234F1RO 1,00,000
3.  XYZ  Marbles 05ABCDD2234F1ZQ 2,00,000
4. XYZ Furnishers 23ABCDE1234F1S2 1,00,000
  Total Credit   5,00,000

Examine, whether it is right in doing so. Ignore the ratio of calculation for the purpose of illustration.

Solution:

The definition of ISD under Section 2(61) states that ISD shall distribute the credit of input services received to a supplier of taxable services having the same PAN as that of the ISD. In the given example, XYZ marbles has a different PAN than the ISD. Hence, the distribution of credit to XYZ marbles is not correct under law and the same shall be denied and rectified.

Assuming the same ratio of distribution, the correct position under law is:

S. No. Branch Name GSTIN GST (in Rs.)
1.    XYZ Infra Services 02ABCDE1234F1PZ 1,66,667
2.   XYZ footwears 06ABCDE1234F1RO 1,66,666
3.   XYZ  Marbles 05ABCDD2234F1ZQ ——-
4. XYZ Furnishers 23ABCDE1234F1S2 1,66,667
  Total Credit   5,00,000

 

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