Concept of ISD (Input Service Distributor) Understand with Example

Concept of ISD: As described above, ISD is an office of supplier of goods and services. A provider may have number of establishments located in various States, nevertheless, as relates to input services, a supplier might insist for acquiring invoices in the name of its one main location, irrespective of which establishment has in fact gotten the services. The purpose might be centralized accounting or centralized payment system …

Concept of ISD

Ex: ABC Ltd might have head workplace in Mumbai and establishments in Delhi, Chennai and Kolkata. Certain services are received at Delhi, an invoice may be issued in the name and address of Mumbai Head Office. Let’s state a provider P in Delhi makes an intra-State supply (CGST SGST) and supplier Q of Gujarat makes an inter-state supply (IGST) to Delhi establishment, nevertheless, invoices are raised in the name of corporate workplace at Mumbai.

The provisions of section 16 of CGST Act provides that, no registered person will be entitled to a credit in respect of any supply of items or services or both to him unless, he remains in ownership of a tax billing or debit note released by a supplier signed up under this Act, or such other taxpaying documents as may be prescribed. Therefore, in such case, although the services are gotten by different facilities (ex: Delhi), it would not be possible for such establishments to claim the credit, as the billing will be provided in the name of headquarters of such person (i.e. Maharashtra). The head workplace also can not avail the credit as they are not real recipient of such inward services.

Under the plan of ISD, Rule 36 of the CGST Rules allows such ISD to avail the credit on the basis of invoices issued to it. Even more, it also allows, other facilities (having exact same PAN) of the stated supplier, to obtain the credit, on the basis of an Input Service Distributor Invoice in accordance with the provisions of sub-rule (1) of guideline 54 of CGST Rules.

Thus, in the above example, ABC’s head workplace at Maharashtra if obtains registration as ISD, it will be permitted to take credit on the basis of invoices provided by P and Q and immediately disperse such credit to Delhi establishment, by releasing ISD invoice to Delhi. Delhi can afterwards have the ability to claim credit on the basis of ISD billings issued by head office.

Although, idea of ISD enables circulation of credit, such distribution is needed to be made in particular way. The Manner of Distribution of credit through ISD mechanism is described below.

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