20.1.2.1 Basis for distribution of ITC to each recipient of credit

Question-1 [ICSI-E-D18-O-87-1]

The credit of tax paid on input services used by more than one supplier be distributed as per provisions of the CGST Act, 2017.

(A) only to one supplier; (B) equally among all the suppliers;

(C) among the suppliers who used such input service on pro rata basis of turnover in such state

(D) cannot be distributed

20.1.2.2 Formula for calculation of amount of distributable ITC to each recipient of credit

Question-1 [ICAI-F-Ch8-E11]

Ceramity Ltd. has following units:

Ceramity Ltd.’s corporate office functions as ISD. It has to distribute ITC of Rs.9 lakh for Dec, 2018. Of this, an invoice involving tax of Rs.3 lakh pertains to technical consultancy for Tumkur unit. What should be the distribution of the credit?

Answer

Relevant Period = 2017-18

Tax Period = Dec 2018

Distributable ITC (C) by ISD = Rs.9 lacs

WN-1 Calculation of Pro Rate ratio on the basis of Turnover

Manner of distribution of ITC by ISD

Question-1A [ICSI-P-J18-3c-5] [ICMAI-I-J18-4b-7]

XYZ Ltd, having its head office at Mumbai, is registered as Input Service Distributor (ISD). It has three units in different cities situated in ‘Mumbai’, ‘Jabalpur’ and ‘Delhi’ which are operational in the current year. XYZ Ltd. Furnishes the following information for the month of July 2017 :

• CGST paid on services used only for Mumbai Unit : Rs.3,00,000

• IGST, CGST & SGST paid on services used for all units : Rs.12,00,000

•Total turnover of the units for the previous financial year is as follows :

Determine the credit to be distributed by XYZ Ltd. to each of its three units.

Answer

Relevant Period = Previous Year

Tax Period = July 2017

Distributable ITC (C) by ISD = Rs.15 lacs

WN-1 Calculation of Pro Rate ratio on the basis of Turnover

Manner of distribution of ITC by ISD

Question-2

X Ltd, a confectionary manufacturer, has paid GST Rs.30 lakh for advertising campaigns for two varieties of cakes, which are manufactured at separate locations in Pune and Bangalore.

Answer

Relevant Period = Previous Year [Recipients have turnover in their States or UT in previous FY]

Only Pune and Banglore units will be considered as recipient of credit because they are manufacturing cakes for which input services has been received by ISD

WN-1 Calculation of Pro Rate ratio on the basis of Turnover

Manner of distribution of ITC by ISD

20.2.4 Manner of distribution of each type of tax to recipient

Question-1 [ICSI-E-J19-O-89-1]

Input Service Distributor (ISD) may distribute the CGST credit within the State as:

(A) UTGST; (B) CGST; (C) SGST; (D) Any of the above

Question-2****

X Ltd, have following units

‘Mumbai’, ‘Jabalpur’ and ‘Delhi’ which are operational in the current year.

M/s XYZ Ltd furnishes the following information for the month of July 20XX:

For April, 2018 Pune units receives inward supply as follows:

Answer

Relevant Period = Previous Year [Recipients have turnover in their States or UT in previous FY]

WN-1 Calculation of Pro Rate ratio on the basis of Turnover

Manner of distribution of ITC by ISD

Question-3 [ICAI-F-M18-O-3c-M-4]

Sarani Weavers at Mumbai is an input service distributor and intends to distribute input tax credit u/s 20 of the CGST Act, 2017, for the month of March 2018. The following are the details available for such distribution:

Inputs /Input services used commonly by all branches against which lTC available is:

CGST – Rs.60,000

SGST – Rs.60,000

IGST – Rs.1,20,000

lTC (IGST) of December 2017, Rs.10,000 which was inadvertently left out, whether same can be considered for distribution in March, 2018

Madhugiri branch uses inputs to manufacture exempted products.

All branches are outside Maharashtra. Turnover excludes duties & taxes payable to Central and State Government.

Determine the input tax distribution.

Answer

Relevant Period = Previous Year [Recipients have turnover in their States or UT in previous FY]

WN-1 Calculation of Pro Rate ratio on the basis of Turnover

Manner of distribution of ITC by ISD

Notes

1) The credit attributable to a recipient is distributed even if such recipient is making exempt supplies.

2) ITC of Rs.10,000 of Dec, 2017 cannot be distributed in March 2018 as ITC available for distribution in a month is to be distributed in the same month.

20.5 Miscellaneous Questions

Question-1 [ICAI-F-N18-O-7c-4]

What are the conditions applicable to Input Service Distributor to distribute the credit?

Solution

The following conditions are applicable to ISD to distribute ITC):-

(i) ITC can be distributed to the recipients of credit against an ISD invoice containing prescribed details.

(ii) ITC distributed shall not exceed the amount of credit available for distribution.

(iii) The credit connected to an input service must be distributed only to the particular recipient to whom that input service is attributable.

(iv) If the input service is attributable to more than one recipient, the relevant IT C is distributed pro rata to such recipients in the ratio of turnover of the recipient in a State/ Union Territory to the aggregate turnover of all the recipients to whom the input service is attributable and which are operational during the current year.

(v) IT C pertaining to input services which are common for all units, is distributed to all the recipients in the ratio of turnover in the prescribed manner.

(vi) ITC available for distribution in a month shall be distributed in the same month and the details thereof shall be furnished in the prescribed form.

(vii) Both ineligible and eligible IT C are to be distributed separately.

(viii) ITC of CGST , SGST /UT GST and IGST are to be distributed separately.

(ix) ITC of CGST , SGST /UT GST in respect of recipient located in the same State/Union Territory is distributed as CGST and SGST /UT GST respectively.

(x) ITC of CGST and SGST /UT GST , in respect of a recipient located in a different State/Union territory, is distributed as IGST (total of IT C of CGST and SGST /UTGST which were to be distributed to such recipient).

(xi) ITC on account of IGST is distributed as IGST

Note: Any four points may be mentioned.

Question-2 [ICMAI-I-J18-7b-5]

Write short notes on Distribution of input tax credit by ISD and manner of such distribution.

Question-3 [ICSI-P-D17-4A(i)(ii)-2]

Explain Input Service Distributor terms used under the Central Goods and Services Tax Act, 2017.

Question-4 [ICSI-E-J22-65-1]

The ISD Mechanism is based on the concept of ...... .

(A) Distributing the credit on common invoices pertaining to Input Services

(B) Distribution of goods (inputs or capital goods) among the branches

(C) Both (A) and (B)

(D) Neither (A) nor (B)

Question-5 [ICSI-E-J22-65-1]

Aryan Ltd has its head office (HO) at Mumbai and branches located at different places in different states across India. The HO collects the ITC on all purchases made and distributes the ITC amongst the branches as CGST, SGST, UTGST, IGST. Find out the type of entity, which is being exhibited by Aryan Ltd as per provisions of CGST Act, 2017.

(A) Taxable Entity

(B) Input Service Distributor

(C) Principal and Agent

(D) HO and Branches

Question-6 [ICAI-F-N20-4a-5]

Input Service Distributor (ISD) of a company is registered separately in the State of Kerala
and is distributing Input Tax Credit (ITC) to other units in the company. Following details
are furnished for a particular month, and you are required to help the ISD department in
distributing the ITC to other units that are carrying on manufacturing, supplying goods and
services to customers.

Also make your comments regarding the amount of ITC in credit notes, if exceeds the ITC from invoices and debit notes in a particular month for all or any of the units.

Answer

WN-1 Calculation of Pro Rate ratio on the basis of Turnover

Manner of distribution of ITC by ISD (Rs. in lacs)

1. Being basic value of the debit note received, the amount of Rs.50 lakh has been assumed to be exclusive of taxes.

2. It has been most logically assumed that the additional ITC of Rs.6 lakh on account of the debit note received during the month from a supplier in respect of a previous supply pertains to all the four units.

3. It has been most logically assumed that there is one unit of the company located in Kerala and i.e., Trivandrum unit.

4. Being total value in credit note received, the amount of Rs.118 lakh has been assumed to be inclusive of taxes.

5 It has been most logically assumed that the credit to be distributed by ISD is the credit of input services.