Claiming Input Tax Credit (ITC) under the Goods and Services Tax (GST) Act is not as seamless as seen in government advertisements. Recently, the government has made the Input Service Distribution (ISD) concept on the distribution of common credit compulsory. Cross-charge for common billing, has been done away with.

Distribution of RCM ITC in ISD

Input Tax Credit (ITC) can be distributed for invoices in respect of services liable to tax under subsection 3 or 4 of section 9.

ISD can also distribute ITC of GST paid under reverse charge if it is first paid by a distinct person and then distributed.

A Registered person in which GST under RCM has been paid on the input services received at multiple recipient locations, having the same PAN and State code as an ISD, is required to issue an invoice or a credit or debit note to transfer the credit of such common input services to the ISD [Rule 39(1A)].

Rule 39(1A) Relevant Text

For  the  distribution  of  credit  in  respect  of  input  services,  attributable  to  one  or  more distinct  persons,  subject  to  levy  of  tax  under  sub-section  (3)  or  (4)  of  section  9,  a  registered person,  having  the  same  PAN  and  State  code  as  an  Input  Service  Distributor,  may  issue  an invoice or, as the case  may be, a credit or debit note as per the provisions of sub-rule(1A) of rule  54 to transfer the  credit  of such common input  services to the  Input Service  Distributor, and  such  credit  shall  be  distributed  by  the  said  Input  Service  Distributor  in  the  manner  as provided in sub-rule (1).

The invoice/DN/CN issued by a registered person to ISD for the transfer of GST paid under RCM shall contain the details as per Rule 54(1)(A)(a).

Rule 54(1)(A)(a) Relevant Text

(1A) (a) A registered person, having the same PAN and State code as an Input Service Distributor, may issue an invoice or, as the case may be, a credit or debit note to transfer the credit of common input services to the Input Service Distributor, which shall contain the following details:-

i. name, address and Goods and Services Tax Identification Number of the registered person having the same PAN and same State code as the Input Service Distributor;

ii. a consecutive serial number not exceeding sixteen characters, in one or multiple series, containing alphabets or numerals or special characters -hyphen or dash and slash symbolised as “-” and “/” respectively, and any combination thereof, unique for a financial year;

iii. date of its issue;

iv. Goods and Services Tax Identification Number of supplier of common service and original invoice number whose credit is sought to be transferred to the Input Service Distributor;

v. name, address and Goods and Services Tax Identification Number of the Input Service Distributor;

vi. taxable value, rate and amount of the credit to be transferred; and

vii. signature or digital signature of the registered person or his authorised representative.

Let us understand this with the help of an example:

Lawyer Services Taken by Organization in Head Office in State A. However, the subject matter of litigation pertains to all the branches in the country. The Organization has a Regular GST Number in State A. The organization also has ISD registration in State A. In this case:

• First, GST will be paid under RCM Using Regular GSTN
• Regular GSTN will then raise Invoice to ISD GSTN
• The GST then can be distributed by ISD GSTN to various branches in whole organization.

But what if the Lawyer services were taken by any the branch in other State B. The Branch also has Regular GST Number in State B, but no ISD Number. Can the credit be distributed in this case? The Answer is no. To claim the ITC first, the Branch has to take ISD GSTN in State B and then credit can be distributed.

Is this justified? You only tell.