Concept of ISD

Ex: ABC Ltd may have head office in Mumbai and establishments in Delhi, Chennai and Kolkata. Although certain services are received at Delhi, an invoice may be issued in the name and address of Mumbai Head Office. Let’s say a supplier P in Delhi makes an intra-State supply (CGST+SGST) and supplier Q of Gujarat makes an inter-state supply (IGST) to Delhi establishment, however, invoices are raised in the name of corporate office at Mumbai. The provisions of section 16 of CGST Act provides that, no registered person shall be entitled to a credit in respect of any supply of goods or services or both to him unless, he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other taxpaying documents as may be prescribed. Therefore, in such case, although the services are received by various establishments (ex: Delhi), it would not be possible for such establishments to claim the credit, as the invoice will be issued in the name of central office of such person (i.e. Maharashtra). The head office also cannot avail the credit as they are not actual recipient of such inward services. Under the scheme of ISD, Rule 36 of the CGST Rules permits such ISD to avail the credit on the basis of invoices issued to it. Further, it also permits, other establishments (having same PAN) of the said supplier, to avail the credit, on the basis of an Input Service Distributor Invoice in accordance with the provisions of sub-rule (1) of rule 54 of CGST Rules. Thus, in the above example, ABC’s head office at Maharashtra if obtains registration as ISD, it will be allowed to take credit on the basis of invoices issued by P and Q and immediately distribute such credit to Delhi establishment, by issuing ISD invoice to Delhi. Delhi can thereafter be able to claim credit on the basis of ISD invoices issued by head office. Although, concept of ISD allows distribution of credit, such distribution is required to be made in certain manner. The Manner of Distribution of credit through ISD mechanism is explained below.

Credit Notes OR Debit Notes to be issued by ISDManner of Distribution of credit through ISD ISD under GSTGeneral Reverse Charge under GSTGST Due DatesGST on Air Travel AgentGST Practitioners