MAY 2021

Relaxations provided by MCA

In continuation of various initiatives to ease the compliance requirement of companies, the ministry of corporate affairs, as once again taken its stand for the same.

One of the major relaxations provided to the companies, exhibiting a practical solution is the extension of time gap between two board meetings. The circular for the extension of time gap board meeting is being dated 03/05/2021 bearing the circular No. :08/2021. As keeping in view of this pandemic scenario, this notification from the ministry has been a timely help to the stakeholders. Sec 173 of the Companies Act, require the conduct four board meeting in one calendar year. This comes with a requirement of holding two meeting with a time gap of maximum120 days of two consecutive days. Now, with reference to the circular 08/2021 dated 03/05/2021, it is hereby extended the time limit between two consecutives by another 60days for the first two quarters of the financial year i.e., April – June 2021 and July – September 2021. Therefore, now the gap between two consecutive meeting can 180 days instead of earlier 120days for the first two quarters of the financial year 2021-22.

Adding to its wings of reforms, the ministry of corporate affairs has also relaxed the time limit for filing form CHG -1 and CHG -9 for the time period through the circular no. 07/2021 dated 03/05/2021.

The CHG -1 and CHG -9 forms are being filed by the companies or charge holder for creation or modification respectively with in a period of 120 days of creation or modification of charge. Earlier there where relaxation on the same under “Companies Fresh Start Scheme” which enabled companies to pay without additional fee.

In the recent circular 07/2021, is applicable as below in the respective scenario

a. is before 01.04.2021, but the timeline for filing such form had not expired under section 77 of the Act as on 01.04.2021, or
b. falls on any date between 01.04.2021 to 31.5.2021 (both dates inclusive).

Relaxation of time through the notification

Input Service Distribution

Who is an Input service distributor (ISD) under GST?:

The concept of Input Service Distributor (ISD) has been introduced in CGST Act, 2017 (hereinafter referred as 'act') on similar lines as existed in Service Tax Regime in order to make it convenient to the assessees to transfer their common credit/specific credit to their units/branches located in multiple states/places. The term Input Service Distributor is defined under Section 2(61) of the act, as-.

Sec. 2(61) of CGST Act, 2017 defines the term ISD as "an office of the supplier of goods or services or both which receives tax invoice issued under section 31 towards the receipt of input services and issues a prescribed document for the purposes of distributing the credit of central tax, State tax, integrated tax or Union territory tax paid on the said services to a supplier of taxable goods or services or both having the same Permanent Account Number of that office".

Let’s understand with an example. The head office of M/s ABC Limited is located in Bangalore having branches in Chennai, Mumbai and Kolkata. The head office incurred annual software maintenance expense (service received) on behalf of all its branches and received the invoice for the same. Since the software is used by all its branches, the input tax credit of entire services cannot be claimed in Bangalore. The same has to be distributed to all three locations. Here, the head office at Bangalore is the Input Service Distributor.

In order to transfer the common credit, an assessee is required to take registration under the category of Input Service Distributor. Generally, the head office having no output accounts for the common expenses of branches or units and sometime branch specific expenses are booked by the Head Office and takes the credit of tax paid on such expenses. Moreover the head office generally does not have the output supply and therefore it is not able to utilize the tax credit as such they distribute among different branches who use such credit in their output supplies.

Further, in case head office also engaged in making output supply having tax outlay, then the Head Office is also required to take the normal GST registration along with ISD for payment of tax and distribution of credit respectively. But the normal tax invoice for the supply of goods or services cannot be made from the ISD registration.

Reliance can be placed in case of Vivo Mobile India (P.) Ltd. wherein AAR-UP has held that as per definition of term input service distributor in Section 2(61), An input service distributor could pass only input tax credit accumulated to him and in accordance with rule 54 of CGST Rule, 2017. Accordingly, input tax credit on basis of invoices issued by service provider from old GST Registration number (ISD) could not be admissible to applicant. Even if a person obtains two separate registrations, on same PAN, they are to be treated as distinct person under CGST Act, 2017.As per section 31(3), read with rule 53 of CGST Rules, any person registered under the act can only revise those invoices which were issued by him previously and that input tax credit is not admissible on invoices issued with new GST registration to applicant.

It is therefore clarified that head office here, refers the place primarily responsible for booking of expenses which are common to units or specific units. It is not compulsory for Head Office to become ISD unit, a branch can also become an ISD unit. The only requisite to become an ISD unit is the front runner in booking expense of other units as well as payment thereof.

ISD Registration

In order to take registration of Input Service Distributor, every person shall make a separate application for registration as Input Service distributor in Form GST REG-01. Such taxpayer has to specify under serial number 14 of the REG-01 form as an ISD. The certificate of registration enables ISD to exercise their functions i.e., availing & distribution of input tax credit on input services only.

Mechanism to Distribute Tax Credit

Input Service Distributor is allowed to avail the ITC of Input Services only. The availment & distribution of credit by ISD shall be made by way of GSTR-6 required to be filed monthly. The manner of calculation would be as follows:-

C1 = (t1÷T) × C
where,

(a) "C" is the amount of credit to be distributed,
(b) "t1" is the turnover, as referred to in section 20, of recipient of credit during the relevant period, and
(c) "T" is the aggregate of the turnover, during the relevant period, of all recipients to whom the input service is attributable in accordance with the provisions of Section 20;
(d) "Relevant Period" shall be––
(a)if the recipients of credit have turnover in their States or Union territories in the financial year preceding the year during which credit is to be distributed, the said financial year; or
(b)if some or all recipients of the credit do not have any turnover in their States or Union territories in the financial year preceding the year during which the credit is to be distributed, the last quarter for which details of such turnover of all the recipients are available, previous to the month during which credit is to be distributed;

Recovery procedure for wrongful distribution of credit by ISD

GST Act provides that the following shall be deemed to be an inappropriate distribution of tax credit by Input Service Distributor:

(a) Credit distributed to all or any recipient in excess of the amount available for distribution
(b) Distributed in an inappropriate ratio to all or any recipient
(c) Distributed in excess to what a supplier is entitled to and shall be recovered from such recipient(s) along with interest and the provisions of ‘Demand and Recovery’ shall apply for effecting such recovery.



Now the question has arisen, what remedy an ISD can adopt to correct the mistake of wrong distribution of ineligible ITC as eligible ITC. The ISD is the sole person who knows every element of the invoices for the input service received, therefore it is his duty to identify the invoices as eligible or ineligible. On the phenomenon to err is the human, the ISD can have two remedy: -

(d) Issuance of credit note of the amount wrongly distributed.
(e) Amending the supplier's invoice available for distribution & then re-distribution is to be made correctly.



In case, no identification of such type of mistake has been made by ISD & excess/wrong distributed credit has been availed by the recipient unit, then it would be deemed that the recipient units are in contravention of the sec. 20 of the act and so excess credit would be recovered from such recipient unit under the provision of demand & recovery of the act. {Sec. 21 of CGST, Act, 2017}.

ISD Return

ISD registered person need to file GSTR-6 wherein following details are required to be reported:

(a) Total ITC available for distribution whether eligible or ineligible,
(b) Distributed credit to other units both eligible & ineligible,
(c) Detail of any mismatch,
(d) Reclaim of distributed ITC,
(e)Any amendment thereof needs to report.
(f) Redistribution of ITC distributed to a wrong recipient
(g) Late fee, if any
(i) Refund claimed from electronic cash ledger



GSTR-6 is required to file on the monthly basis. GSTR-6 can only be filed after 12th of the succeeding month and before 13th of the succeeding month. On late filing, ISD will have to pay the late fee or other liability also.

Important Points to be remembered while Distributing the credit – Section 20 read with rule 39& 54 of CGST Rules. 2017

(a) Recipient unit should be one who has the same PAN as that of ISD.
(b) For availing the ITC, ISD need to receive the tax invoice from the supplier of service by mentioning the Name, address & GSTIN of ISD.
(c) Place of supply of all such input service should be the registered place of ISD.
(d) Both eligible & ineligible ITC would be distributed separately under the cover of an ISD invoice in the same month in which inward supplies have been received,
(e) Credit distributed shall not exceed the credit available for Distribution
(f) ITC of Integrated tax, central tax & state tax shall distribute separately
(g) If the recipient units have the turnover in the preceding financial year, then the pro-rata of the credit shall be made based on the turnover of that preceding financial year
(i) If any of the recipient units does not have the turnover in the preceding financial year, then the pro-rata of the credit shall be made based on the turnover of the last quarter previous to the month during which credit is to be distributed
(j) The recipient unit must be operational in current year in which credit is going to distribute,
(k) ISD shall issue an ISD invoice for the purpose of distributing the tax credit clearly indicating the following particulars:-

• (a) Name, address & GSTIN of ISD
• (b) A serial number not exceeding 16 alphanumeric character or special character i.e. hypen, dash, slash
• (c) Date of its issue
• (d) Name, address & GSTIN of the recipient unit
• (e) Amount of the credit distributed
• (f) Signature or digital signature of ISD or his authorized representative
(l) ISD invoice, ISD credit note& ISD debit note shall be reported separately in GSTR-6

Illustrations

1. XYZ Ltd. has its head office located in Mumbai (Maharashtra) which is a registered ISD. It has four units in different cities: one in Bangalore (Karnataka), one in Delhi, one in Chennai and one in Pune (Maharashtra)Bangalore unit operates from another location in Karnataka at Belgaum. Delhi unit was not operational during the year. Turnover generated at different locations is as follows:

Bangalore: Rs. 50,00,000

Belgaum: Rs. 30,00,000

Pune: Rs. 80,00,000

Chennai: Rs. 40,00,000

(1) XYZ Ltd. receives an invoice from supplier ‘A’ with an Input tax credit-IGST of Rs. 1,80,000 for December 2017, services used by all units.
(2) Also, XYZ Ltd received an invoice from supplier ‘B’ with an input tax credit -CGST and SGST Rs. 10,000 each that is used entirely by the Pune unit.
(3) Also, XYZ Ltd received an invoice from supplier ‘C’ with an input tax credit CGST and SGST both amounting to Rs. 2,40,000 that is used entirely by all units except the Chennai unit.

Distribution of Tax credit is as follows:

XYZ Ltd Head office(ISD) shall distribute Rs. 1,80,000 among all units except Delhi as it is not operational in the ratio in 2:1:2 as follows:

Pune: in the form of IGST Rs. 72,000 i.e (1,80,000/200,00,000) x 80,00,000
Chennai: in the form of IGST Rs. 36,000 i.e (1,80,000/200,00,000) x 40,00,000
Bangalore: in the form of IGST Rs. 72,000 i.e (1,80,000/200,00,000) x 80,00,000

(a) Being ratio of turnover as – 80,00,000 : 40,00,000 : 80,00,000 i.e. 2:1:2
(b) Inclusive of the turnover at Belgaum as the turnover as it is not a separate unit but extension of Bangalore unit within the same state

(4) XYZ Ltd Head office(ISD) shall distribute Rs. 10,000 to Pune only in the form of CGST and SGST of Rs. 5,000 each as the supply from supplier ‘B’ was exclusively for Pune Unit
(5) XYZ Ltd Head office(ISD) shall distribute Rs. 2,40,000 among all units except:



Delhi as it is not operational

Chennai as Input services are not used by this unit

Pune: in the form of CGST and SGST Rs. 60,000 each i.e [(2,40,000/160,00,000) x 80,00,000]/2

Chennai: NIL

Bangalore: in the form of IGST Rs. 1,20,000 i.e (2,40,000/160,00,000) x 80,00,000


Inclusive of the turnover at Belgaum as the turnover as it is not a separate unit but extension of Bangalore unit within the same state

XYZ Ltd. received a credit note from the supplier ‘A’ in January 2018 in respect of supplies made in December for ITC Rs 80,000/-Now, this ITC mentioned in credit note will be reduced from January month total ITC distributed, in the same ratio in which the original ITC was distributed i.e. 2:1:2 (to be furnished in part 6B of the GSTR-6 of January 2018)

Pune: in form of IGST of Rs. 32,000

Chennai: in form of IGST of Rs. 16,000

Bangalore: in form of IGST of Rs. 32,000



XYZ Ltd. received a credit note from the supplier ‘C’ in February 2018 in respect of supplies made in December for ITC Rs 50,000/-Now, this ITC mentioned in debit note will be added to January month total ITC distributed, in the same ratio in which the original ITC was distributed i.e. 1:1 between Pune and Bangalore (to be furnished in part 6B of the GSTR-6 of February 2018)

Pune: in form of CGST and SGST of Rs. 12,500 each C

Chennai: NIL

Bangalore: in form of IGST of Rs. 25,000



(a) Being ratio of turnover as – 80,00,000: 80,00,000

(b)Inclusive of the turnover at Belgaum as the turnover as it is not a separate unit but extension of Bangalore unit within the same state

Conclusion

ISD is a facility available to businesses having a large share of common expenditure on input services and where billing/payment is done from a centralized location. The concept of ISD has been introduced to simplify the credit taking process for various business houses and the facility helps the concerned to have a smooth flow of input tax credit under GST.

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