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Cross Charge Vs ISD - Mandatory Vs Optional


Availment of ITC attributable to Branches by Head Office

This is with reference to the below-mentioned portion of this Article titled “Cross Charge Vs ISD - Mandatory Vs Optional”

QUOTE
On the other hand, if HO has appointed a statutory auditor for carrying out audit of the entity, then auditor raises the invoice for audit fee along with GST on HO. Under ISD mechanism, HO may avail input tax credit of GST charged by auditor and distribute the same to branches as per the procedure prescribed under the CGST Act. However, unlike cross charge, it is not mandatory on the part of HO to distribute the said credit to its BOs. The HO may opt for ISD if it does not have sufficient output tax liability for utilizing credit availed in HO.
UNQUOTE

In my views, if HO receives a single Invoice towards common input service, which is attributable to HO and one or more BO, HO cannot avail/utilize full ITC on such input service. In other words, even if the HO has sufficient output tax liability, HO should not utilize such entire ITC. However, HO as an ISD, can distribute proportionate ITC to BOs. If HO does not wish to act as ISD, the ITC attributable to BOs should be reversed and would be lapsed.

Provisions of Section 16(1), 16(2)(b) and 20(2)(d)&(e) of CGST Act refers. Section 16(1) inter alia prescribes that every REGISTERED PERSON shall be entitled to take credit of input tax charged on supply which are used or intended to be used in the course or furtherance of HIS BUSINESS. Section 16(2)(b) inter alia prescribes that no REGISTERED PERSON shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless HE HAS RECEIVED the goods or services or both. Section 20(2)(d) inter alia prescribes that the credit of tax paid on input services attributable to more than one recipient of credit SHALL BE DISTRIBUTED amongst such recipients to whom the input service is attributable and such distribution shall be pro rata on the basis of the turnover …

In view of the above, it is felt that HO is not entitled to avail/utilize ITC on the services attributable to BOs; however it can be distributed as ISD.

The views expressed are personal views.

Shvetal Parikh 19/02/2019

 

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