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CA Final · Indirect Tax Laws · Input Tax Credit

Sahyadri Textiles Ltd, Pune, is an Input Service Distributor (ISD). In a month it has Rs 90,000 of central tax and Rs 90,000 of State tax credit on an input service (audit and advisory) that is attributable only to its sister unit Sahyadri Dyes, registered in Pune with the same PAN. Other units with the same PAN exist in Pune and Surat. How must the ISD distribute this credit?

The ISD must distribute the credit only to Sahyadri Dyes, because the service is attributable to that single recipient. As the recipient is in the same State as the ISD, the credit goes as central tax and State tax respectively, not as integrated tax and not pro rata.

  1. ADistribute it pro rata on turnover to all units with the same PAN
  2. BDistribute it only to Sahyadri Dyes, as central tax and State tax creditCorrect
  3. CDistribute it only to Sahyadri Dyes, but as integrated tax credit
  4. DRetain it with the ISD and distribute in the next quarter

Explanation

Credit of tax on input services attributable to one recipient is distributed only to that recipient. Because Sahyadri Dyes is in the same State as the ISD, central tax and State tax credit are distributed as central tax and State tax respectively. Converting to integrated tax applies only to recipients in another State. Pro rata distribution applies only where the service is attributable to more than one recipient or to all.

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