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CA Final · Indirect Tax Laws · Input Tax Credit

Suntech Pvt Ltd, an Input Service Distributor (ISD), receives an input service of IT support that relates only to its Pune unit. Both the ISD and the Pune unit have the same PAN. How must the ISD distribute the credit of tax paid on this invoice?

The credit goes only to the Pune unit. Where an input service is attributable to a single recipient of credit, the ISD must distribute the whole credit to that recipient alone. Pro rata turnover-based sharing applies only when the service is attributable to several or all recipients.

  1. AOnly to the Pune unit, being the sole recipient to whom the service is attributableCorrect
  2. BTo all units having the same PAN, pro rata to turnover
  3. CTo the Pune unit and to any other unit that has exempt turnover
  4. DRetain it with the ISD until the year-end and then distribute it equally among all units

Explanation

Under rule 39(1)(c), credit of tax paid on input services attributable to a recipient of credit is distributed only to that recipient. The pro rata turnover method applies only where the service is attributable to more than one recipient (clause d) or to all recipients (clause e). Spreading it over all units is therefore wrong.

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