Section 20 of CGST Act 2017: Manner of Distribution of Credit (ITC) by Input Service Distributor (ISD)

Provisions under Section 20 of the Central Goods and Services Tax (CGST) Act, 2017 relating to “Manner of Distribution of Credit (ITC) by Input Service Distributor (ISD)”, are as under:

Section 20 of CGST Act 2017: Manner of Distribution of Credit by Input Service Distributor (CHAPTER V – INPUT TAX CREDIT)

(1) The Input Service Distributor shall distribute the credit of central tax as central tax or integrated tax and integrated tax as integrated tax or central tax, by way of issue of a document containing the amount of input tax credit being distributed in such manner as may be prescribed.

(2) The Input Service Distributor may distribute the credit subject to the following conditions, namely:–

(a) the credit can be distributed to the recipients of credit against a document containing such details as may be prescribed;

(b) the amount of the credit distributed shall not exceed the amount of credit available for distribution;

(c) the credit of tax paid on input services attributable to a recipient of credit shall be distributed only to that recipient;

(d) 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 a State or turnover in a Union territory of such recipient, during the relevant period, to the aggregate of the turnover of all such recipients to whom such input service is attributable and which are operational in the current year, during the said relevant period;

(e) the credit of tax paid on input services attributable to all recipients of credit shall be distributed amongst such recipients and such distribution shall be pro rata on the basis of the turnover in a State or turnover in a Union territory of such recipient, during the relevant period, to the aggregate of the turnover of all recipients and which are operational in the current year, during the said relevant period.

Explanation: For the purposes of this section,–

(a) the “relevant period” shall be–

(i) 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

(ii) 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;

(b) the expression “recipient of credit” means the supplier of goods or services or both having the same Permanent Account Number as that of the Input Service Distributor;

(c) the term ‘‘turnover’’, in relation to any registered person engaged in the supply of taxable goods as well as goods not taxable under this Act, means the value of turnover, reduced by the amount of any duty or tax levied under entry 84 under entry 84 and 92A of List I of the Seventh Schedule to the Constitution and entries 51 and 54 of List II of the said Schedule.

Amendments History:

1. CBEC notifies 01/07/2017 as the Commencement date for Section 20 of the CGST Act 2017, vide Central Tax Notification 9/2017 dt. 28/06/2017.

2. In the Explanation to Clause (c) of Section 20 of the CGST Act, 2017, the text “under entries 84 and 92A” substituted for the text “under entries 84″, vide Section 10 of the CGST (Amendment) Act, 2018 (GOI Notification dt. 29/08/2018), followed with Central Tax Notification 2/2019 dt. 29/01/2019 on commencement date of 01/02/2019.

Thus, turnover not to include duty or tax levied under Entry 84 (Duties of excise on tobacco), 92A (Sale or purchase in the course of inter-state trade) and alcohol & narcotics (Entry 51 and 54 of List II already there in the explanation clause).

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Note: The CGST Act 2017 has been notified vide GOI Notification dt. 12/04/2017, which has subsequently been amended through CGST (Extension to J&K) Act 2017, Finance Act 2018, CGST Amendment Act 2018, Finance Act 2019, Finance Act 2020, Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance 2020, Finance Act 2021, Finance Act 2022 including various Notifications issued by the Govt./ CBIC from time to time, relating to the commencement dates of various Sections/ Provisions in the respective CGST/ Amendment Acts, wherever required. Information on this page is a Section-wise compilation of Amendments made by all such Notifications, with best possible efforts for accuracy. In any case, E&OE. For official/ updated information, please visit CBIC website.