Section 20 of CGST Act, 2017 : Section 20: Manner Of Distribution Of Credit By Input Service Distributor

Explanation using Example

Imagine a company, ABC Ltd., which has its head office in Mumbai and branches in Delhi and Bangalore. The head office incurs an advertising expense that benefits all branches. The head office is registered as an Input Service Distributor (ISD) under the GST regime.

ABC Ltd. receives an invoice for the advertising service, which includes GST. As an ISD, the head office needs to distribute the GST credit from this invoice to its branches.

Under Section 20 of the CGST Act, 2017, the head office will distribute the GST credit as follows:

• It will issue a document to Delhi and Bangalore branches with details prescribed by law, indicating the amount of GST credit being distributed.
• The credit distributed will not exceed the GST credit available from the advertising service invoice.
• The GST credit attributable to advertising services used by a specific branch will be distributed to that branch only.
• If the advertising service benefits both Delhi and Bangalore branches, the GST credit will be distributed between them based on their respective turnovers in the last financial year.
• The total GST credit from the invoice will be distributed pro rata among the branches, considering their turnover in the relevant period, which could be the last financial year or the last quarter if the turnover data is not available for the previous financial year.

This ensures that the GST credit is fairly allocated to each branch based on their contribution to the overall turnover, in compliance with the prescribed conditions of Section 20 of the CGST Act.