Provision of ISD as per Act and Rules

[Sneha Bhansali]

Section 20 provides that credit of integrated tax be distributed as "integrated tax or central tax". However, rule 39 of CGST Rules provides that "input tax credit on account of integrated tax shall be distributed as input tax credit of integrated tax to every recipient.".
Discripency in provision of Act and Rule

[Shilpi Jain]

Pls distribute it only as IGST.

[Yash Shah]

According to Section 20(3) of the CGST Act 2017, "The credit of central tax shall be distributed 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, in such manner as may be prescribed."

However, as per Rule 39(1)(i) of the CGST Rules 2017, "the input tax credit on account of integrated tax shall be distributed as input tax credit of integrated tax to every recipient"

From a plain reading of Section 20(3) and Rule 39(1)(i), one may conclude that Rule 39(1)(i) is contradictory to Section 20(3). However, there cannot be any negative effect on a registered person as the ITC of IGST can be utilized by that branch with respect to any of IGST, CGST, or SGST. Therefore, it is recommended that a registered person distribute credit as per Rule 39(1)(i) otherwise unnecessary litigation costs will arise.

AI Summary

Input tax credit distribution: allocate IGST as IGST under Rule 39 to avoid unnecessary litigation.
Apparent conflict exists where the Act allows interchangeable distribution of central tax and integrated tax credits, while the Rule mandates distribution of IGST credit as IGST. Because recipient branches can utilise IGST credit for IGST, CGST, or SGST, the recommended practice is to distribute and document IGST as IGST under the Rule to avoid litigation.