Distribution of expenses and credit under GST

[Rajat Gupta]

Company X is engaged in selling goods through ECOs (Amazon at present). It has a head office (HO) in Bengaluru and multiple godowns in different states. There is no specific branch office in any other state. All godowns are maintained in the premises of Amazon only.

All the inward invoices like consultancy, legal fees, advertisement, etc. are received by the HO. My query is, can the HO choose not to allocate these charges to other branches, or is it mandatory to allocate/distribute these charges and ITC on them to the other branches?

[Shilpi Jain]

Further clarity required regarding GSTIN at other States, billing to customers done from where?

[Rajat Gupta]

Billing for all other GSTINs is done directly at the ECOMs website. So, if the goods are dispatched from the Maharashtra godown, Amazon issues an invoice from the Maharashtra GSTIN.

[Sadanand Bulbule]

Where common input service invoices (e.g., consultancy, legal, advertisement) are received at the HO but relate to multiple GST registrations (distinct persons), the law mandates distribution of such ITC through the Input Service Distributor (ISD) mechanism, and the HO cannot unilaterally retain the entire credit.

So double check who are all the beneficiaries of such common input services.

 

[Raam Srinivasan Swaminathan Kalpathi]

Dear Querist

Are the branches registered? If the answer to this is positive, kindly note that w.e.f. 01-Apr-25 obtaining ISD registration for the HO is mandatory. Heretofore, the RTP had the choice of distributing ITC either raising a cross charge invoice or through the ISD route. Kindly go through revamped provisions of Section 20r w r 54 and 39. You may also go through Circular 199 of 2023. Further, please note that although Rule 39(1) mandates distribution of "credit available for distribution in a month shall be distributed in the same month", courts have held this to be directory and not mandatory. Thanks

[Ryan Vaz]

From 1st April 2025, obtaining ISD registration has been made mandatory for Head Offices that are recipients of common input services meant for multiple distinct persons (i.e., separate GSTIN registrations). This is a significant compliance shift. Prior to this amendment, a taxable person had the option to either raise cross-charge invoices to beneficiary GSTINs or use the ISD mechanism. That option has now been eliminated for entities engaged in e-commerce operations through multiple registrations.

The underlying rationale is that Section 20 read with Rule 39 makes it clear: where common input services benefit multiple registered persons (distinct persons under GST), the credit must flow through ISD. The HO cannot unilaterally retain ITC on common expenses when those expenses relate to business carried out under different GSTINs.

On the timing requirement under Rule 39(1) - while the rule mandates monthly distribution, various High Court rulings have held that the time prescription is directory, not mandatory. The substantive obligation is to distribute credit to the correct beneficiary registrations; a delay in distribution does not extinguish the right of the recipient to claim such credit, provided it is eventually distributed.

In Amazon ECO operations, inventory is stored at Amazon's premises across states, and Amazon raises invoices under the respective state GSTINs based on dispatch location. This creates a multi-GSTIN structure within the same legal entity. For common services like advertisement, legal fees, and consultancy that benefit all state operations, ISD distribution is now obligatory. The distribution must be supported by ISD invoices (Form ISD-03) citing the original supplier invoice.

HO cannot retain the entire ITC on common input services. From 1st April 2025, mandatory ISD registration applies, and HO must distribute credit through ISD invoices to all beneficiary registrations. The monthly timing prescription under Rule 39(1) is directory, but the obligation to distribute is mandatory. Non-compliance may attract interest and penal consequences under Section 20 and Section 122 of the CGST Act.

AI Summary

Input Service Distributor credit must be shared across multiple GST registrations; head office cannot retain common input tax credit. Common input service credits received at a head office but attributable to multiple GST registrations must be distributed through the Input Service Distributor mechanism, and the head office cannot retain the entire input tax credit on such expenses. For entities operating through distinct registrations, the statutory scheme requires credit to flow to the beneficiary registrations through ISD invoices supported by the original supplier invoice. The monthly distribution prescription in Rule 39 is treated as directory rather than mandatory, so a delay does not extinguish entitlement once credit is properly passed on.