The Finance Bill, 2024, introduced several pivotal changes to the Goods and Services Tax (GST) law. Two significant amendments include mandatory Input Service Distributor (ISD) registration for multi-state companies and the imposition of penalties for unregistered machines in the manufacturing of pan masala, gutkha, and other tobacco products.
Mandatory ISD Registration For Multi-State Companies
Starting April 1, 2025, companies operating across multiple states must register as Input Service Distributors (ISD) under the Goods and Services Tax (GST) regime. This mandate is designed to streamline the distribution of input tax credits (ITC) for services availed, ensuring a fair and transparent allocation among various branches of a business.
The Finance Bill, 2024, introduced mandatory ISD registration for businesses with multi-state GST registrations. This change aims to prevent tax evasion and enhance the transparency of ITC distribution among different branches.
The Central Board of Indirect Taxes and Customs (CBIC) has set April 1, 2025, as the deadline for companies with a multi-state presence to register as ISDs. Companies must ensure that they are compliant with this new requirement to avoid penalties and ensure smooth ITC distribution.
What Is An Input Service Distributor (ISD)?
An Input Service Distributor (ISD) is a central office of a business that receives tax invoices for input services and distributes the ITC to its respective branches. This mechanism is crucial for multi-state companies to efficiently manage their tax credits and remain compliant with GST regulations.
Mechanism for ITC Distribution
The GST rules prescribe a specific mechanism for the distribution of ITC by ISDs. The common ITC is apportioned based on the turnover ratio of the different branches under the same Permanent Account Number (PAN). This method ensures a fair allocation of tax credits, reflecting the actual usage of services across branches.
Penalties For Unregistered Pan Masala, Gutkha & Tobacco Manufacturing Machines
Alongside the new notification mandating ISD registration for companies, a significant development is the introduction of strict penalties for manufacturers of pan masala, gutkha, and other tobacco products using unregistered machines. This measure, effective from October 1, 2024, aims to curb tax evasion and ensure compliance within the tobacco manufacturing industry.
The Central Board of Indirect Taxes & Customs (CBIC) has outlined specific penalties and compliance requirements for manufacturers of tobacco products. The key provisions include:
- Registration of Machines: Manufacturers must register all machines used in the production of pan masala, gutkha, and other tobacco products. This includes disclosing the make, year of production, number of tracks, and capacity of each machine.
- Penalties for Non-Compliance: A penalty of ₹1 lakh will be imposed for each unregistered machine manufacturing pan masala, gutkha, and other tobacco products. Additionally, unregistered machines will be subject to seizure and confiscation. However, if the penalty is paid or the registration is completed within three days of receiving the penalty order, the seizure and confiscation will be waived.
- Track-and-Trace System: The government has mandated a track-and-trace system to monitor the production and distribution of tobacco products. This system is intended to prevent illicit trade and ensure that all manufactured products are accounted for and taxed appropriately.
Compliance Deadlines
- October 1, 2024: Deadline for registering machines used in the manufacture of pan masala, gutkha, and other tobacco products.
- April 1, 2025: Additional compliance measures for mandatory ISD registration for entities with multiple registrations.
FAQs
Under Section 13 of the Finance Act 2024, manufacturers of pan masala, gutkha, and other tobacco products will face a ₹1 lakh penalty for each machine that is not registered.
October 1, 2024 is the deadline for registering machines used in the manufacture of pan masala, gutkha, and other tobacco products.
April 1, 2025 is the deadline for companies to register as ISD’s with GST authorities.
