What does Section 21 say?

If an Input Service Distributor (ISD) distributes more Input Tax Credit (ITC) than it is entitled to distribute, or distributes ITC incorrectly to one or more branches/units, the excess credit will be recovered from the recipient unit(s) that wrongly received the credit.

Simple Example

Suppose Head Office receives an input service invoice with GST credit of ₹1,00,000.

The correct distribution should be:

• Mumbai Branch: ₹60,000
• Delhi Branch: ₹40,000

However, the Head Office mistakenly distributes:

• Mumbai Branch: ₹80,000
• Delhi Branch: ₹40,000

Total distributed = ₹1,20,000

Excess ITC distributed = ₹20,000

Under Section 21, the excess ₹20,000 (along with applicable interest) will be recovered from the branch that received the excess credit, i.e., Mumbai Branch.

Key Points

• Applicable only when ITC is distributed through an Input Service Distributor (ISD).
• Covers:
• Distribution of ITC in excess of available credit.
• Wrong allocation of ITC among branches.
• Excess credit is recovered from the recipient who received it wrongly.
• Interest may also be payable on the excess credit utilized.

In One Line

Section 21 ensures that any ITC wrongly or excessively distributed by an ISD is recovered from the branch/unit that received the excess credit, along with applicable interest.