Sec 21 – Manner of recovery of credit distributed in excess

21.1 Introduction
The CGST Act clearly lays down that credit distribution is not ‘to self’, that is, a registered taxable person cannot distribute credit to himself. Each registered person being a distinct person u/s 25, must distribute to another registered taxable person but having the same PAN to whom the credit is most accurately attributable. And the consequence of incorrect distribution, due to inadvertence or misapplication of the provisions, are discussed here.
21.2 Analysis
(i)     Excess Credit distributed in contravention of provision:
Excess credit distributed to one or more recipient of credit in contravention of ISD provision under Section 20 is recoverable from the recipient of such credit along with Interest. The recovery will be under the provisions of Section 73 or 74.
Example-1 Total Credit Available to ISD is 15,00,000/- & the credit distributed to all the units is 16,50,000/- (i.e. Delhi 10,00,000, unit Jaipur 4,00,000 & unit Gujarat ` 2,50,000). What will be the consequences?
Solution: The excess credit of 1,50,000 (<code>16,50,000-</code> 15,00,000) distributed will be recovered from the recipient along with interest and the provisions of section 73 or 74 shall apply mutatis mutandis for effecting such recovery.
Example-2 Total Credit Available to ISD is ` 15,00,000/- & the credit should have been distributed equal to all the units as all units had equal turnover, however credit distributed in violation of Section 21, as under:
Delhi 7,00,000, Jaipur 6,00,000, Gujarat ` 2,00,000.
What will be the consequences?
Solution: The excess credit of 2,00,000 ( 7,00,000- 5,00,000) shall be recovered from Delhi and 1,00,000 (600,000 – 5,00,000) shall be recovered from Jaipur along with interest and the provisions of section 73 or 74 shall apply mutatis mutandis for effecting such recovery.
The analysis of above provision in a pictorial form is summarised as follows:
Excess Credit distributed by Input Service Distributor

21.3 Comparative review
Currently recovery provision is specified in Rule 14 of CENVAT Credit Rules. The CENVAT credit taken or utilized wrongly or has been erroneously refunded, is recovered along with interest under the provisions of sections 11A and 11AB of the Excise Act or sections 73 and 75 of the Finance Act.
Currently, there is no specific provision for excess distribution of credit by ISD. Now specific provision is Provided in the proposed GST law providing for recovery of amount along with interest. Further, the relevant period for recovery of excess amount distributed is also Provided in GST law.
21.4 Related provisions
Section      Description
Section 20     Manner of distribution of credit by Input service distributor
Section 73     Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized for any reason other than fraud or any wilful misstatement or suppression of facts.
Section 74     Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized due to fraud or any wilfulmisstatement or suppression of facts.
21.5 FAQ
Q1. Whether the excess credit distributed could be recovered by the department?
Ans. Yes. Excess credit distributed could be recovered along with interest from recipient by the department.
Q2. What are the consequences of credit distributed in contravention of the provision of the Act?
Ans. The credit distributed in contravention of the provision of the Act is to be recovered from the unit to which it is distributed along with interest.