Cross-Charge vs. Input Service Distributor (ISD)

INTRODUCTION

Notification 16/2024-CT has notified 1st April, 2025 as the date from which the proposed amendments to the provisions relating to ‘input service distributor’ will come into effect. In view of the far-reaching implications of the said amendment, this article decodes the provisions relating to ‘input service distributor’, and the interplay the said concept has with the concept of ‘cross charge’ as propounded in view of the provisions of entry 2 of Schedule I of the CGST Act, 2017.

BACKGROUND OF EARLIER LAWS

Prior to the imposition of GST, a central excise duty was imposed on the manufacture of excisable goods. The central excise law required separate registration for each of the premises from where the manufacturing activity was carried out. While the CENVAT Credit Rules as amended from time to time provided for claim of credit of inputs and capital goods used in the manufacture of final products, there was substantial emphasis laid on receipt of the goods in the registered premises and documentary evidence in the form of tax compliant invoices reflecting the said address of the registered premises.

In the said backdrop, when the said Rules were expanded to also permit the credit of input services used in the manufacture of the final products,