Concept of Input Service Distributor (ISD) in Model GST Law (MGL):

In the ISD mechanism proposed in the MGL, the same concept has been carried forward and an ISD has been defined under Section 2 (56) as follows –

“input service distributor” means an office of the supplier of goods and/or services, which receives tax invoices issued under section 23 towards receipt of input services and issues tax invoice or such other document as prescribed for the purposes of distributing the credit of CGST (SGST in State Acts) and/or IGST paid on the said services to a supplier of taxable goods and / or services having same PAN as that of the office referred to above. Explanation – For the purposes of distributing the credit of CGST (SGST in State Acts) and / or IGST, Input Service Distributor shall be deemed to be a supplier of services.

The above definition provides that, an ISD –

(i) is the office of supplier of goods and / or services;

(ii) the said office receives tax invoices towards receipt of input services;

(iii) the said office distributes credit of CGST/ SGST/IGST to a supplier of goods/services having same PAN;

(iv) the said office issues tax invoice or other prescribed document for distribution of credit.

The above definition of ISD is almost similar to the one in the existing regime with the difference being that recently in the existing regime, distribution of input service credit has been allowed to an outsourced manufacturing unit also, while the ISD in GST regime is to distribute credit only to the supplier having same PAN, that means the credit can be distributed only to the units of the same entity. The reason of non inclusion of outsourced manufacturing unit for the purpose of credit distribution seems to be that – in the GST regime, ‘manufacture’ is not a taxable event, and tax liability would arise only at the time of supply, which would be ultimately paid by the principal in this case when the respective input credit can be used.