Chandrasekhar Kutty, Founding Partner, Sashthi Taxlegal Advisory Services LLP | GST Litigation • Advisory • Appellate Representation | Hosur • Bengaluru
27 October 2026
With ISD registration mandatory since 01.04.2025 for distributing credit on common input services, CBIC has answered seven practical questions on sections 2(61) and 20 of the CGST Act and rules 39 and 54(1A) of the CGST Rules that had been producing inconsistent audit objections.
| Issue | Clarification |
|---|---|
| Multiple ISD registrations in one State | Permitted. Each registration (business vertical or place of business) that receives common input service invoices for distinct persons must take its own ISD registration, and must distribute only to the distinct persons to whom the credit is attributable. |
| Who satisfies section 16 and 17 conditions | The recipient of credit, not the ISD. The ISD must distribute in the manner of section 20; contravention attracts penalty under section 122(1)(ix) on the ISD, and recovery of excess credit from the recipient under section 21. |
| “Same month” distribution under rule 39(1)(a) | Credit becomes “available for distribution” only when the ISD ascertains it to be prima facie eligible. Distribution is due in the month of that ascertainment, separately as eligible and ineligible credit under rule 39(1)(g). |
| Reversals under section 17(1), 17(2) or 17(4) | The ISD distributes the entire credit; reversals under rules 38, 42 and 43 are made by the recipients. |
| Rule 54(1A) transfer invoices and turnover | Invoices, debit or credit notes issued by a regular registration (same PAN and State) to the ISD are a credit-transfer mechanism, not outward supply. The amounts do not count in “turnover in State” under section 2(112) for ISD distribution ratios or in “adjusted total turnover” for rule 89 refunds. |
| Rule 54(1A) credit as “Net ITC” for refunds | Not includible in Net ITC under rule 89(4) or 89(5) of the transferring registration. |
| Reversals by the transferring registration | None. It transfers the full reverse-charge credit to the ISD; the recipients (which may include the transferring registration itself) make the reversals. |
Why this matters
The ruling that rule 54(1A) amounts are not turnover protects both the ISD distribution ratio and refund computations from distortion. The “month of ascertainment” reading of rule 39(1)(a) gives ISDs a defence against notices alleging delayed distribution where invoices were under verification.
What groups with ISD registration should do now
- Reconfirm that distribution ratios and refund computations exclude rule 54(1A) amounts.
- Document the month in which eligibility of each invoice was ascertained.
- Review whether any location receiving common input service invoices still lacks its own ISD registration.
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For advice on how this circular affects your business or a pending dispute, write to contact@sashthitaxlegal.com or call +91 99521 84110.
Source: CBIC Circular No. 260/06/2026-GST dated 26.10.2026, F. No. CBIC-20001/2/2026-GST. This article is for general information and does not constitute professional advice. Readers should obtain specific advice before acting on any matter discussed here.