AAR Ruling: ISD Mechanism Mandatory for Common Input Service ITC from April 2025

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Credit Transfer from Regular GST Registration to ISD is Now Impermissible.

A significant ruling by the Authority for Advance Rulings (AAR), Tamil Nadu, has clarified the mandatory procedure for distributing Input Tax Credit (ITC) of common input services under the GST regime, especially following recent statutory amendments. The AAR confirms that effective April 1, 2025, the Input Service Distributor (ISD) mechanism becomes the *only* permissible route for the receipt and distribution of such common service credit.

Background and Applicant’s Query

The applicant, a manufacturer with a regular GST registration in Tamil Nadu and a separate ISD registration for its Head Office (HO), raised a crucial query. The HO receives common input services used across multiple states, and suppliers issue invoices in the name of the regular registration. Till March 2025, the HO distributed eligible ITC based on a Board circular (Circular No. 199/11/2023-GST).

The applicant sought a ruling on whether, post-amendments made by Notification No. 16/2024-Central Tax, the proposed procedure of receiving credit in the regular GST registration and then transferring it to the ISD registration for distribution is permissible 180 taxmann.com 238 (AAR - TAMILNADU)[01-09-2025]].

AAR Ruling: Mandatory ISD Routing from April 2025

The AAR ruled against the applicant's proposed procedure, citing that the amended provisions mandate a specific legal position 180 taxmann.com 238 (AAR - TAMILNADU)[01-09-2025]]:

The Mandatory Requirement:

  • The amended provisions mandate that the receiver of common input service invoices must be registered as ISD and distribute credit only through the ISD mechanism 180 taxmann.com 238 (AAR - TAMILNADU)[01-09-2025]].
  • From April 1, 2025, the receipt and distribution of common input service ITC must be routed through ISD registration 180 taxmann.com 238 (AAR - TAMILNADU)[01-09-2025]].
  • The practice of receiving invoices in regular registration and transferring credit to ISD is not consistent with the legal position 180 taxmann.com 238 (AAR - TAMILNADU)[01-09-2025]].
  • Therefore, the applicant cannot continue such practice 180 taxmann.com 238 (AAR - TAMILNADU)[01-09-2025]].

Professional Insight: Key Takeaway 💡

This AAR ruling makes the compliance position unequivocal for multi-state entities: the ISD registration is mandatory for the entity receiving common input service invoices intended for distribution 180 taxmann.com 238 (AAR - TAMILNADU)[01-09-2025]]. Any attempt to temporarily park the credit in a regular GST registration and then manually shift it to the ISD registration for onward distribution is now legally impermissible from April 1, 2025. Businesses must immediately ensure their suppliers address common service invoices directly to the ISD registration GSTIN 180 taxmann.com 238 (AAR - TAMILNADU)[01-09-2025]].

Case Citation: MRF Ltd., In re [2025] 180 taxmann.com 238 (AAR - TAMILNADU) 180 taxmann.com 238 (AAR - TAMILNADU)[01-09-2025]].

Statutory Reference: Section 20 of the CGST Act, 2017; Rule 39, read with Rule 54, of the CGST Rules, 2017.

Notification: Notification No. 16/2024-Central Tax, dated 6-8-2024.

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