Facts of the Case:
In this case, the petitioner having multiple GST registrations across various States including Kerala, Delhi, Haryana, Karnataka, Maharashtra, and Tamil Nadu, challenged an order passed under Section 74 of the CGST Act, 2017 whereby Input Tax Credit (ITC) amounting to ₹1.31 crore was disallowed and an equivalent penalty was imposed. During the period from July 2017 to March 2019, the petitioner’s foreign parent company, located in the United States, provided centralized IT-related services such as email support, virus protection, IT infrastructure management, and other technology services for the benefit of the petitioner and its various branches across India. Although the invoice for such services was issued in the name of the petitioner’s Delhi corporate office, the payment for the services was made by the Kerala unit, which also discharged the applicable IGST liability under the reverse charge mechanism (RCM) by issuing self-invoices in accordance with the GST law and thereafter availed ITC.
Since the imported services were utilized by multiple State registrations of the company, the Kerala unit cross-charged the cost and corresponding credit to the other distinct persons through tax invoices. During a GST audit, the department alleged that the petitioner had wrongly availed ITC because the original foreign supplier’s invoice was issued in the name of the Delhi registration and not the Kerala registration. It was further alleged that the petitioner had distributed ITC to other branches without obtaining registration as an Input Service Distributor (ISD), thereby violating the provisions of the CGST Act. These allegations culminated in a demand under Section 74, which was challenged before the High Court.
Issue:
Whether the petitioner was entitled to avail ITC on imported services under the reverse charge mechanism when the foreign supplier’s invoice was issued in the name of another State registration of the same company. Whether, during the relevant period from July 2017 to March 2019, distribution of credit among distinct persons without obtaining registration as an Input Service Distributor was permissible under the CGST Act. Also, whether the demand and penalty imposed under Section 74 could be sustained in a case where tax had already been discharged and the transaction was revenue neutral.
Held That:
The High Court held that the denial of ITC was unsustainable in law. The Court observed that in the case of imported services liable to tax under the reverse charge mechanism, the relevant document for availing ITC is the self-invoice issued by the recipient under Section 31(3)(f) of the CGST Act read with Rule 36 of the CGST Rules, and not the invoice issued by the foreign supplier. Since the petitioner had discharged IGST under reverse charge, issued self-invoices, and fulfilled all statutory conditions prescribed under Section 16 of the CGST Act, the availment of ITC was held to be legally valid.
The Court further held that under Section 2(93) of the Act, the recipient of a supply is the person liable to pay consideration. As the petitioner had borne the consideration and discharged the tax liability, it qualified as the recipient and was therefore entitled to claim ITC, irrespective of the fact that the foreign supplier’s invoice was addressed to the Delhi office.
On the issue of ISD registration, the Court held that the unamended provisions of Section 20 of the CGST Act, as applicable during the relevant period, did not make the ISD mechanism mandatory. The provision merely prescribed the manner of distribution of credit where a taxpayer chose to operate as an ISD. The Court noted that the Finance Act, 2024 amended Section 20 with effect from 1 April 2025 to expressly mandate ISD registration for distribution of common input service credits, thereby demonstrating that no such mandatory requirement existed earlier.
Reliance was also placed on the deliberations of the GST Council and official FAQs, both of which recognized that the ISD mechanism was optional and that distribution through cross-charge invoices was permissible under the pre-amendment regime. The Court further observed that the entire transaction was revenue neutral since the tax liability had already been discharged and the credit was merely allocated among different registrations of the same entity.
Consequently, the findings regarding ineligible ITC and illegal distribution of credit were quashed, and the demand and penalty imposed under Section 74 were set aside.
Case Name: M/s. Intertek India Pvt. Ltd. Versus Assistant Commissioner of Central Taxes And Central Excise, Ernakulam. dated 08.06.2026
To read the complete judgement 2026 Taxo.online 1671
