Court Rules Input Tax Credit Distribution Without ISD Registration Legally Valid Under Unamended CGST Provisions
The Kerala High Court, in a significant ruling, held that Intertek India Pvt. Ltd. is entitled to the Input Tax Credit (ITC) claimed despite the invoices being issued to a different unit of the company, as long as the claimant qualifies as a "recipient" under Section 2(93) of the Central Goods and Services Tax (CGST) Act. The court further ruled that the distribution of ITC among other units of the company without mandatory registration as an Input Service Distributor (ISD) was permissible under the unamended Section 20 of the CGST Act.
The judgment was delivered by Justice Ziyad Rahman A.A. in response to a writ petition challenging an order by the Assistant Commissioner of Central Taxes and Central Excise, which directed Intertek India Pvt. Ltd. to reverse ITC of approximately Rs. 1.31 crore. The petitioner argued that the services provided by its foreign parent company were availed by all units across India, and the ITC was claimed based on a self-issued invoice under the reverse charge mechanism.
Justice Rahman meticulously analyzed the statutory provisions, including Sections 9(3), 16(2)(a), and 31(3)(f) of the CGST Act, and concluded that the ITC claimed by Intertek was legally sustainable. The court emphasized that the self-invoice issued by the petitioner was the relevant document for claiming ITC, as opposed to the invoice issued by the foreign supplier.
Moreover, the court examined the provisions related to ISD registration and found that prior to the amendment in 2024, the distribution of ITC did not mandatorily require ISD registration. The court underscored the revenue neutrality of the transaction and the absence of any revenue loss to the tax department, advocating for a liberal interpretation of the law to benefit bona fide taxpayers.
The ruling quashed the contested order, which had demanded the reversal of ITC and imposed penalties, thus granting relief to Intertek India Pvt. Ltd. The decision is expected to have significant implications for businesses dealing with similar ITC distribution issues.
Bottom line:-
Central Goods and Services Tax (CGST) - Input Tax Credit (ITC) claimed by the petitioner is legally sustainable, even if the invoice was issued to a different unit of the company with a separate registration, provided the petitioner qualifies as the "recipient" as defined under Section 2(93) of the CGST Act - Distribution of ITC among other units without mandatory registration as Input Service Distributor (ISD) is permissible under the unamended Section 20 of the CGST Act.
Statutory provision(s): Central Goods and Services Tax Act, 2017 Sections 2(93), 9(3), 16(2)(a), 20 (unamended), 24(viii), 31(3)(f)
