In a recent ruling, the Kerala High Court addressed the issue of Input Tax Credit (ITC) denial in the case of M/s Intertek India Pvt. Ltd. versus the Assistant Commissioner of Central Taxes and Central Excise. The case involved ITC availed on imported services from a foreign parent company, billed to the Delhi unit but paid by the Kerala unit under the reverse charge mechanism. The Kerala unit then distributed the credit to other branches without an Input Service Distributor (ISD) registration, leading to a demand of ₹1.31 crore and an equivalent penalty under Section 74.
The Court ruled that the self-invoice issued under Section 31(3)(f) and Rule 36 was the valid document for ITC claims, not the foreign supplier's invoice. The petitioner had satisfied all statutory conditions, making the ITC claim legitimate. The Court clarified that prior to April 1, 2025, Section 20 did not require ISD registration for ITC distribution, thus the cross-charging was not a violation.
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Highlighting the revenue-neutral nature of the transaction, the Court criticized the imposition of penalties on technical grounds when there was no tax evasion and the tax had already been paid. It emphasized that such actions contradicted the GST regime's goals and were unfair to compliant taxpayers.
Order Date - 08 June 2026
Parties : M/s Intertek India Pvt. Ltd Vs Assistant Commissioner of Central Taxes and Central Excise, Kakkanad Division
Facts -
- M/s Intertek India Pvt. Ltd., a multinational company with branches across several States, received IT support and infrastructure services from its foreign parent company during July 2017 to March 2019.
- The foreign supplier issued the invoice in the name of the Delhi unit, but the Kerala unit paid the consideration, discharged IGST under the reverse charge mechanism through a self-invoice, and availed ITC.
- Since the imported services were used by multiple branches, the Kerala unit cross-charged the value and corresponding credit to other registered units of the company.
- Following a GST audit, the department alleged wrongful availment of ITC and illegal distribution of credit without obtaining Input Service Distributor (ISD) registration, resulting in a demand of ₹1.31 crore along with an equivalent penalty under Section 74.
Issue -
- Whether ITC availed on imported services under reverse charge could be denied because the foreign supplier's invoice was issued to another registered unit?
Order -
- The Court held that for services received from an unregistered foreign supplier, the relevant document for availing ITC is the self-invoice issued under Section 31(3)(f) read with Rule 36. Since the petitioner raised a valid self-invoice, paid tax under reverse charge, and satisfied statutory conditions, the ITC claim was legally valid.
- The department erred in treating the foreign supplier's invoice as the decisive document for ITC eligibility. The Court clarified that where tax is paid under reverse charge, the self-invoice constitutes the prescribed tax-paying document, making the petitioner's entitlement to ITC unquestionable.
- The Court observed that prior to the amendment made by the Finance Act, 2024 (effective from 01.04.2025), Section 20 merely provided a mechanism for ISD distribution and did not mandate registration as an ISD for distributing ITC among distinct persons. Therefore, cross-charging credit without ISD registration during the relevant period could not be treated as a violation.
- Emphasising the revenue-neutral nature of the transaction, the Court noted that the tax had already been paid and there was no loss to the exchequer. In the absence of tax evasion, imposing substantial demands and penalties on purely technical grounds was contrary to the objective of the GST regime and unfair to bona fide taxpayers.
