Kerala High Court Quashes Rs 1.31 Crore GST Demand; Holds ISD Registration Was Not Mandatory Before 2025

The Kerala High Court in Intertek India Pvt. Ltd. v. Assistant Commissioner of Central Taxes and Central Excise set aside a GST demand and penalty of Rs 1.31 crore raised against Intertek India Pvt. Ltd. The department had alleged that the company wrongly availed Input Tax Credit (ITC) on imported services and illegally distributed that credit to its branches without obtaining Input Service Distributor (ISD) registration.

Intertek India had multiple GST registrations across different States. During July 2017 to March 2019, its foreign parent entity provided IT and infrastructure support services to various Indian branches. Although the foreign supplier’s invoice was issued in the name of the Delhi office, the Kerala unit made the payment, discharged GST under the Reverse Charge Mechanism (RCM), issued the required self-invoice, availed ITC, and subsequently cross-charged the cost and credit to other branches that had also used those services.

Following a GST audit, the department concluded that the Kerala unit could not claim ITC because the original foreign invoice was addressed to the Delhi registration. It further alleged that the company should have distributed the credit only through the ISD mechanism and therefore demanded reversal of ITC amounting to Rs.1.31 crore along with an equal penalty under Section 74 of the CGST Act.

The High Court observed that for services imported from an unregistered foreign supplier, GST is payable under the Reverse Charge Mechanism. Under Sections 9(3), 16 and 31(3)(f) of the CGST Act read with Rule 36 of the CGST Rules, the relevant document for claiming ITC is the self-invoice issued by the recipient who pays tax under RCM.

The Court noted that the Kerala unit had paid the consideration to the foreign company, discharged GST liability under RCM, issued the statutory self-invoice and satisfied all conditions required for availing ITC. Therefore, the department was wrong in treating the foreign supplier’s invoice as the decisive document for determining ITC eligibility.

The Court further held that since the Kerala unit paid the consideration and tax, it qualified as the “recipient” under Section 2(93) of the CGST Act and was legally entitled to avail the corresponding ITC.

On the second issue, the Court examined the law as it existed between 2017 and 2019. It found that the unamended Section 20 of the CGST Act merely provided a mechanism for distributing ITC through an ISD. It did not mandate that all credit distribution among distinct persons must necessarily take place through an ISD registration.

The Court highlighted that the Finance Act, 2024 introduced amendments effective from 01.04.2025 specifically making ISD registration mandatory for such distribution. According to the Court, the very need for this amendment demonstrated that no such compulsory requirement existed earlier.

The Court additionally noted that the entire exercise was revenue-neutral. The company had already paid the applicable GST and merely allocated the corresponding credit among branches that had actually consumed the services. There was no allegation of tax evasion or loss of revenue to the Government.

The Kerala High Court quashed the order to the extent it held that the ITC of Rs.1.31 crore was ineligible and that the distribution of credit among branches without ISD registration was illegal. Consequently, the related tax demand and penalty were also set aside.

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