Why This Ruling Matters Beyond One Taxpayer
The Kerala High Court’s judgment in M/s Intertek India Private Limited v. Assistant Commissioner of Central Taxes and Central Excise, Kerala, 2026-VIL-573-KER, W.P.(C) No.30075 of 2024, dated 08.06.2026, is an important pronouncement on entitlement to input tax credit when tax is paid under the reverse charge mechanism and the credit is subsequently allocated among different registrations of the same legal entity. The judgment is particularly significant for the period prior to 01.04.2025, when the amended provisions making Input Service Distributor registration mandatory had not yet come into force.
The decision deserves careful attention because it refuses to treat GST compliance as a paper chase divorced from business reality. It recognises that where tax has been paid, the transaction is properly documented, the services are used in business, and no revenue loss is caused to the Government, substantive ITC entitlement should not be defeated merely on technical grounds. At the same time, it draws a clear line between the pre-amendment period and the law after 01.04.2025, when Parliament expressly introduced a mandatory ISD route in specified situations. That distinction gives the judgment both immediate and enduring value.
The Dispute: A Common Corporate Practice Becomes a High-Stakes Credit Denial
Intertek India had multiple GST registrations across different States. During the period from July 2017 to March 2019, its foreign parent company supplied email, virus protection, IT management, infrastructure and other support services to the Indian company and its units. The foreign company issued an invoice in the name of the Delhi corporate office. However, under the company's internal administrative practice, the Kerala unit made the payment. The Kerala unit also raised a self-invoice, discharged tax under the reverse charge mechanism and availed ITC on the tax so paid.
Since the services were not confined to the Kerala unit and were also used by other registered units of the same company, the credit was distributed or cross-charged to those units. This is a familiar operating model for large businesses, where centralised procurement or group-level support services benefit multiple registrations. The Department, however, treated this practical arrangement as a statutory defect. It passed an order under Section 74 of the CGST Act, 2017, holding that ITC of Rs.1,31,14,220/- had been wrongly availed because the foreign supplier invoice was issued in the name of the Delhi corporate office rather than the Kerala unit. It further held that credit could not be distributed among other units without ISD registration. These findings led to a demand and penalty.
The judgment, therefore, centred on two key questions. The first was whether the Kerala unit could be treated as the recipient and claim ITC on the basis of a self-invoice and tax paid under reverse charge. The second was whether the distribution of such credit without ISD registration was illegal during the pre-01.04.2025 period.
The Self-Invoice Was Not a Procedural Ornament: It Was the Tax-Paying Document
On the first issue, the Court examined the scheme of Section 9(3), Notification No.10/2017-Integrated Tax (Rate) dated 28.06.2017, Section 2(93), Section 16, Section 31(3)(f), and Rule 36 of the CGST Rules, 2017. The statutory scheme is clear that where services are received from an unregistered foreign supplier and tax is payable under the reverse charge mechanism, the recipient is required to raise a self-invoice and pay the tax. Once such tax is paid, the self-invoice becomes the relevant tax-paying document for claiming ITC.
The Department had focused on the fact that the foreign supplier's original invoice was issued in the name of the Delhi corporate office. That approach missed the special character of a reverse charge transaction. In such cases, the foreign supplier is not the person who collects and pays GST. The Indian recipient assumes the statutory burden, raises the self-invoice and pays the tax. Therefore, in a reverse charge situation involving an unregistered foreign supplier, the foreign supplier's invoice cannot be treated as the only decisive document for ITC. The decisive document is the self-invoice issued by the person liable to pay tax, supported by actual payment of tax to the Government.
This reasoning is both commercially and legally sound. If the Kerala unit made the payment, discharged the tax liability, and used the services in the course or furtherance of business, denying ITC merely because the foreign supplier's invoice bore the Delhi office name would turn GST into a trap for bona fide taxpayers. Section 16(2)(a) permits ITC on the basis of a tax invoice or such other tax-paying documents as may be prescribed. Rule 36 recognises such prescribed documents for this purpose. In the context of reverse charge, the self-invoice issued under Section 31(3)(f) is not a cosmetic document; it is the statutory bridge between tax payment and credit entitlement.
Recipient Is Not Decided by Letterhead Alone: Liability to Pay Is Crucial
A key part of the judgment is its discussion on the meaning of “recipient” of supply of goods or services or both under Section 2(93) of the CGST Act. Where consideration is payable for a supply, the recipient is the person liable to pay such consideration. The Court found that the Kerala unit had discharged its liability for consideration and had also paid the tax under reverse charge. On that basis, it qualified as the recipient for the purpose of the transaction. The answer did not depend solely on the address appearing on the foreign supplier invoice.
This interpretation is crucial for large companies with multiple GST registrations. While separate registrations are necessary for compliance, they do not negate the reality of centralised contracts, internal cost allocations, and shared services. The key questions are who was responsible for paying consideration, who remitted the tax, and whether the goods or services were used in the course or furtherance of business. If these conditions are met, input tax credits cannot be refused by focusing on a single document within a larger transaction and disregarding the overall flow of payment, tax, and business use.
Before 01.04.2025, ISD Was a Route Available to Taxpayers, Not a Roadblock Against Credit
The second, more far-reaching issue concerned ISD registration. The Department relied on Section 24(viii), which mandates the compulsory registration of an Input Service Distributor, and treated the absence of ISD registration as fatal. The Court rejected this reading. It examined the unamended Section 20 of the CGST Act, as it stood from July 2017 to March 2019, and held that the provision merely prescribed the manner in which an Input Service Distributor may distribute credit. It did not say that every distribution of ITC among distinct units must necessarily occur only through an ISD.
This distinction between an enabling provision and a mandatory prohibition is central to the judgment. Section 20, before its amendment, set out what an ISD should do if the taxpayer chose to use that mechanism. It did not contain any language prohibiting distribution through any other legally permissible route. Section 24(viii) could therefore be read only to require ISD registration for any office that wished to act as an ISD. It could not be stretched into a penalty provision against taxpayers who had not chosen the ISD route, when the statute did not make that route exclusive.
The Finance Act, 2024 amendment, effective from 01.04.2025, strengthened this conclusion. The amended Section 20 now specifically provides that an office receiving tax invoices for input services, including services liable to reverse charge, for or on behalf of distinct persons shall be required to register as an Input Service Distributor and distribute the credit in the prescribed manner. The very need for this amendment indicated that the earlier law did not contain such a mandatory requirement.
The GST Council Record Became the Turning Point
The Court also referred to the minutes of the 50th GST Council meeting on 11.07.2023. The Law Committee noted that the current provisions of the CGST Act did not intend to make the ISD mechanism compulsory. It was also mentioned that a clarification could be issued, stating that the ISD procedure under Section 20 and Rule 39 is not mandatory for distributing Input Tax Credit (ITC) related to input services purchased by a Head Office from a third party, as long as the services are attributable to both the Head Office and Branch Offices. Additionally, the Law Committee observed that making ISD mandatory would require a future amendment to the law.
This was a powerful indicator of legislative and administrative understanding. The Court did not treat the later amendment as merely clarificatory against the taxpayer. Instead, it treated the amendment as a prospective change, consistent with the Council’s own understanding that the earlier law did not compel ISD distribution. FAQ No. 26 on IT and IT-enabled services also supported this view. It clarified that the ISD provision under the CGST Act, 2017, was not mandatory and only provided the manner of distribution where a business entity chose to distribute ITC as an Input Service Distributor.
Micro Labs Supplied the Judicial Anchor
The principal judicial precedent relied upon was the Karnataka High Court's decision in Micro Labs Limited Ltd v. State of Karnataka, [2025 SCC OnLine Kar 28321] = 2025-VIL-1446-KAR. The Kerala High Court referred to this decision in rejecting the argument that Section 24(viii) made ISD registration compulsory for every form of internal ITC distribution before the amendment.
The underlying principle of Micro Labs was that, prior to the statutory amendment, the GST law did not make the ISD route the sole permissible method for distributing common input service credit among distinct persons with the same PAN. The requirement of ISD registration applied only where the taxpayer chose to operate as an ISD. It did not render every internal allocation or cross-charge of common input service cost illegal merely because ISD registration was not obtained.
Micro Labs is important because it prevents a procedural mechanism from being converted into a substantive condition of eligibility absent clear statutory language. ITC is a valuable statutory entitlement, and any restrictions on it must flow from the statute. If the law intended, during the relevant period, that common input service credit could be distributed only through ISD and not by any other method, such a prohibition had to be clearly expressed. The Karnataka High Court recognised this limitation, and the Kerala High Court adopted the same legal approach. This is the kind of interpretative discipline that matters in GST, where administrative convenience cannot be allowed to rewrite statutory conditions.
The significance of Micro Labs also lies in its practical understanding of the GST framework. Companies operating under multiple State registrations frequently receive common services from a single office, with the benefits flowing to several units. Before 01.04.2025, the law permitted taxpayers to use the ISD mechanism, but it did not expressly invalidate other compliant commercial routes. Intertek India applies the same principle and further strengthens it by linking it to the Council minutes, FAQ No. 26, and the prospective nature of the Finance Act, 2024 amendment.
Revenue Neutrality Changed the Equity of the Case
The Court also accepted the argument of revenue neutrality. The petitioner had paid tax under reverse charge on its own and claimed ITC on the same tax. The services were used by other units, and the credit was distributed because those units also benefited from the imported services. No tax loss was caused to the Government. This factor was not a mere plea of hardship; it went to the fairness of invoking a demand-and-penalty proceeding under Section 74. Where the taxpayer has paid the tax, and the dispute concerns the route by which the credit moved internally, the case does not exhibit the ordinary features of evasion.
This reasoning is important because GST was introduced as a value-added tax intended to ensure the seamless flow of credit. The purpose of the law is not to deny credit to a bona fide taxpayer who has paid tax and used the services for business, unless a clear statutory restriction applies. The Court observed that where there is no question of tax evasion, statutory provisions should be interpreted to give the maximum possible benefit to bona fide taxpayers. This approach is consistent with the design of GST as a system of self-assessment, credit flow and tax neutrality.
What Taxpayers and Officers Should Take Away
The judgment is immediately relevant to the pre-01.04.2025 period. Where common input services were received, tax was paid under reverse charge and credit was distributed without ISD registration, the Department cannot mechanically deny ITC merely because ISD registration was not obtained. The facts must be examined to determine whether tax was actually paid, whether the claimant qualified as a recipient, whether valid tax-paying documents existed, whether the services were used in business, and whether the distribution caused any revenue loss.
At the same time, the judgment should not be misunderstood as diluting the law after 01.04.2025. The amended Section 20 expressly mandates ISD registration in specified cases involving input services received for or on behalf of distinct persons, including reverse charge services. For the period after the amendment, businesses must align their compliance systems with the mandatory ISD framework. The value of the judgment lies in protecting bona fide pre-amendment transactions from retrospective technical disallowance, while also reminding businesses that the compliance landscape has changed prospectively.
Closing Perspective: Credit Disputes Must Follow the Law as It Stood
Intertek India emphasises that legitimate credit should not be refused simply because a later mandatory requirement was introduced after the fact. If tax was paid under reverse charge, credit was claimed with valid documentation, services were used for business purposes, and no revenue was lost, then demands and penalties cannot be justified by a technical objection that is not supported by the applicable law at that time.
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