TaxTMI 
TaxTMI 
2026 (6) TMI 791
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....s that led to the filing of this writ petition are as follows: The petitioner is a multinational company having global presence and multiple branches all over the world. Since the petitioner is having business places in various States in the country, separate registrations have been taken in respect of all the said units, in the respective States, as per the requirements of the CGST Act. The units of the petitioner are located at Delhi, Haryana, Karnataka, Maharashtra and Tamil Nadu, apart from the petitioner-unit. 3. During the period from July, 2017 to March 2019, M/s Intertech USA Inc., the parent company of the petitioner (hereinafter referred to as foreign company) provided services such as, email, virus protection, IT management and infrastructure services along with other IT support services to the petitioner company and to the other units of the petitioner company across the country. For the aforesaid transactions, the foreign company issued Ext.P4 invoice dated 31.8.2017 in the name of M/s Intertech India Pvt. Ltd, Delhi, which is the corporate office of the company. However, by following the administrative practice of the company, the payment against Ext.P4 invoice was....
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....verting the contentions raised in the writ petition, opposing the reliefs sought therein and explaining the circumstances under which Ext.P1 order was passed. 7. I have heard Sri. G. Shivadass, the learned Senior Counsel assisted by Sri Shaji Thomas, appearing for the petitioner and Sri. P.T.Dinesh, the learned Senior panel counsel for the respondents. 8. On going through Ext.P1 order, it can be seen that, proceedings were initiated against the petitioner on two grounds; firstly, it is alleged that, the petitioner had availed input tax credit wrongly and secondly, it is alleged that, the petitioner had distributed the ITC among the other units of the company, without obtaining a registration as an ISD and hence, violated the statutory provisions. Thus, the contentions raised by the parties are to be considered in respect of the above two issues. 9. The finding regarding wrongful availment of ITC: 9.1. The wrongful availment of the ITC alleged against the petitioner is on the reason that, Ext.P4 invoice was issued by a foreign company in the name of the Delhi unit of the petitioner company, which is having a separate registration under the CGST Act, whereas, the ITC was ....
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.... Act provides for the eligibility and condition for input tax credit which reads as follows: "Section 16. Eligibility and conditions for taking input tax credit.- (1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person. (2) Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless,- (a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed; (aa) the details of the invoice or debit note referred to in clause (a) has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit ....
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....stered under the Act or such other tax paying document as may be prescribed. Thus, it is evident that, claim of ITC must be based on a tax invoice issued by a supplier registered under the Act or based on other tax paying documents as may be prescribed. In this case, there is no dispute that the supply is made by a person not registered under the CGST Act and therefore what is relevant for the purpose of claiming ITC, is the other tax paying documents as may be prescribed. 9.4. Rule 36 of the CGST Rules, 2017 provides for the documents that are required for claiming ITC: "Rule 36. Documentary requirements and conditions for claiming input tax credit.-(1) The input tax credit shall be availed by a registered person, including the Input Service Distributor, on the basis of any of the following documents, namely:- (a) an invoice issued by the supplier of goods or services or both in accordance with the provisions of section 31; (b) an invoice issued in accordance with the provisions of clause (f) of sub-section (3) of section 31, subject to the payment of tax; (c) a debit note issued by a supplier in accordance with the provisions of section 34; ....
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....r both, received by him from the supplier, who is not registered on the date of receipt of goods or services or both. Since section 9(3) of the Act, provides for the liability of tax on reverse charge basis, the effect of conjoined reading of sections 16(2) and 31(3)(f) of the Act r/w R.36 of the CGST Rules is that, when a person liable to pay tax under section 9(3) raises an invoice based on reverse charge basis, such invoice can form the basis of input tax credit as contemplated under section 16(2)(a) of the Act r/w Rule 36 of the CGST Rules 2017. 9.5. In this case, it is evident that, the petitioner being the recipient of services supplied by a foreign company (a non-registered supplier), in fulfilment of its obligations under section 9(3), raised an invoice as required under section 31 of the CGST Act r/w Rule 36 of the CGST Rules, paid the tax based on such invoice, and claimed the ITC for the tax paid, on the strength of Section 16(2)(a) of the CGST, Act. Thus, all such transactions/actions of the petitioner were based on the relevant statutory provisions, and therefore, are perfectly in tune with the statutory requirements. Hence, the ITC availed by the petitioner is lega....
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....e with the statutory stipulations under the CGST Act, and the findings contrary to the same in Ext.P1 are not legally sustainable. 10. The issue regarding the distribution of ITC without obtaining registration as an Input Service Distributor (ISD) 10.1. As per the findings in Ext.P1, the distribution of ITC among the other units of the petitioner company with separate registrations, could have been affected by the company only through the input service distribution mechanism, which requires registration mandatorily, and since the petitioner had carried out the distribution without such registration, it had violated the relevant provisions in this regard. On the other hand, the specific contention raised by the learned Senior Counsel for the petitioner is that, as on the date of the relevant transactions, it was not mandatory for the petitioner to obtain registration as ISD, for the purpose of distribution of ITC among the other units of the company. According to the learned Senior Counsel, the input service distribution mechanism contemplated under the Act was only an option available to the taxpayer and nothing precluded such taxpayer from distributing the ITC otherwise than....
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....stribution shall be pro rata on the basis of the turnover in a State or turnover in a Union territory of such recipient, during the relevant period, to the aggregate of the turnover of all recipients and which are operational in the current year, during the said relevant period. Explanation. For the purposes of this section,- (a) the "relevant period" shall be- (i) if the recipients of credit have turnover in their States or Union territories in the financial year preceding the year during which credit is to be distributed, the said financial year; or (ii) if some or all recipients of the credit do not have any turnover in their States or Unio territories in the financial year preceding the year during which the credit is to be distributed, the last quarter for which details of such turnover of all the recipients are available, previous to the month during which credit is to be distributed; (b) the expression "recipient of credit" means the supplier of goods or services or both having the same Permanent Account Number as that of the Input Service Distributor; (c) the term "turnover", in relation to any registered person engaged in the su....
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....ded section 20 itself, where it starts with the words "Any office of the supplier of goods or both which receives tax invoices towards the receipt of input services, including invoices in respect of services liable to tax under sub section (3) or sub section (4) of section 9, for or on behalf of distinct persons referred to in section 25 shall be required to be registered as Input Service Distributor............" Thus, the mandatory requirement of the registration for any office of the supplier of goods, which receives tax invoices including the invoices under reverse tax mechanism, is clearly specified in the amended provision, whereas, in the unamended provision, there is no such requirement. On the contrary, the unamended provision only provides that, the input service distributor shall distribute the input credit of tax, subject to the conditions stipulated therein and the said provision does not provide that, all the suppliers of goods or the persons liable to pay tax shall get registration as ISD, for distributing the ITC among the distinct persons specified under section 25(4) of the Act. 10.6. The fact that, as per the unamended provision, the legislature never intended ....
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....rough ISD mechanism mandatory? Answer: The ISD provision under the CGST Act, 2017 is not mandatory. It only provides the manner of distribution of ITC wherever the business entity wishes to distribute the ITC as an Input Service Distributor." The fact that, the legislature never wanted to make the distribution through ISD mechanism mandatory, is evident from the same as well. From the above it is clear that, as the transactions which are the subject matter of Ext.P1 took place at the time, the unamended section 20 of the CGST Act was in force, it cannot be held that, the petitioner committed any illegality, while distributing the ITC to the other units/distinct persons. In other words, the fact that, the petitioner distributed the ITC without the registration as ISD, cannot have any consequence at all. 10.8. It is true that, in Ext P1 order, the respondent relied on the stipulations in Section 24(viii) of the CGST Act, to show that the registration as ISD was mandatory. The said provision contemplates that, notwithstanding any contained in sub-section (1) of section 22, the categories mentioned sub clauses (i) to (xii) therein are required to be registered under the ....