• Dated 30^th June, 2025

No IGST Payable on HO Expenses Not Cross-Charged to BOs Where Full ITC Is Available

Brief Facts

M/s Kei Industries Limited filed a writ petition under Article 226 of the Constitution of India, challenging an Order-in-Original passed by the Additional Commissioner, Central GST, Delhi East. The dispute centred around whether IGST was payable on certain expenses incurred by the Head Office (HO) i.e., internally generated expenses that were not cross-charged to other distinct entities (Branch Offices or BOs) within the same legal framework.

Assessee's Contention

The assessee argued that no IGST was payable on internally generated services or expenses that were not cross-charged to BOs, provided the recipient BOs were eligible for full Input Tax Credit (ITC). The petitioner relied on CBIC Circular No. 199/11/2023-GST, which clarifies that where full ITC is available to the recipient, the value declared on the invoice shall deemed to be the open market value. In cases where no invoice is issued by HO on Bos in respect of any particular services being rendered by HO to the said BO, the value of the service may be deemed to be declared as Nil, by HO to Bos and may be deemed as market value as per the second proviso to Rule 28 of the CGST Rules.

The assessee specifically referred to Rule 28, which governs valuation of supplies between distinct persons or related parties. The rule provides that the value of such supplies shall be the open market value, but the second proviso states that where the recipient is eligible for full ITC, the value declared in the invoice shall deemed to be the open market value goods or services. Thus, even if the cost of certain components (like employee salary) is excluded or no invoice is issued, and full ITC is available to BOs, the transaction should not attract IGST, since HO did not cross charged to BOs.

Additionally, the petitioner relied on the judgment in Metal One Corporation India Pvt. Ltd. &Ors. v. Union of India &Ors , where it was held that in the absence of invoices, the value of services can be treated as Nil, resulting in no tax liability.

Department's Contention

The department relied on a similar case, Filatex India Ltd. v. Additional Commissioner Central GST , where the Court had directed the assessee to avail Appellate remedies rather than invoking writ jurisdiction directly. The department maintained that the adjudicating authority had correctly applied Rule 28 and the valuation mechanism therein.

Court's Decision

The Court emphasized that the Adjudicating Authority failed to properly apply the CBIC Circular No. 199/11/2023-GST, which provides a specific and binding interpretation of Rule 28 in situations where full ITC is available. The Court observed that the Order-in-Original overlooked the critical aspect that no cross-charges were made between the HO and BOs and that the BOs were fully eligible to avail ITC. By disregarding the Circular, the Adjudicating Authority had not correctly appreciated the legal framework governing valuation in such inter-entity transactions.

The Court underscored the principle laid down in the Metal One Corporation case, reiterating that when no invoice is raised and full ITC is available, the value of services may deemedto be Nil, which leads to no assessable tax liability. The Court noted that initiating proceedings or demanding IGST in such cases would be futile, impractical, and serve no useful purpose, especially when there is no revenue loss to the government due to the ITC mechanism.

In view of this, the Court directed the Adjudicating Authority to reconsider the matter afresh, taking into account the CBIC Circular and the judicial precedent in Metal One Corporation India Pvt. Ltd. It was also ordered that the petitioner be granted an opportunity of being heard before a fresh decision is made.

BTA's Comment

This ruling provides important relief to multi-location businesses by clarifying that where full ITC is available and no invoice is raised for intra-entity services, the value may be considered Nil and consequentially IGST is not leviable. It affirms that procedural lapses, like non-issuance of cross-charge invoices, does not give rise to tax liability when there is no loss to the revenue. The judgment aligns with the GST regime's objective of avoiding cascading tax and reduces unnecessary compliance burdens for registered entities with multiple distinct GST registrations.

Author: Sneha Nandi

Edited by: Shaily Gupta