Micro Labs Limited Vs Joint Commissioner of Central GST & Ors. (Karnataka High Court)
The Karnataka High Court held that distribution of Input Tax Credit (ITC) through cross-charging is valid and that using the Input Service Distributor (ISD) mechanism is not mandatory for common input services. The petitioner, a pharmaceutical company, distributed ITC to its branch units using both ISD and cross-charge methods, particularly for services taxed under reverse charge where ISD was not feasible under the pre-amended law. The tax authorities denied such distribution and raised demands, alleging improper ITC transfer. However, the Court relied on CBIC Circular dated 17.07.2023, which clarified that ITC can be distributed either through ISD or by issuing tax invoices under Section 31 of the CGST Act. It found that the impugned order ignored this binding circular and statutory framework. Consequently, the Court held the ITC distribution lawful, quashed the demand order, and ruled that denial of ITC on this basis was unsustainable in law.
Facts:
M/s. Micro Labs Limited (‘the Petitioner’) is engaged in the manufacture and supply of pharmaceutical products and had distributed common ITC pertaining to input services to its branch offices by raising tax invoices under Section 31 of the CGST Act.
