Madras High Court
Reliance Jio Infocomm Ltd vs Union Of India
2026:MHC:925
W.P.Nos.27038 of 2025 etc
IN THE HIGH COURT OF JUDICATURE AT MADRAS
RESERVED ON : 09.12.2025
DELIVERED ON : 05.03.2026
CORAM :
THE HONOURABLE MR. MANINDRA MOHAN SHRIVASTAVA,
CHIEF JUSTICE
AND
THE HONOURABLE MR.JUSTICE G.ARUL MURUGAN
WP Nos.27038 and 28371 of 2025
and WMP Nos.30334, 30336, 30338, 30341, 31776, 30330, 30332,
31768, 31770, 31771, 31772 and 31773 of 2025
W.P.No.27038 of 2025:
Reliance Jio Infocomm Ltd
Rep by its Power of Attorney Holder
Kumar Jayaraman
5th Floor, No 89 A1 Towers
Dr Radhakrishnan Salai, Mylapore
Chennai-600 004.
Petitioner(s)
Vs
1. Union of India
Through the Secretary,
Department of Revenue,
Ministry of Finance, North Block,
New Delhi - 110 001.
2. State of Tamilnadu
Through the Secretary
Commercial Taxes and Registration
Department, Ezhilagam
PWD Estate, Chepauk
Chennai - 600 005.
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3. Commissioner of Central Tax
and Central Excise
Audit - I Commissionerate, No 1775
Jawaharlal Nehru Inner Ring Road
Anna Nagar Western Extension
Chennai - 600 101.
Respondent(s)
PRAYER: Petition filed under Article 226 of the Constitution of India
seeking issuance of:
(i) a writ of declaration to declare Rule 39(1)(a) of the Central Goods
and Services Tax Act, 2017, as it stands after 01.04.2025, to the
extent that it requires ITC to be distributed by an ISD in the same
month as the date of the underlying input service invoice, as being
manifestly arbitrary and violative of Article 14 of the Constitution;
(ii) a writ of declaration to declare Rule 39(1)(a) of the Tamil Nadu
Goods and Services Tax Act, 2017, as it stands after 01.04.2025, to
the extent that it requires ITC to be distributed by an ISD in the same
month as the date of the underlying input service invoice, as being
manifestly arbitrary and violative of Article 14 of the Constitution;
(iii) a writ of declaration to declare Rule 39(1)(a) of the Central Goods
and Services Tax Act, 2017, as it stood prior to 01.04.2025, to the
extent that it required ITC to be distributed by an ISD in the same
month as the date of the underlying input service invoice, as being
manifestly arbitrary and violative of Article 14 of the Constitution, and
ultra vires Section 20 of the Central Goods and Services Tax Act, 2017;
(iv) a writ of declaration to declare Rule 39(1)(a) of the Tamil Nadu
Goods and Services Tax Act, 2017, as it stood prior to 01.04.2025, to
the extent that it requires ITC to be distributed by an ISD in the same
month as the date of the underlying input service invoice, as being
manifestly arbitrary and violative of Article 14 of the Constitution and
ultra vires Section 20 of the Central Goods and Services Tax Act, 2017;
and
(v) a writ of certiorari to call for the records and proceedings relating
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to the impugned Show Cause Notice No.216/2025-AUDIT I, dated
27.06.2025 issued by the Respondent No.3 to the petitioner herein
and quash the same as illegal.
For Petitioner(s): Mr.Arvind P Datar
Senior Counsel
for Mr.Rahul Unnikrishnan
For Respondent(s):Mr.AR.L.Sundaresan
Additional Solicitor General of India
Assisted by Ms.Revathi Manivannan
Senior Standing Counsel
for R1 and R3
Mr.Haja Nazirudeen
Additional Advocate General
Assisted by Mr.V.Prashanth Kiran
Government Advocate
for R2
WP No.28371 of 2025:
Reliance Jio Infocomm Ltd
Rep by its Power of Attorney Holder
Kumar Jayaraman
Having its office at 145
Muthumariamman Koil Street
Puducherry - 605 009.
Petitioner(s)
Vs
1. Union of India
Through the Secretary,
Department of Revenue,
Ministry of Finance, North Block,
New Delhi - 110 001.
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2. Government of Puducherry
Through the Secretary
Commercial Taxes Department
Government of Puducherry
100 feet Road Ellapillaichavady
Pondicherry – 605005.
3. Commissioner of Central Tax
and Central Excise
Audit I Commissionerate
No.1775, Jawaharlal Nehru
Inner Ring Road, Anna Nagar
Western Extension
Chennai - 600 101
Respondent(s)
PRAYER: Petition filed under Article 226 of the Constitution of India
seeking issuance of:
(i) a writ of declaration to declare Rule 39(1)(a) of the Central Goods
and Services Tax Act, 2017, (CGST Act) as it stands after 01.04.2025,
to the extent that it requires ITC to be distributed by an ISD in the
same month as the date of the underlying input service invoice, as
being manifestly arbitrary and violative of Article 14 of the
Constitution;
(ii) a writ of declaration to declare Rule 39(1)(a) of the Puducherry
Goods and Services Tax Act, 2017 (PUGST Act), as it stands after
01.04.2025, to the extent that it requires ITC to be distributed by an
ISD in the same month as the date of the underlying input service
invoice, as being manifestly arbitrary and violative of Article 14 of the
Constitution;
(iii) a writ of declaration to declare Rule 39(1)(a) of the Central Goods
and Services Tax Act, 2017, as it stood prior to 01.04.2025, to the
extent that it required ITC to be distributed by an ISD in the same
month as the date of the underlying input service invoice, as being
manifestly arbitrary and violative of Article 14 of the Constitution, and
ultra vires Section 20 of the Central Goods and Services Tax Act, 2017;
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(iv) a writ of declaration to declare Rule 39(1)(a) of the Puducherry
Goods and Services Tax Act, 2017, as it stood prior to 01.04.2025, to
the extent that it requires ITC to be distributed by an ISD in the same
month as the date of the underlying input service invoice, as being
manifestly arbitrary and violative of Article 14 of the Constitution, and
ultra vires Section 20 of the Puducherry Goods and Services Tax Act,
2017; and
(v) a writ of certiorari to call for the records and proceedings relating
to the impugned Show Cause Notice No.185/2025-AUDIT I, dated
26.06.2025 issued by the Respondent No.3 to the petitioner herein
and quash the same as illegal.
For Petitioner(s): Mr.Arvind P Datar
Senior Counsel
for Mr.Rahul Unnikrishnan
For Respondent(s):Mr.Su.Srinivasan
Senior Central Government
Standing Counsel
for R1 and R3
Mr.S.Raveekumar
Government Pleader (Pondy)
assisted by
Mr.V.Vasantha Kumar
Additional Government Pleader (Pondy)
for R2
COMMON ORDER
THE CHIEF JUSTICE
In W.P.No.27038 of 2025, the challenge is to the validity of
Rule 39(1)(a) of the Central Goods and Services Tax Rules, 2017
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and Rule 39(1)(a) of the Tamil Nadu Goods and Services Tax Rules,
2017 in respect of two periods, viz., prior to 01.04.2025 and
thereafter, as 01.04.2025 is the date on which the amendments to
Section 20 of the Central Goods and Services Tax Act, 2017 and the
Tamil Nadu Goods and Services Tax Act, 2017 were brought into
effect. The petitioner also sought quashment of the show cause
notice dated 27.6.2025.
2. In W.P.No.28371 of 2025, the petitioner calls into question
the validity of Rule 39(1)(a) of the Central Goods and Services Tax
Rules, 2017 and Rule 39(1)(a) of the Puducherry Goods and
Services Tax Rules, 2017 in respect of two periods, viz., prior to
01.04.2025 and thereafter, as 01.04.2025 is the date on which the
amendments to Section 20 of the Central Goods and Services Tax
Act, 2017 and the Puducherry Goods and Services Tax Act, 2017
were brought into effect. The petitioner also prayed for setting
aside the show cause notice dated 26.6.2025.
3. As the provisions under challenge in both the writ petitions
are one and the same, we shall take up W.P.No.27038 of 2025 as
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lead case to decide the issues raised.
4.1. An apércu of the facts relevant reads thus: The
petitioner, a company incorporated under the Companies Act,
1956, is engaged in the business of providing telecommunication
services and was granted separate GST registrations in each State
and Union Territory from where it supplies telecommunication
services. According to the petitioner, each such registration is
treated as a distinct person.
4.2. It is averred that the CGST/TNGST laws provide for a
concept of Input Service Distributor (ISD) and in cases where an
assessee has several units and there are common service providers,
it is necessary that the credit in respect of input services is
distributed so that the entire credit is not taken by the Head Office
alone. The Input Tax Credit (ITC), as per law, is to be distributed
pro rata on the basis of turnover of the individual units in the
preceding financial year. As each branch office in a State has to be
separately registered, the petitioner has 36 registrations in almost
all the States/Union Territories.
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4.3. It is stated that before 01.04.2025, Section 20 of the
CGST Act did not empower the Central Government to prescribe the
time limit within which the ISD was required to distribute credit.
The power to do so was introduced with effect from 01.04.2025 by
insertion of the phrase “within such time and subject to such
restrictions and conditions as may be prescribed” in Section 20(2)
of the CGST Act. It is further stated that, as per the said
amendment, ITC has to be distributed by an ISD in the same month
as the date of the underlying input service invoice.
4.4. The plea of the petitioner is that, for the period prior to
01.04.2025, respondent Nos.2 and 3 do not have the power to
prescribe a time limit for distribution of ITC by an ISD unit and,
therefore, the provisions of Rule 39(l)(a) of the CGST Rules/TNGST
Rules purportedly stipulating that the ITC has to be distributed in
the same month as the month in which the underlying input service
invoice was issued, are beyond the scope and powers vested by the
parent legislation.
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4.5. It is the further case of the petitioner that the purported
stipulation that ITC has to be distributed in the same month as the
month in which the underlying input service was issued is not only
impossible to fulfill, but also arbitrary and unreasonable, as the ISD
is not only required to determine to which recipient unit the input
service invoice is attributable to, but also whether the said input
service invoice pertains to eligible credit or ineligible credit and
whether the conditions under the CGST Act/TNGST Act have been
fulfilled qua such invoices. When Section 16(4) of the CGST
Act/TNGST Act stipulates a time limit of around November of the
financial year subsequent to the financial year in which the invoice
was issued, any stipulation that the distribution must happen
forthwith is unreasonable and arbitrary.
4.6. It is further averred that the show cause notice dated
27.6.2025, which pertains to the financial years 2018-2019 to
2023-2024, is unsustainable and without jurisdiction as Rule 39(1)
(a) of the Rules has been substituted with effect from 1.4.2025,
without a savings clause.
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4.7. In such factual backdrop, the present writ petition is filed
for the relief stated supra.
5.1. Mr.Arvind P. Datar, learned Senior Counsel appearing on
behalf of the petitioners, submitted that:
a) Though the government was empowered to prescribe a
time limit for distribution of ITC in terms of Section 20 of the
CGST Act/TNGST Act, the time limit could not have been the
same month as the month in which the invoice was issued
by the supplier, as it is impossible to be complied with,
rendering it manifestly arbitrary and ultra vires Article 14 of
the Constitution of India;
b) The amendment to Section 20 of the CGST Act/TNGST
Act can apply only prospectively, as it is a settled proposition
of law that an amendment is prospective, unless expressly
stated to be retrospective. By fixing a time limit, a
substantive change has been brought in by the government
and, by no stretch of imagination, the amendment could be
termed as “clarificatory” to apply retrospectively;
c) It is impossible to distribute the ITC without ensuring
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W.P.Nos.27038 of 2025 etccompliance of the conditions stipulated under Section 16 of
the Act. Moreover, the assessee needs to ascertain as to
which unit the input service in question was attributable to,
before applying the distribution formula prescribed under
Section 20 of the Act read with Rule 39 of the Rules. The
entire exercise is time consuming and practically impossible
of compliance;
d) Rule 39(1)(a) has to be read down and the phrase
“available for distribution” employed therein is to be
interpreted to mean when the conditions under Section 16 of
the Act have been fulfilled. In other words, the expression
in Section 20(1) of the Act, viz., “input service distributor
shall distribute the credit” (prior to amendment) and the
expression “shall distribute the input tax credit” (after
amendment) should be interpreted to mean the credit
fulfilling the requirements of Section 16(2) of the Act. The
entitlement to ITC arises only when the conditions of Section
16 of the Act are satisfied;
e) If the credit is distributed as per the invoice, the
assessee has to suffer adverse consequences, including
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liability for interest and penalty under Section 21 read with
Sections 73 and 74 of the Act. The assessee cannot be
compelled to distribute the credit first and reverse it at a
later date, making it liable for interest and penalty;
f) There is no revenue loss if the distribution is done in a
month after the month of issuance of invoice and, in any
event, it is to the taxpayer’s detriment to delay distribution,
in as much as the undistributed credit cannot be set-off
against output liability till it is distributed; and
g) By way of illustration, it is put forth that it is the ISD
which has to segregate eligible and ineligible ITC and
distribute them and in a case where the GST invoice is
issued on 30th of a month, it is impossible to distribute
through ISD invoice on the same day or the next day and,
thus, the rule violates Article 19(1)(g) of the Constitution by
imposing unreasonable restrictions on the right to carry on
business.
5.2. Learned Senior Counsel relied upon a decision of the
Supreme Court in the case of Sales Tax Officer Ponkunnam and
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another v. K.I.Abraham1, wherein Rule 6 of the Central Sales Tax
(Kerala) Rules, 1957 was struck down as being ultra vires Section 8
of the Central Sales Tax Act, as the parent provision did not
empower prescription of a time limit. He added that the said
judgment is squarely applicable to the case in hand.
6.1. Mr.AR.L.Sundaresan, learned Additional Solicitor General
of India appearing on behalf of respondent Nos.1 and 3, submitted
that:
(a) Rule 39(1)(a) of the Central Goods and Services Tax
Rules, 2017 has been validly framed in exercise of the rule-
making power conferred under Section 164 of the CGST Act,
2017, read with Section 20 of the CGST Act, which
empowers the Government to prescribe the manner of
distribution of ITC by ISD. The rule operates within the
statutory framework and is a necessary supplement to the
substantive provisions of the Act. Therefore, challenge to
the constitutional validity of the said Rule falls flat. The
same-month distribution requirement is neither impossible
1
AIR 1967 SC 1823
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nor arbitrary, and serves the legitimate purpose of
maintaining the integrity of the GST system and preventing
revenue leakage;
(b) The amendment to Section 20(2) of the CGST Act with
effect from 01.04.2025, inserting the phrase “within such
time and subject to such restrictions and conditions as may
be prescribed” is only a clarificatory amendment and clarifies
what was already in Section 20 of the Act and validates the
existing Rule 39(1)(a) of the Rules. The amendment makes
explicit what was always implicit in the power to prescribe
“manner” of distribution. Rule 39(1)(a) is a procedural rule
prescribing the timeline for distribution of ITC by ISD, which
directly carries out the provisions of Section 20 of the Act.
The Rule does not create any new liability or right
independent of the Act, but merely operationalizes the ITC
distribution mechanism contemplated under Section 20 of
the Act. The fact that Parliament found it necessary to insert
this phrase demonstrates that the power to prescribe time
limits was intended to be part of the rule-making authority
from the inception of the Act. The rule is ancillary and
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subservient to the main provisions of the Act and does not
travel beyond the scope of the enabling statute;
(c) The classification created by Rule 39(1)(a) of the Rules
between ISD recipients and other registered persons is
founded on intelligible differentia having rational nexus with
the object sought to be achieved. The ISD mechanism
addresses the unique situation of entities having multiple
GSTIN registrations under the same PAN, requiring a
specialized mechanism for equitable distribution of common
Input Tax Credit. ISDs are centralized distribution hubs, not
end-users of credit. This fundamental difference justifies
separate treatment. That apart, the same-month
distribution requirement has rational nexus with the
legislative objects of (a) preventing accumulation of credit in
ISD registrations; (b) ensuring actual recipient units receive
credit contemporaneously with invoices within the same
timelines; (c) preventing manipulation through delayed
distribution; (d) maintaining audit trail integrity: and (e)
facilitating destination-based taxation principle under GST.
Mere centralisation of invoicing and distribution of Credit by
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the ISD cannot change this basic receipt of credit by the
actual receiver of service within a time limit. Therefore, the
rule does not violate Article 14 of the Constitution of India;
(d) Rule 39(1)(a) of the Rules does not violate the
fundamental right to carry on trade or business under Article
19(1)(g) of the Constitution. Input Tax Credit is a statutory
benefit, not an absolute right, and can be regulated through
conditions prescribed by law. The procedural requirements
do not prohibit business activities, but merely regulate the
manner of claiming tax benefits. The restrictions imposed
under Rule 39(1)(a) of the Rules are reasonable restrictions
in the interest of general public and for maintaining integrity
of the tax system. They are designed to ensure proper
administration of GST law, prevent revenue leakage, and
facilitate audit and verification processes and, hence, there
is no violation of Article 19(1)(g) of the Constitution of
India;
(e) ISD distribution is not the same as “taking” or
“availing” input tax credit under Section 16 of the CGST Act.
It is merely an internal accounting adjustment, a book entry
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transferring credit from the ISD registration to recipient
registrations under the same PAN. Petitioner is seeking to
mix up this distribution of credit with actual availment of
credit. The conditions under Section 16(2) of the Act are
relevant only when the Branch GSTIN registrations to whom
it is distributed avails or takes the credit, not when ISD
distributes the credit to its branches. Therefore, the
argument advanced by the petitioners that conditions
stipulated under Section 16(2) of the Act must be verified
before each distribution is off beam and misunderstands the
fundamental nature of ISD mechanism;
(f) Section 16(4) of the Act CGST has no application to
ISD distribution time limit. The said provision deals with the
outer time limit for actual recipient registered person to
claim ITC in their books and returns. It has no connection
whatsoever with the ISD’s obligation to distribute credit in
the same month as the invoice under Rule 39(1)(a) of the
Rules. The petitioner’s attempt to conflate Section 16(4) of
the CGST Act dealing with availment of credit by recipient
with Rule 39(1)(a) of the CGST Rules dealing with
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distribution by ISO is a deliberate attempt to create
confusion and must be rejected outright;
(g) The show cause notice dated 27.06.2025 is based on
detailed audit findings covering financial years 2018-19 to
2023-24. The audit was conducted under Section 65 of the
CGST Act and revealed systematic contraventions by the
petitioner in ISD credit distribution. The petitioner failed to
provide complete GSTR-6 calculations and inward supply
invoice details to substantiate ISD credit entitlement. This
lack of cooperation and transparency during audit
proceedings further demonstrates that the contraventions
were not mere inadvertent errors, but part of a systematic
pattern.
(h) In any event, the present writ petition is premature
and not maintainable as the show cause notice is still
pending adjudication. The petitioner has adequate
opportunity to raise all contentions, both factual and legal,
in the statutory proceedings before the adjudicating
authority. Under the guise of constitutional challenge to
statutory rules, which is without substance, petitioner
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cannot bypass statutory remedies without the petitioner first
demonstrating that such remedies are inadequate or would
cause irreparable harm.
6.2. Placing reliance upon a decision of the Supreme Court in
Jayam & Co. v. Assistant Commissioner 2, wherein it is held that
procedural conditions for availing tax benefits are within legislative
competence and do not violate fundamental rights if they are
reasonable and serve legitimate policy objectives, it is submitted
that the same-month distribution requirement under Rule 39(1)(a)
of the Rules is a reasonable procedural condition serving the
legitimate objectives of revenue protection and prevention of fraud.
6.3. Reliance is also placed on a decision in the case of Union
of India v. VKC Footsteps India Pvt Ltd 3, wherein it is categorically
held that ITC is a statutory benefit subject to conditions prescribed
by law. The conditions cannot be termed as unreasonable merely
because they require diligent compliance by taxpayers. This
principle fully supports the validity of Rule 39(1)(a) of the Rules,
2
(2016) 15 SCC 125
3
(2022) 2 SCC 603
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which prescribes a reasonable timeline for ISD credit distribution.
6.4. Relying on the decision of the Supreme Court in ALD
Automotive Pvt Ltd. v. The Commercial Tax Officer and Ors. 4,
wherein the validity and mandatory nature of time limits for
claiming ITC was upheld, it is submitted that the said judgment is
squarely applicable to Rule 39(1)(a) of the Rules, which prescribes
same-month distribution timeline for ISD credit distribution.
7. Learned counsel for the second respondent in W.P.No.27038
of 2025 adopted the arguments advanced by learned Additional
Solicitor General of India.
8. Learned counsel for the respondents in W.P.No.28371 of
2025 also advanced arguments on the same lines.
9. We have bestowed our anxious consideration to the
arguments advanced by learned counsel on either side.
4
(2019) 13 SCC 225
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ANALYSIS & CONCLUSION
10. The pivotal issue arising for consideration is whether the
statutory mandate engrafted in Rule 39(1)(a) of the CGST Rules is
ultra vires the enabling Act and whether the legal requirement of
distribution of credit by the distributor in the same month of receipt
of invoice is manifestly arbitrary and violative of Article 14 of the
Constitution of India.
11. In W.P.No.27038 of 2025, the impugned show cause
notice only to the extent it alleges contravention of Section 20 of
the CGST Act read with Rule 39(1)(a) of the CGST Rules is under
challenge. The other issues raised in the show cause notice are not
subject matter of the petition.
12. In W.P.No.28371 of 2025, the entire show cause notice is
under challenge as it alleges contravention of the provisions relating
to distribution of credit on the ground that the distribution has not
taken place in the same month in which invoices are received.
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13.1. The show cause notice in W.P.No.27038 of 2025 alleges
contravention on the statement that, on verification of auto
populated details of invoices in GSTR2A of the taxpayer during the
period 2020-21 and 2022-23, it was noticed that in respect of
certain ISD invoices the “ITC eligible Yes/ No” column has been
marked as “No”. That means ITC against such invoices is not
eligible. As per auto populated details in GSTR2A, as alleged, the
taxpayer has availed excess ISD credit than the eligible ITC that is
available as per the table shown therein.
13.2. It is further stated that on verification of the ISD credit
details for the Chennai ISD as per GSTR-6 as submitted, it was
noticed that the tax payer has declared availability of credit of
Rs.51,55,243/- (IGST) based on receipt from GSTINs of other than
Tamil Nadu State having Permanent Account Number (PAN).
Therefore, it is alleged that such credit amounts have been shown
as received for distribution against the inward supply invoices which
have been issued by the taxpayer having same PAN registration in
States other than Tamil Nadu along with the details therein.
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13.3. What is further stated is that, on verification of the
details of ISD credit submitted by the taxpayer said to be related to
the ISD with the GSTR-2A submitted by the taxpayer, they were
requested to furnish details of total ISD credit availed by them,
including other details of original supply invoices / calculations /
availability of credit with ISD, etc. It is then alleged that the
taxpayer selectively furnished ISD credit details in excel format with
corresponding GSTR-6A data and sample ISD invoices on a random
basis, for ISD credit received during subject tax period from
Chennai ISD and Maharashtra ISD.
13.4. It is also alleged that, on verification of the details and
sample ISD invoices furnished by the taxpayer, it is found that the
ITC availed by the taxpayer based was on the invoices which were
not issued by the Input Service Distributor(s) in the same month of
receipt of original inward supply invoice, which, according to the
respondents, is contrary to the provisions laid down for such
transfer of credit, followed by details.
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13.5. Having quoted provisions contained in Sections 20 and
21 of the CGST Act and Rules 39 and 54 of the CGST Rules, 2017,
the impugned show cause notice states thus:
“2.5.3.1. Section 20 of the CGST Act, 2017 provides
for the manner of distribution of ISD credit and
Section 20(2)(b) states that the amount of credit
distributed shall not exceed the amount of credit
available for distribution. Rule 39 of Che CGST Act,
2017 provides for the procedure for distribution of
the ISD credit. Rule 39(l)(a) of CGST Rules, 2017
clearly states that the ITC available for distribution in
a month shall be distributed in the same month.
Therefore, it appears that only such of those credit
which are available during the month for the Input
Service distributor can be distributed during that
month. In the instant case, it appears that the credit
received from the Input Service Distributor appears
to contain credit relating to the earlier months, which
is totally contradictory and in contravention to the
provisions of Section 20 of CGST Act, 2017 read with
Rule 39 of the CGST Rules, 2017.”13.6. Thus, what has been alleged in the show cause notice is
that in the matter of distribution of credits available in a particular
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W.P.Nos.27038 of 2025 etcmonth, distribution was not made in the same month as mandated
in Rule 39(1)(a) of the CGST Rules.
14. In W.P.No.28371 of 2025 also identical allegations have
been made. It is stated that the legal mandate engrafted in Rule
39(1)(a) of the Rules qua distribution of credit has been
contravened, as the same was not distributed by the distributor to
respective branch having separate registration in the same month
of receipt of invoice.
15. Thus, in both the cases, on such allegation, it has been
stated that the petitioners have sought to wrongly avail ITC of the
distributed credit.
STATUTORY SCHEME WITH REGARD TO ENTITLEMENT AND
AVAILMENT OF INPUT TAX CREDIT
16. In the legal regime of the CGST Act, 2017, tax in the
nature of goods and service tax is leviable in accordance with the
provisions under Section 9 of the CGST Act providing for levy as
well as collection of goods and service tax.
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17. Chapter V deals with ITC and contains various provisions
providing for eligibility and conditions for taking ITC.
18. The definitions of the expressions “input”, “input service”,
“input tax” and “input tax credit” were noticed by the Apex Court in
the case of Union of India v. VKC Footsteps India Pvt Ltd (supra) as
under:
“60. The definition of the expression ‘input’ is
contained in Section 2(59) which reads thus:
“2. (59) ‘input’ means any goods other than
capital goods used or intended to be used by a
supplier in the course or furtherance of
business;”
The expression ‘input’ is thus defined to mean goods
other than capital goods. The definition, however,
incorporates a requirement of use, actual or intended,
by a supplier or in the course or furtherance of
business.
61. ‘Input service’ is defined in Section 2(60) as
follows:
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W.P.Nos.27038 of 2025 etc“2. (60) ‘input service’ means any service used
or intended to be used by a supplier in the
course or furtherance of business;”
The definition of “input service” is parallel to that of
“input”, with the important distinction that while
“input” is defined with reference to “any goods”, “input
service” is defined in relation to “any service”. Both
sets of definitions incorporate the further requirement
of use or intended use by a supplier in the course or
furtherance of business.
62. The expression “input tax” is defined in Section
2(62):
“2. (62) “input tax” in relation to a registered
person, means the Central tax, State tax,
integrated tax or Union Territory tax charged
on any supply of goods or services or both
made to him and includes—
(a) the integrated goods and services tax
charged on import of goods;
(b) the tax payable under the provisions of
sub-sections (3) and (4) of Section 9;
(c) the tax payable under the provisions of
sub-sections (3) and (4) of Section 5 of the
Integrated Goods and Services Tax Act;
(d) the tax payable under the provisions of
sub-sections (3) and (4) of Section 9 of the
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W.P.Nos.27038 of 2025 etcrespective State Goods and Services Tax Act;
or
(e) the tax payable under the provisions of
sub-sections (3) and (4) of Section 7 of the
Union Territory Goods and Services Tax Act,but does not include the tax paid under the
composition levy;”The expression “input tax” in relation to a registered
person means (i) the Central, State, Integrated or
Union Territory tax; (ii) charged on any supply of
goods or services or both made to a registered person.
This is followed by an inclusive definition.
63. The expression “input tax credit” is defined in
Section 2(63):
“2. (63) “input tax credit” means the credit of
input tax;”
Evidently, since input tax credit means the credit on
input tax, the definition of the expression “input tax”
has to be read into Section 2(63) in understanding the
ambit of the expression “input tax credit”. Now, input
tax is the tax charged on the supply of goods or
services or both.”
19. Under the CGST Act, eligibility and conditions for taking
ITC have been provided under Section 16 of the Act as below:
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W.P.Nos.27038 of 2025 etc“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
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W.P.Nos.27038 of 2025 etcor debit note in the manner specified under
section 37;
(b) he has received the goods or services or
both.
Explanation.- For the purposes of this clause, it shall
be deemed that the registered person has received the
goods or, as the case may be, services-
(i) where the goods are delivered by the
supplier to a recipient or any other person on
the direction of such registered person,
whether acting as an agent or otherwise,
before or during movement of goods, either by
way of transfer of documents of title to goods
or otherwise;
(ii) where the services are provided by the
supplier to any person on the direction of and
on account of such registered person;
(ba) the details of input tax credit in respect of
the said supply communicated to such
registered person under section 38 has not
been restricted;
(c) subject to the provisions of section 41, the
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tax charged in respect of such supply has been
actually paid to the Government, either in cash
or through utilisation of input tax credit
admissible in respect of the said supply; and
(d) he has furnished the return under section
39:
PROVIDED that where the goods against an invoice are
received in lots or instalments, the registered person
shall be entitled to take credit upon receipt of the last
lot or instalment:
PROVIDED FURTHER that where a recipient fails to pay
to the supplier of goods or services or both, other than
the supplies on which tax is payable on reverse charge
basis, the amount towards the value of supply along
with tax payable thereon within a period of one
hundred and eighty days from the date of issue of
invoice by the supplier, an amount equal to the input
tax credit availed by the recipient shall be paid by him
along with interest payable under section 50, in such
manner as may be prescribed:
PROVIDED ALSO that the recipient shall be entitled to
avail of the credit of input tax on payment made by
him to the supplier of the amount towards the value of______________
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W.P.Nos.27038 of 2025 etcsupply of goods or services or both along with tax
payable thereon.
(3) Where the registered person has claimed
depreciation on the tax component of the cost of
capital goods and plant and machinery under the
provisions of the Income tax Act, 1961 (43 of 1961),
the input tax credit on the said tax component shall
not be allowed.
(4) A registered person shall not be entitled to take
input tax credit in respect of any invoice or debit note
for supply of goods or services or both after the
thirtieth day of November following the end of financial
year to which such invoice or debit note pertains or
furnishing of the relevant annual return, whichever is
earlier.
PROVIDED that the registered person shall be entitled
to take input tax credit after the due date of furnishing
of the return under section 39 for the month of
September, 2018 till the due date of furnishing of the
return under the said section for the month of March,
2019 in respect of any invoice or invoice relating to
such debit note for supply of goods or services or both
made during the financial year 2017-18, the details of
which have been uploaded by the supplier under
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subsection (1) of section 37 till the due date for
furnishing the details under sub-section (1) of said
section for the month of March, 2019.
(5) Notwithstanding anything contained in sub-section
(4), in respect of an invoice or debit note for supply of
goods or services or both pertaining to the Financial
Years 2017- 18, 2018-19, 2019-20 and 2020-21, the
registered person shall be entitled to take input tax
credit in any return under section 39 which is filed upto
the thirtieth day of November, 2021.
(6) Where registration of a registered person is
cancelled under section 29 and subsequently the
cancellation of registration is revoked by any order,
either under section 30 or pursuant to any order made
by the Appellate Authority or the Appellate Tribunal or
court and where availment of input tax credit in
respect of an invoice or debit note was not restricted
under sub-section (4) on the date of order of
cancellation of registration, the said person shall be
entitled to take the input tax credit in respect of such
invoice or debit note for supply of goods or services or
both, in a return under section 39,––
(i) filed upto thirtieth day of November
following the financial year to which such
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invoice or debit note pertains or furnishing of
the relevant annual return, whichever is
earlier; or
(ii) for the period from the date of cancellation
of registration or the effective date of
cancellation of registration, as the case may
be, till the date of order of revocation of
cancellation of registration, where such return
is filed within thirty days from the date of
order of revocation of cancellation of
registration, whichever is later.”
20. On a bare reading of the provisions contained in Section
16(2) of the Act, it is clear that 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 the conditions prescribed in
Clauses (a), (aa), (b), (ba), (c) and (d) are fulfilled.
21. Importantly, receipt of notice is only the first step which
necessarily has to follow fulfillment of other conditions.
22. In the case of Union of India v. VKC Footsteps India Pvt
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Ltd (supra), in the matter of challenge to the validity of the
statutory scheme of refund of unutilised ITC, after having referred
to the provision contained in Section 16 of the CGST Act, it was held
as follows:
“70. Section 16(2) indicates that the credit of input
tax charged on any supply of goods or services, or
both, can be availed of by a registered person
subject to the conditions which are set out in the
provisos. Input tax, as we have already seen, has
been defined in Section 2(62) as tax charged on any
supply of goods or services or both. The credit of
input tax is, therefore, relatable both to the supply of
goods and services. Whether tax is paid on the
supply of goods or services, the recipients receive
ITC in a similar manner. Taxes on goods and
services are identifiable, but upon credit to the
electronic ledger they form a common pool for
utilisation.”
23. It is thus clear that the credit of input tax charged on any
goods or services or both can be availed by a registered person
subject to the conditions which are set out in the provisions.
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24.1. In the case of ALD Automotive Pvt Ltd. v. The
Commercial Tax Officer and Ors (supra), it was held that the input
credit is in the nature of benefit/concession extended to the dealer
under the statutory scheme and that concession can be received by
the beneficiary only as per the scheme of the statute. It was held
as below:
“34. The input credit is in the nature of
benefit/concession extended to the dealer under the
statutory scheme. The concession can be received by
the beneficiary only as per the scheme of the statute.
Reference is made to the judgment of this Court
in Godrej & Boyce Mfg. Co. (P) Ltd. v. CST, (1992) 3
SCC 624. Rules 41 and 42 of the Bombay Sales Tax
Rules, 1959 provided for the set-off of the purchase
tax. This Court held that the rule-making authority can
provide curtailment while extending the concession. In
para 9 of the judgment, the following has been laid
down: (SCC pp. 631-32)‘9. In law (apart from Rules 41 and 41-A) the
appellant has no legal right to claim set-off of
the purchase tax paid by him on his purchases
within the State from out of the sales tax
payable by him on the sale of the goods
manufactured by him. It is only by virtue of
the said Rules—which, as stated above, are
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W.P.Nos.27038 of 2025 etcconceived mainly in the interest of public—that
he is entitled to such set-off. It is really a
concession and an indulgence. More
particularly, where the manufactured goods
are not sold within the State of Maharashtra
but are despatched to out-State branches and
agents and sold there, no sales tax can be or
is levied by the State of Maharashtra. The
State of Maharashtra gets nothing in respect of
such sales effected outside the State. In
respect of such sales, the rule-making
authority could well have denied the benefit of
set-off. But it chose to be generous and has
extended the said benefit to such out-State
sales as well, subject, however to deduction of
one per cent of the sale price of such goods
sent out of the State and sold there. We fail to
understand how a valid grievance can be made
in respect of such deduction when the very
extension of the benefit of set-off is itself a
boon or a concession. It was open to the rule-
making authority to provide for a small
abridgement or curtailment while extending a
concession. Viewed from this angle, the
argument that providing for such deduction
amounts to levy of tax either on purchases of
raw material effected outside the State or on______________
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W.P.Nos.27038 of 2025 etcsale of manufactured goods effected outside
the State of Maharashtra appears to be beside
the point and is unacceptable. So is the
argument about apportioning the sale-price
with reference to the proportion in which raw
material was purchased within and outside the
State.’”24.2. In the said decision, the fulfillment of preconditions for
availing concession was held to be mandatory relying upon another
decision in the case of India Agencies v. CCT5, as below:
“35. A three-Judge Bench in India Agencies v. CCT,
(2005) 2 SCC 129 had the occasion to consider Rule
6(b)(ii) of the Central Sales Tax (Karnataka) Rules,
1957, which requires furnishing of original Form C to
claim concessional rate of tax under Section 8(1). This
Court held that the requirement under the Rule is
mandatory and without producing the specified
documents, dealers cannot claim the benefits. The
following was laid down in para 13: (SCC pp. 139-140)‘13. … Under Rule 6(b)(ii) of the Karnataka
Rules, the State Government has prescribed
the procedures to be followed and the
documents to be produced for claiming
concessional rate of tax under Section 8(4) of
(2005) 2 SCC 129
5______________
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W.P.Nos.27038 of 2025 etcthe Central Sales Tax Act. Thus, the dealer has
to strictly follow the procedure and Rule 6(b)
(ii) and produce the relevant materials
required under the said rule. Without
producing the specified documents as
prescribed thereunder a dealer cannot claim
the benefits provided under Section 8 of the
Act. Therefore, we are of the opinion that the
requirements contained in Rule 6(b)(ii) of the
Central Sales Tax (Karnataka) Rules, 1957 are
mandatory.’”24.3. The other legal proposition of law that taxing statute is
to be interpreted literally and further it is in the domain of the
legislature as to how much tax credit is to be given and under what
circumstances was also clearly stated as below:
“36. This Court had the occasion to consider the
Karnataka Value Added Tax Act, 2013 in State of
Karnataka v. M.K. Agro Tech. (P) Ltd., (2017) 16 SCC
210. This Court held that it is a settled proposition of
law that taxing statutes are to be interpreted literally
and further it is in the domain of the legislature as to
how much tax credit is to be given under what
circumstances. The following was stated in para 32:
(SCC p. 223)
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W.P.Nos.27038 of 2025 etc‘32. Fourthly, the entire scheme of the KVAT
Act is to be kept in mind and Section 17 is to
be applied in that context. Sunflower oil cake
is subject to input tax. The legislature,
however, has incorporated the provision, in the
form of Section 10, to give tax credit in
respect of such goods which are used as
inputs/raw material for manufacturing other
goods. Rationale behind the same is simple.
When the finished product, after manufacture,
is sold, VAT would be again payable thereon.
This VAT is payable on the price at which such
goods are sold, costing whereof is done
keeping in view the expenses involved in the
manufacture of such goods plus the profits
which the manufacturer intends to earn.
Insofar as costing is concerned, element of
expenses incurred on raw material would be
included. In this manner, when the final
product is sold and the VAT paid, component
of raw material would be included again.
Keeping in view this objective, the legislature
has intended to give tax credit to some extent.
However, how much tax credit is to be given
and under what circumstances, is the domain
of the legislature and the courts are not to
tinker with the same.’”______________
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W.P.Nos.27038 of 2025 etc24.4. Interpreting similar provision with regard to availing of
ITC under the Tamil Nadu Value Added Tax Act, 2006, it was
highlighted that ITC is in the form of concession and it was
categorically held that such ITC would be available on certain
conditions stipulated in law. The relevant paragraphs are
reproduced hereunder:
“37. The judgment on which the learned Advocate
General of Tamil Nadu had placed much reliance
i.e. Jayam & Co. v. Commr., (2016) 15 SCC 125, is
the judgment which is relevant for the present case. In
the above case, this Court had the occasion to
interpret the provisions of the Tamil Nadu Value Added
Tax Act, 2006, Section 19(20), Section 3(2) and
Section 3(3). Validity of Section 19(20) was under
challenge in the said case. This Court after noticing the
scheme under Section 19 noticed the following aspects
in para 11: (SCC p. 134)
‘11. From the aforesaid scheme of Section 19
the following significant aspects emerge:
(a) ITC is a form of concession provided by the
legislature. It is not admissible to all kinds of
sales and certain specified sales are specifically
excluded.
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(b) Concession of ITC is available on certain
conditions mentioned in this section.
(c) One of the most important condition is that
in order to enable the dealer to claim ITC it
has to produce original tax invoice, completed
in all respect, evidencing the amount of input
tax.’
38. This Court further held that it is a trite law that
whenever concession is given by a statute the
conditions thereof are to be strictly complied with in
order to avail such concession. In para 12, the
following has been laid down: (SCC pp. 134-35)
‘12. It is trite law that whenever concession is
given by statute or notification, etc. the
conditions thereof are to be strictly complied
with in order to avail such concession. Thus, it
is not the right of the “dealers” to get the
benefit of ITC but it is a concession granted by
virtue of Section 19. As a fortiori, conditions
specified in Section 10 must be fulfilled. In
that hue, we find that Section 10 makes
original tax invoice relevant for the purpose of
claiming tax. Therefore, under the scheme of
the VAT Act, it is not permissible for the
dealers to argue that the price as indicated in
the tax invoice should not have been taken
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into consideration but the net purchase price
after discount is to be the basis. If we were
dealing with any other aspect dehors the issue
of ITC as per Section 19 of the VAT Act,
possibly the arguments of Mr Bagaria would
have assumed some relevance. But, keeping in
view the scope of the issue, such a plea is not
admissible having regard to the plain language
of sections of the VAT Act, read along with
other provisions of the said Act as referred to
above.’”
25. It is thus clear that unless all the conditions stipulated in
Section 16(2) of the CGST Act are fulfilled as required under the
law, a registered person is not entitled to take ITC.
26. The manner in which the ITC can be availed under the
statutory scheme of the CGST Act is provided in Rule 36 of the
CGST Rules, which details the documentary requirements and
conditions for claiming ITC as below:
“Rule 36. Documentary requirements and conditions
for claiming input tax credit.-
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W.P.Nos.27038 of 2025 etc(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;
(d) a bill of entry or any similar document
prescribed under the Customs Act, 1962 or
rules made thereunder for the assessment of
integrated tax on imports;
(e) an Input Service Distributor invoice or
Input Service Distributor credit note or any
document issued by an Input Service
Distributor in accordance with the provisions of
sub-rule (1) of rule 54.
(2) Input tax credit shall be availed by a registered
person only if all the applicable particulars as specified
in the provisions of Chapter VI are contained in the
said document:
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W.P.Nos.27038 of 2025 etcProvided that if the said document does not contain all
the specified particulars but contains the details of the
amount of tax charged, description of goods or
services, total value of supply of goods or services or
both, GSTIN of the supplier and recipient and place of
supply in case of inter-State supply, input tax credit
may be availed by such registered person.
(3) No input tax credit shall be availed by a registered
person in respect of any tax that has been paid in
pursuance of any order where any demand has been
confirmed on account of any fraud,
willful misstatement or suppression of facts.
(4) No input tax credit shall be availed by a registered
person in respect of invoices or debit notes the details
of which are required to be furnished under subsection
(1) of section 37 unless,-
(a) the details of such invoices or debit notes
have been furnished by the supplier in the
statement of outward supplies in FORM
GSTR-1 [, as amended in FORM GSTR-1A if
any,] or using the invoice furnishing facility;
and
(b) the details of input tax credit in respect of
such invoices or debit notes have been
communicated to the registered person______________
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W.P.Nos.27038 of 2025 etcin FORM GSTR-2B under sub-rule (7) of rule
60.”
27. Rule 37 of the CGST Rules provides for reversal of ITC in
the case of non-payment of consideration, whereas Rule 37A of the
CGST Rules provides for reversal of ITC in the case of non-payment
of tax by the supplier and re-availment thereof. Rule 38 of the
CGST Rules provides for claim of credit by a banking company or a
financial institution.
28. A conjoint reading of the provisions contained in Section
16 of the CGST Act and the Rules, referred to herein above, would
reveal that mere receipt of invoice does not entitle the registered
dealer to claim to be entitled to ITC without fulfillment of other
conditions enumerated therein. Various conditions incorporated
therein, including submission of details of invoices or debit notes
furnished in the statement of outward supplies in Form GSTR-1 [as
amended in Form GSTR-1A (if any)] and communication of details
of ITC in respect of such invoice or debit notices to the registered
person in Form GSTR-2B [as provided under Rule 37(4) of the CGST
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Rules], alone would finally lead to a situation where ITC can be said
to be availed legally and in accordance with the statutory scheme of
CGST Act and the Rules made thereunder, not otherwise.
STATUTORY SCHEME OF DISTRIBUTION OF CREDIT
29. There is a scheme of distribution of credit as provided
under Section 20 of the CGST Act in those cases where the ISD
mechanism addresses unique situation of entities having multiple
GSTIN registrations under the same PAN, having their offices
located in different parts and in various States. It requires a
specialized mechanism for equitable distribution of common ITC.
30. The manner of distribution of credit by ISD is provided in
Section 20 of the Act. At this stage, it would be apposite to
mention herein that Section 20 of the CGST Act, as it stands after
amendment with effect from 1.4.2025 and as it stood prior to the
said amendment, are relevant for our discussion in the present
case, as the operation of Rule 39(1)(a) of the Rules in the pre-
amendment regime prior to 1.4.2025 has also been raised.
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31. Section 20 of the CGST Act, as it stood prior to 1.4.2025,
did not contain the expression “in such manner as may be
prescribed”. It was only by way of amendment with effect from
1.4.2025 that new Section 20 of the CGST Act was substituted by
Finance Act, 2024 [8 of 2024], dated 15.2.2024. After substitution,
Section 20 of the CGST Act, as in force with effect from 1.4.2025,
reads as below:
“20. Manner of distribution of credit by Input Service
Distributor.-
(1) Any office of the supplier of goods or services 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 of this Act or under
subsection (3) or sub-section (4) of section 5 of the
Integrated Goods and Services Tax Act, 2017, for or
on behalf of distinct persons referred to in section
25, shall be required to be registered as Input
Service Distributor under clause (viii) of section 24
and shall distribute the input tax credit in respect of
such invoices.
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(2) The Input Service Distributor shall distribute the
credit of central tax or integrated tax charged on
invoices received by him, including the credit of
central or integrated tax in respect of services
subject to levy of tax under sub-section (3) or sub-
section (4) of section 9 paid by a distinct person
registered in the same State as the said Input
Service Distributor, in such manner, within such time
and subject to such restrictions and conditions as
may be prescribed.
(3) The credit of central tax shall be distributed as
central tax or integrated tax and integrated tax as
integrated tax or central tax, by way of issue of a
document containing the amount of input tax credit,
in such manner as may be prescribed.”
32. At this stage, it is relevant to note that Rule 39 of the
CGST Rules also underwent an amendment by substitution vide
Notification dated 10.7.2024. Rule 39 of the CGST Rules, as in
force, reads thus:
“Rule 39. Procedure for distribution of input tax credit
by Input Service Distributor.-
(1) An Input Service Distributor shall distribute input
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W.P.Nos.27038 of 2025 etctax credit in the manner and subject to the following
conditions, namely: –
(a) the input tax credit available for distribution in a
month shall be distributed in the same month and
the details thereof shall be furnished in FORM
GSTR-6 in accordance with the provisions of Chapter
VIII of these rules;
(b) the amount of the credit distributed shall not
exceed the amount of credit available for
distribution;
(c) the credit of tax paid on input services
attributable to a recipient of credit shall be
distributed only to that recipient;
(d) the credit of tax paid on input services
attributable to more than one recipient of credit shall
be distributed amongst such recipients to whom the
input service is attributable and such distribution
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 such recipients to
whom such input service is attributable and which
are operational in the current year, during the said
relevant period;
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(e) the credit of tax paid on input services
attributable to all recipients of credit shall be
distributed amongst such recipients and such
distribution 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;
(f) the input tax credit that is required to be
distributed in accordance with the provisions of
clause (d) and (e) to one of the recipients “R1”,
whether registered or not, from amongst the total of
all the recipients to whom input tax credit is
attributable, including the recipients who are
engaged in making exempt supply, or are otherwise
not registered for any reason, shall be the amount,
“C1”, to be calculated by applying the following
formula –
C1 = (t₁ ÷ T) x C
where,
“C” is the amount of credit to be distributed,
” t₁” is the turnover, as referred to in clause (d) and
(e), of person R₁ during the relevant period, and
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“T” is the aggregate of the turnover, during the
relevant period, of all recipients to whom the input
service is attributable in accordance with the
provisions of clause (d) and (e);
(g) the Input Service Distributor shall, in accordance
with the provisions of clause (d) and (e), separately
distribute the amount of ineligible input tax credit
(ineligible under the provisions of sub-section (5) of
section 17 or otherwise) and the amount of eligible
input tax credit;
(h) the input tax credit on account of central tax,
State tax, Union territory tax and integrated tax
shall be distributed separately in accordance with the
provisions of clause (d) and (e);
(i) the input tax credit on account of integrated tax
shall be distributed as input tax credit of integrated
tax to every recipient;
(j) the input tax credit on account of central tax and
State tax or Union territory tax shall–
(i) in respect of a recipient located in the same
State or Union territory in which the Input Service
Distributor is located, be distributed as input tax
credit of central tax and State tax or Union
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territory tax respectively;
(ii) in respect of a recipient located in a State or
Union territory other than that of the Input
Service Distributor, be distributed as integrated
tax and the amount to be so distributed shall be
equal to the aggregate of the amount of input tax
credit of central tax and State tax or Union
territory tax that qualifies for distribution to such
recipient as referred to in clause (d) and (e);
(k) the Input Service Distributor shall issue an Input
Service Distributor invoice, as provided in sub-rule
(1) of rule 54, clearly indicating in such invoice that
it is issued only for distribution of input tax credit;
(l) the Input Service Distributor shall issue an Input
Service Distributor credit note, as provided in sub-
rule (1) of rule 54, for reduction of credit in case the
input tax credit already distributed gets reduced for
any reason;
(m) any additional amount of input tax credit on
account of issuance of a debit note to an Input
Service Distributor by the supplier shall be
distributed in the manner and subject to the
conditions specified in clauses (a) to (j) and the
amount attributable to any recipient shall be
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calculated in the manner provided in clause (f) and
such credit shall be distributed in the month in which
the debit note is included in the return in FORM
GSTR-6;
(n) any input tax credit required to be reduced on
account of issuance of a credit note to the Input
Service Distributor by the supplier shall be
apportioned to each recipient in the same ratio in
which the input tax credit contained in the original
invoice was distributed in terms of clause (f), and
the amount so apportioned shall be-
(i) reduced from the amount to be distributed in
the month in which the credit note is included in
the return in FORM GSTR-6; or
(ii) added to the output tax liability of the recipient
where the amount so apportioned is in the
negative by virtue of the amount of credit under
distribution being less than the amount to be
adjusted;
(1A) For the distribution of credit in respect of input
services, attributable to one or more distinct
persons, subject to levy of tax under sub-section (3)
or (4) of section 9, a registered person, having the
same PAN and State code as an Input Service
Distributor, may issue an invoice or, as the case may
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be, a credit or debit note as per the provisions of
sub-rule(1A) of rule 54 to transfer the credit of such
common input services to the Input Service
Distributor, and such credit shall be distributed by
the said Input Service Distributor in the manner as
provided in sub-rule (1).
(2) If the amount of input tax credit distributed by
an Input Service Distributor is reduced later on for
any other reason for any of the recipients, including
that it was distributed to a wrong recipient by the
Input Service Distributor, the process specified in
clause (n) of sub-rule (1) shall apply, mutatis
mutandis, for reduction of credit.
(3) Subject to sub-rule (2), the Input Service
Distributor shall, on the basis of the Input Service
Distributor credit note specified in clause (l) of sub-
rule (1), issue an Input Service Distributor invoice to
the recipient entitled to such credit and include the
Input Service Distributor credit note and the Input
Service Distributor invoice in the return in FORM
GSTR-6 for the month in which such credit note and
invoice was issued.
Explanation. — For the purpose of this rule, –
(i) the term ―“relevant period” shall be—
(a) if the recipients of credit have turnover in their
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States or Union territories in the financial year
preceding the year during which credit is to be
distributed, the said financial year; or
(b) if some or all recipients of the credit do not
have any turnover in their States or Union
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;
(ii) 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;
(iii) the term “turnover”, in relation to any registered
person engaged in the supply of taxable goods as
well as goods not taxable under this Act, means the
value of turnover, reduced by the amount of any
duty or tax levied under entries 84 and 92A of List I
of the Seventh Schedule to the Constitution and
entries 51 and 54 of List II of the said Schedule.”
33. Section 20 of the CGST Act read with Rule 39 of the CGST
Rules provide for distribution of ITC by ISD. Clause (a) of Rule
39(1) of the CGST Rules, which is under challenge, provides that
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the ITC available for distribution in a month shall be distributed in
the same month and the details thereof shall be furnished in Form
GSTR-6 in accordance with the provisions of Chapter VIII of these
Rules. The prescription of distribution in the same month of the ITC
available for distribution requires the distributor to distribute the
ITC which has become available for distribution as would be clear
from the expression “the input tax credit available for distribution in
a month”.
34. Rule 39 has been framed in exercise of power of delegated
legislation by the Central Government and, therefore, has
necessarily to be consistent with and within the limits of the rule
making power as delegated under the enabling Act.
35. Challenge to the validity of the aforesaid Rule is premised
fundamentally on the submission that prior to substitution of new
provision of Section 20 of the CGST Act, with effect from 1.4.2025,
the unamended provision did not provide for time limit and,
therefore, as long as the unamended provision of Section 20 of the
CGST Act was in force, i.e., prior to 1.4.2025, the Rule requiring
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time limit for distribution is ultra vires unamended Section 20 of the
CGST Act.
36. The response of the respondents is that it only prescribes
the manner in which distribution has to be made and, therefore, it
cannot be said be ultra vires the provisions of the enabling Act.
37. This aspect we will consider at a later stage, if at all
required for our discussion.
INTERPLAY OF SECTION 16 AND 20 OF THE CGST ACT –
SCHEME OF ENTITLEMENT TO CREDIT AND
DISTRIBUTION OF CREDIT
38. While Section 16 of the CGST Act provides for eligibility to
available ITC, Section 20 of the CGST Act deals with distribution of
credit in certain circumstances where the assessees like the
petitioners herein have several units and there are common service
providers, in which case, the law requires that ITC should be
distributed pro rata on the basis of turnover of the individual units,
as each branch office in the State has to be separately registered.
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39. Whether the scheme of the CGST Act envisages
distribution of credit only upon receipt of invoices or upon fulfillment
of the conditions enumerated in Section 16(2) of the CGST Act to
become entitled to avail ITC will have to be answered by applying
the principle and construction which advances the object of the
enactment.
40. It behooves us to reiterate the salutary principle of
purposive interpretation accentuated by the Supreme Court in Vivek
Narayan Sharma (Demonetisation Case-5 J.) v. Union of India,
(2023) 3 SCC 1, while considering the constitutionality of an
enactment. The relevant portions of the said decision are
reproduced herein below:
“143. In Girdhari Lal & Sons v. Balbir Nath Mathur,
(1986) 2 SCC 237, O. Chinnappa Reddy, J. explained
the position as under: (SCC p. 243, para 9)
‘9. So we see that the primary and foremost
task of a court in interpreting a statute is to
ascertain the intention of the legislature,
actual or imputed. Having ascertained the
intention, the court must then strive to so
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W.P.Nos.27038 of 2025 etcinterpret the statute as to promote or advance
the object and purpose of the enactment. For
this purpose, where necessary the court may
even depart from the rule that plain words
should be interpreted according to their plain
meaning. There need be no meek and mute
submission to the plainness of the language.
To avoid patent injustice, anomaly or absurdity
or to avoid invalidation of a law, the court
would be well justified in departing from the
so-called golden rule of construction so as to
give effect to the object and purpose of the
enactment by supplementing the written word
if necessary.’
144. After referring to various earlier judgments of
other jurisdictions, his Lordship observed thus :
Girdhari Lal & Sons v. Balbir Nath Mathur, (1986) 2
SCC 237, SCC p. 246, para 16:
‘16. Our own court has generally taken the
view that ascertainment of legislative intent is
a basic rule of statutory construction and that
a rule of construction should be preferred
which advances the purpose and object of a
legislation and that though a construction,
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W.P.Nos.27038 of 2025 etcadopted where it leads to anomalies, injustices
or absurdities, vide K.P. Varghese v. ITO,
(1981) 4 SCC 173, State Bank of
Travancore v. Mohd. M. Khan, (1981) 4 SCC
82, Som Prakash Rekhi v. Union of India,
(1981) 1 SCC 449, Ravula Subba Rao v. CIT,
AIR 1956 SC 604, Govindlal Chhaganlal
Patel v. Agricultural Produce Market
Committee, (1975) 2 SCC 482 and Babaji
Kondaji Garad v. Nasik Merchants Coop. Bank
Ltd., (1984) 2 SCC 50’
145. M.N. Venkatachaliah, J. speaking for the
Constitution Bench of this Court in Tinsukhia Electric
Supply Co. Ltd. v. State of Assam, (1989) 3 SCC 709
observed thus : (SCC p. 754, paras 118-20)
‘118. The courts strongly lean against any
construction which tends to reduce a statute to
futility. The provision of a statute must be so
construed as to make it effective and
operative, on the principle ut res magis valeat
quam pereat. It is, no doubt, true that if a
statute is absolutely vague and its language
wholly intractable and absolutely meaningless,
the statute could be declared void for
vagueness. This is not in judicial review by
testing the law for arbitrariness or
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unreasonableness under Article 14; but what a
court of construction, dealing with the
language of a statute, does in order to
ascertain from, and accord to, the statute the
meaning and purpose which the legislature
intended for it. In Manchester Ship Canal
Co. v. Manchester Racecourse Co., (1900) 2
Ch 352 Farwell, J. said : (pp. 360-61)
‘… Unless the words were so absolutely
senseless that I could do nothing at all with
them, I should be bound to find some
meaning, and not to declare them void for
uncertainty.’
119. In Fawcett Properties
Ltd. v. Buckingham County Council, (1960) 3
WLR 831, Lord Denning approving the dictum
of Farwell, J., said : (Ch p. 849)
‘… But when a statute has some meaning,
even though it is obscure, or several
meanings, even though there is little to choose
between them, the courts have to say what
meaning the statute to bear rather than reject
it as a nullity.’
120. It is, therefore, the court’s duty to
make what it can of the statute, knowing that
the statutes are meant to be operative and not
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inept and the nothing short of impossibility
should allow a court to declare a statute
unworkable.
In Whitney v. IRC, 1926 AC 37 (HL)] Lord
Dunedin said : (AC p. 52)
‘… A statute is designed to be workable, and
the interpretation thereof by a court should be
to secure that object, unless crucial omission
or clear direction makes that end
unattainable.’”
146. In State of Gujarat v. R.A. Mehta, (2013) 3 SCC
1, this Court held as under : (SCC pp. 47-48, para 98)
‘98. The doctrine of purposive construction
may be taken recourse to for the purpose of
giving full effect to statutory provisions, and
the courts must state what meaning the
statute should bear, rather than rendering the
statute a nullity, as statutes are meant to be
operative and not inept. The courts must
refrain from declaring a statute to be
unworkable. The rules of interpretation require
that construction which carries forward the
objectives of the statute, protects interest of
the parties and keeps the remedy alive, should
be preferred looking into the text and context
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of the statute. Construction given by the court
must promote the object of the statute and
serve the purpose for which it has been
enacted and not efface its very purpose. ‘The
courts strongly lean against any construction
which tends to reduce a statute to futility. The
provision of the statute must be so construed
as to make it effective and operative.’ The
court must take a pragmatic view and must
keep in mind the purpose for which the statute
was enacted as the purpose of law itself
provides good guidance to courts as they
interpret the true meaning of the Act and thus
legislative futility must be ruled out. A statute
must be construed in such a manner so as to
ensure that the Act itself does not become a
dead letter and the obvious intention of the
legislature does not stand defeated unless it
leads to a case of absolute intractability in use.
The court must adopt a construction which
suppresses the mischief and advances the
remedy and ‘to suppress subtle inventions and
evasions for continuance of the mischief,
and pro privato commodo, and to add force
and life to the cure and remedy, according to
the true intent of the makers of the Act, pro
bono publico’. The court must give effect to
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the purpose and object of the Act for the
reason that legislature is presumed to have
enacted a reasonable statute. (Vide M.
Pentiah v. Muddala Veeramallappa [M.
Pentiah v. Muddala Veeramallappa, (1961) 2
SCR 295 : AIR 1961 SC 1107] , S.P.
Jain v. Krishna Mohan Gupta [S.P.
Jain v. Krishna Mohan Gupta, (1987) 1 SCC
191] , RBI v. Peerless General Finance &
Investment Co. Ltd. [RBI v. Peerless General
Finance & Investment Co. Ltd., (1987) 1 SCC
424] , Tinsukhia Electric Supply Co.
Ltd. v. State of Assam [Tinsukhia Electric
Supply Co. Ltd. v. State of Assam, (1989) 3
SCC 709] , SCC at p. 754, para 118; UCO
Bank v. Rajinder Lal Capoor [UCO
Bank v. Rajinder Lal Capoor, (2008) 5 SCC
257 : (2008) 2 SCC (L&S) 263] and Grid
Corpn. of Orissa Ltd. v. Eastern Metals & Ferro
Alloys [Grid Corpn. of Orissa Ltd. v. Eastern
Metals & Ferro Alloys, (2011) 11 SCC 334] .)”
147. The principle of purposive construction has been
enunciated in various subsequent judgments of this
Court. However, we would not like to burden this
judgment with a plethora of citations. Suffice it to say,
the law on the issue is very well crystallised.
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148. It is thus clear that it is a settled principle that
the modern approach of interpretation is a pragmatic
one, and not pedantic. An interpretation which
advances the purpose of the Act and which ensures its
smooth and harmonious working must be chosen and
the other which leads to absurdity, or confusion, or
friction, or contradiction and conflict between its
various provisions, or undermines, or tends to defeat
or destroy the basic scheme and purpose of the
enactment must be eschewed. The primary and
foremost task of the Court in interpreting a statute is
to gather the intention of the legislature, actual or
imputed. Having ascertained the intention, it is the
duty of the Court to strive to so interpret the statute as
to promote or advance the object and purpose of the
enactment. For this purpose, where necessary, the
Court may even depart from the rule that plain words
should be interpreted according to their plain meaning.
There need be no meek and mute submission to the
plainness of the language. To avoid patent injustice,
anomaly or absurdity or to avoid invalidation of a law,
the court would be justified in departing from the so-
called golden rule of construction so as to give effect to
the object and purpose of the enactment.
Ascertainment of legislative intent is the basic rule of
statutory construction.”
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41. In the case on hand, much insistence has been laid on the
language of Section 20(2) of the CGST Act to advance the
submission that the legislative mandate is that the ISD shall
distribute the credit of central tax or integrated tax charged on
invoices received by him. Therefore, the expression “credit
available for distribution” as placed in Rule 39(1)(b) of the CGST
Rules would only mean that upon receipt of invoice, the ISD is
required to distribute the credit in the same month in which it is
received. Therefore, the Rule cannot be said to be ultra vires the
enabling provision of Section 20 of the CGST Act, as the CGST Act
itself mandates distribution upon receipt of invoice.
42. At the first blush, the argument appears to be attractive.
However, on a deeper examination, such an interpretation would
lead to a situation where the ISD, whether or not is entitled to avail
ITC as provided under Section 16 of the CGST Act, would be
required to distribute the credit as per the invoice alone.
43. The expression “The Input Service Distributor shall
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distribute the credit of central tax or integrated tax charged on
invoices received by him” has to be interpreted keeping in view the
other provisions contained not only in Section 20 of the CGST Act,
but also Section 16 of the CGST Act and not in isolation.
44. It is one of the cardinal principles of interpretation that a
provision contained in the statute has to be read as a whole and
keeping in view the scheme of the Act and other provisions
contained therein and not de hors the same. It is pertinent to note
that in Section 20(1) of the CGST Act, it has been clearly provided
that the ISD registered under clause (viii) of Section 24 shall
distribute the ITC in respect of such invoices received.
45. The aforesaid expression is required to be meaningfully
interpreted keeping in view the corresponding statutory scheme as
to when, how and in what manner and upon fulfillment of which
conditions, a registered person is entitled to credit of any input tax
in respect of any supply of goods, services or both to him.
46. The use of the expression that distribution of credit shall
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be upon receipt of invoices does not mean that distribution has to
take place even before the registered person is entitled to ITC
under Section 16 of the Act. Such an interpretation will create
absurdity and anomaly. It is relevant to note that Section 20 of the
Act is placed in the statute after Section 16 of the Act. There is no
discernible principle as to why, for the purposes of distribution of
credit, Section 16 of the CGST Act has to be kept at bay. If that
was the intention of the legislature, it could well be indicated by
using the expression signifying the legislative intention as
“irrespective of whether or not the registered person is entitled to
credit of any input tax in respect of supply of any goods or services
or both to him”. However, the legislature has not chosen to
incorporate such expression.
47. There is no discernible guiding principle or rationale
reflected from the scheme of the CGST Act as to what purpose
would be served in providing for distribution without fulfillment of
conditions for taking ITC as provided under Section 16 of the CGST
Act.
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48. On the other hand, the interpretation that the expression
“credit” used in Section 20 of the CGST Act is nothing but ITC and,
therefore, what is intended to be distributed is ITC which the
registered person/ISD is entitled to avail under the law and not a
distribution mechanism even before entitlement under Section
16(2) of the Act.
49. The language of Section 20 of the CGST Act does not talk
of distribution of “invoice”, but of “credit”. Merely because the
expression used is distribution of credit upon receipt of “invoice”, it
cannot be taken to mean that the legislative intention is to mandate
distribution of credit indicated in the advice even before the
registered person is entitled to claim ITC.
50. Rule 39(1)(b) of the CGST Rules which uses the
expression “credit available for distribution”, therefore, has to be
interpreted in consonance with principles of harmonious
construction of Sections 16 and 20 of the CGST Act to mean that
the “credit” which has become available in accordance with law.
This, in turn, means that credit has become available in the manner
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provided under Section 16 of the CGST Act. Since the ITC can be
availed and the registered person would be entitled to the same
only upon fulfillment of various conditions incorporated therein, of
which the receipt of invoice is the trigger point, the stage of
distribution of ITC available will arrive only upon fulfillment of
mandatory conditions prescribed under Section 16(2) of the CGST
Act and not otherwise.
51. As a matter of fact, if we look into the scheme of the
CGST Act read with the Rules and various forms which are required
to be submitted at various stages, it will become clear that receipt
of invoice is not envisaged to be the stage where credit is required
to be distributed by the ISD.
52. As per Section 20 of the CGST Act, what is required to be
distributed is “credit”, which after amendment in Section 20 of the
CGST Act with effect from 1.4.2025 would clearly mean “input tax
credit”. The expression “input tax credit” cannot be treated as the
same as “input” or “input tax”. It also cannot be said to be taxable
value of supply. The statutory scheme of distribution under Section
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20 of the CGST Act is in respect of ITC. Therefore, it follows as a
necessary corollary that before embarking upon distribution
mechanism, ITC is available in terms of and in compliance with the
statutory requirement of Section 16(2) of the CGST Act. This is so
because, unless the conditions prescribed in Section 16(2) of the
CGST Act are fulfilled, the registered person is not entitled to credit
of input tax in respect of any supply of goods or services or both to
him. What is mandated to distribute is “ITC”. The distribution,
therefore, is triggered only upon fulfillment of conditions
incorporated in Section 16(2) of the CGST Act and not otherwise.
Therefore, the credit available for distribution is that which is
available in terms of provisions contained in Section 16(2) of the
CGST Act. Input tax converts into credit only when following
conditions are satisfied:
(a) receipt of tax invoice [Section 16(2)(a)];
(b) Reporting of the tax invoice in the outward
supply returns by the supplier [Section 16(2)(aa) –
only from 1.1.2022];
(c) Receipt of service in question [Section 16(2)(b)];
(d) Payment of tax to the Government [Section 16(2)
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(c)]; and
(e) Furnishing return [Section 16(2)(d) read with
53. Section 21 of the CGST Act provides for the manner of
recovery of credit distributed in excess. It clearly states that where
the ISD distributes the credit in contravention of the provisions
contained in Section 20 resulting in excess distribution of credit to
one or more recipients of credit, the excess credit so distributed
shall be recovered from such recipients along with interest, and the
provisions of Section 73 or Section 74 or Section 74A, as the case
may be, shall, mutatis mutandis, apply for determination of amount
to be recovered. Therefore, in case the distributor distributes credit
in contravention of Section 20 of the CGST Act, he is liable for penal
consequences.
54. If we look into the description of “tax invoice” as stated in
Section 31 of the CGST Act, it is clear that the tax invoice is
required to show the description of quantity and value of goods, tax
charged thereon. However, in view of the provision contained in
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Section 16(2) of the CGST Act, credit of the tax charged on the
supply of goods can be taken only upon fulfillment of other
conditions and mere tax invoice, by itself, is not sufficient in the
eyes of law for a registered person to claim that he is entitled to
ITC.
55. Rule 39(1)(a) of the Rules mandates that the ITC available
for distribution in a month shall be distributed in the same month
and the details thereof shall be furnished in FORM GSTR-6 in
accordance with the provisions of Chapter VIII of these Rules. Form
GSTR-6 requires details of Total ITC/Eligible ITC/Ineligible ITC to be
distributed for tax period. Paragraph (3) thereof deals with ITC
received for distribution. Paragraph (7) deals with ITC mis-matches
and reclaims to be distributed in the tax period. It also requires
details of redistribution of ITC distributed to a wrong recipient
(plus/minus) and refund claimed from electronic cash ledger.
56. A chart showing forms and timelines under the CGST Act,
for ready reference, has been submitted by the petitioners. Since
that contains statutory timelines with regard to submission of
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various details in different statutory forms, it is reproduced herein
below:
FORMS AND TIMELINES UNDER GST
Form Particulars Date Relevant
Provision
Form Particulars of outward supplies 10th Section 37
GSTR-1 made during the month (on a line- of the read with
item/invoice-level basis) are to be succeeding Rule 59
reported. This form is to be filed month
by regular, non-ISD registrants.
Certain supplies (with a turnover
of not more than Rs.5 Cr.) have
the option of filing this form
quarterly.
Form Particulars of outward supplies Real-time Rule 60
GSTR-2A declared in Form GSTR-1 are (dynamic)
/6A auto-populated in this form and
the same is visible to non-ISD
registrants in GSTR 2A and to ISD
registrants (GSTR 6A). While Form
GSTR-2A is dynamic and keeps
updating as and when suppliers
declare their outward supply
details.
Form
GSTR 2B Form GSTR-2B is static and is 11th Section
made available on the day 16(2)(aa)
immediately following the due & Rule
date of filing Form GSTR-1 return 36(4)Form Monthly return to be filed by ISD 13th Section
GSTR-6 registrant declaring ITC available 39(4)
for distribution in that month and read with
ITC distributed in that month. Rule 65
Table 5 of the return requires
details of invoice of Invoice issued
by ISD along with its no and date.
The ITC distributed by an ISD
registrant by way of Form GSTR-6
is reflected in Form GSTR-2B of______________
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Provision
the recipient unit. However, the
underlying third-party invoices.
ITC of which is distributed by the
ISD unit is not visible to the
recipient unit in either Form
GSTR-2A or Form GSTR-2B till 11 th
of the month succeeding the
month in which the supplier issues
the invoice.
Form Monthly return to be filed by non- 20th Section
GSTR-3B ISD registrants summarizing the 39(1)
outward supply details for the read with
month (an aggregation of the line- Rule 61
item wise details declared in Form
GSTR-1 return) and the ITC
availed during the month.
The GST liability is paid by way of
this return
57. Moreover, the submission of learned counsel for the
respondents that for distribution only the date of issuance of invoice
is relevant cannot be accepted. Section 20(2)(b) of the CGST Act
[prior to amendment] provided that the amount of the credit
distributed shall not exceed the amount of credit available for
distribution. This would show that the amount of credit entitled to
be distributed is not the amount mentioned in the invoice, but the
amount of credit which is eligible in terms of Section 16(2) of the
CGST Act.
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After amendment, Rule 39(1)(b) of the CGST Rules provides
that the amount of the credit distributed shall not exceed the
amount of credit available for distribution.
Therefore, the submission of the respondents that distribution
is to take place on issuance of invoice is based on incorrect
assumption that the service is received when the invoice is issued.
58. It is clear that what is available for distribution is not the
tax invoice, but the ITC. The registered person becomes entitled to
the same upon fulfillment of conditions incorporated in Section
16(2) of the CGST Act and not before that.
59. Therefore, the expression “the input tax credit available
for distribution in a month” contained in Rule 39(1)(a) of the CGST
Rules has to be interpreted, construed and understood in the
manner it is consistent with the statutory scheme of Section 16
read with Section 20 of the CGST Act and not otherwise. The said
provision, if interpreted in the manner as has been argued by
learned counsel for the respondents that what is required to be
distributed in terms of provision contained in Section 20 of the
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CGST Act read with Rule 39 of the Rules is credit as stated in the
tax invoice, even without fulfillment of conditions incorporated
under Section 16(2) of the CGST Act, will be liable to be struck
down as ultra vires Section 16(2) read with Section 20 of the
enabling Act.
60. The said Rule only incorporates the expression “the input
tax credit available for distribution”. It does not, in turn, say that
upon receipt of tax invoice, distribution mechanism shall be
operated without fulfillment of the conditions of Section 16(2) of the
CGST Act. Therefore, the rule is required to be interpreted in the
manner that saves its constitutionality.
61. Consequently, the expression “the input tax credit
available for distribution in a month”, on rational, fair, and logical
interpretation would only mean ITC available for distribution in a
month upon fulfillment of the conditions incorporated in Section
16(2) of the CGST Act. In other words, the distribution mechanism
is triggered only after completion of various stages and conditions
incorporated in Section 16(2) of the CGST Act. Therefore, the
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requirement of distribution has to be accordingly construed to mean
that it shall be in the month in which the registered person becomes
entitled to ITC in terms of Section 16(2) of the CGST Act.
62. We finally conclude that, in its application, the provision
contained in Sections 16 and 20 of the CGST Act read with Rule 39
of the CGST Rules are required to be applied as above. Therefore,
present is not a case where Rule 39(1)(a) of the Rules is required to
be declared ultra vires the enabling Act.
63. In view of the aforesaid conclusion arrived at, the other
issues raised for consideration need not be answered.
64. The show cause notices issued in these two petitions in so
far as the aspect relating to alleged contravention of delayed
distribution are concerned, upon receipt of reply from the
petitioners in two cases, shall require determination and appropriate
order and conclusion of proceedings in the light of interpretation of
the provisions of law, particularly Rule 39(1)(a) of the CGST Rules.
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65. In case the petitioners have not filed their reply, shall file
their reply before the authority concerned within a period of two
months. Upon submission of reply, the authority shall proceed to
decide the matter in the light of the observations and conclusions
drawn by us and interpretation of Sections 16 and 20 of the CGST
Act and Rule 39(1)(a) of the CGST Rules.
66. In the result, the writ petitions are allowed in the manner
and to the extent stated above. There shall be no order as to costs.
Consequently, interim applications stand closed.
(MANINDRA MOHAN SHRIVASTAVA, CJ) (G.ARUL MURUGAN,J)
05.03.2026
Index : Yes
Neutral Citation : Yes
sasi
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To:
1. The Secretary, Union of India
Department of Revenue,
Ministry of Finance, North Block,
New Delhi - 110 001.
2. The Secretary
State of Tamilnadu
Commercial Taxes and Registration
Department, Ezhilagam
PWD Estate, Chepauk
Chennai - 600 005.
3. Commissioner of Central Tax
and Central Excise
Audit - I Commissionerate, No 1775
Jawaharlal Nehru Inner Ring Road
Anna Nagar Western Extension
Chennai - 600 101.
4. The Secretary
Government of Puducherry
Commercial Taxes Department
Government of Puducherry
100 feet Road Ellapillaichavady
Pondicherry – 605005.
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THE HON'BLE CHIEF JUSTICE
AND
G.ARUL MURUGAN,J.
(sasi)
WP Nos.27038 and 28371 of 2025
05.03.2026
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