The Hon’ble Delhi High Court in M/s KEI Industries Limited v. Union of India & Ors. [W.P.(C) 6919/2025 dated May 31, 2025] held that where no cross-charge has been made by the Head Office (HO) to its Branch Offices (BOs) and full input tax credit is available to the recipient unit, the value of such internally generated services shall be deemed to be ‘Nil’ under Rule 28 of the CGST Rules, and no IGST is payable.
Facts:
M/s KEI Industries Limited (“the Petitioner”) filed a writ petition under Article 226 of the Constitution challenging the Order-in-Original dated January 31, 2025 passed by the Additional Commissioner, Central GST, Delhi East. The dispute pertained to IGST liability alleged on internally generated services that were not cross-charged by the Petitioner’s Head Office to its other distinct persons (Branch Offices).
The Petitioner submitted that it had not issued any invoice for such internal services and no consideration was charged. It relied upon CBIC’s Circular No. 199/11/2023-GST dated July 17, 2023, which clarified that where the recipient BO is eligible for full input tax credit, the value declared in the invoice by HO (even if nil) shall be deemed to be the open market value under Rule 28 of the CGST Rules, 2017. Thus, if no invoice is issued, the value may be deemed to be nil.
It was further argued that the Adjudicating Authority failed to consider the Circular or the binding precedent in Metal One Corporation India Pvt. Ltd. v. Union of India, where similar SCNs were quashed.
The Respondent, however, relied on the decision in Filatex India Ltd. v. Additional Commissioner, CGST, Delhi East [W.P.(C) 3602/2025], where the party was directed to avail appellate remedy.
Issues:
- Whether IGST is payable on internally generated services where no cross-charge was made by the HO to its BOs and full ITC was available to recipient?
- Whether the Order-in-Original is liable to be set aside for failing to consider CBIC’s Circular No. 199/11/2023-GST dated July 17, 2023?
Held:
The Hon’ble Delhi High Court in W.P.(C) 6919/2025 held as under:
- Observed that the Petitioner had not cross-charged any expense or issued invoices for the internally generated services rendered by its Head Office.
- Noted that the Adjudicating Authority had failed to give due regard to CBIC Circular No. 199/11/2023-GST, which explicitly clarifies that if no invoice is issued and full input tax credit is available to recipient, the value of such internally generated services may be deemed to be nil.
- Relied on the coordinate bench decision in Metal One Corporation (supra), where the Court had held that no invoice implies the value of services is nil, and consequently, no tax liability arises.
- Held that the Adjudicating Authority must re-consider the matter in light of the above Circular and judgment. Accordingly, the order was set aside and the matter was remanded for fresh consideration after granting an opportunity of hearing.
Our Comments:
Section 15(4) – Value of Taxable Supply and read with Rule 28 – Value of Supply between Distinct Persons of the CGST Rules govern valuation in inter-branch transactions. The second proviso to Rule 28(1) provides that where the recipient is eligible for full ITC, the invoice value shall be deemed to be the open market value, even if it is nil.
In the present case, the Petitioner had not issued any invoice, and the Branch Office was fully eligible to avail ITC. This aligns with CBIC’s own clarification in Circular No. 199/11/2023-GST, which deemed the value as ‘Nil’ in such cases.
The Adjudicating Authority’s omission to consider this binding clarification led to a flawed conclusion. Moreover, the Delhi High Court in Metal One Corporation has already laid down that no invoice, i.e nil value is equal to no tax demand. Ignoring this amounts to a violation of judicial discipline and creates unwarranted litigation.
Hence, the Delhi High Court rightly remanded the matter, emphasizing the importance of consistent application of binding circulars and precedents in determining IGST obligations between distinct persons.
Relevant Provisions:
Section 15(4) – Value of Taxable Supply, Central Goods and Services Tax Act, 2017
“Where the value of the supply of goods or services or both cannot be determined under sub-section (1), the same shall be determined in such manner as may be prescribed.”
Rule 28 – Value of supply of goods or services or both between distinct or related persons, CGST Rules, 2017
“… Provided further that where the recipient is eligible for full input tax credit, the value declared in the invoice shall be deemed to be the open market value of the goods or services.”
CBIC Circular No. 199/11/2023-GST dated July 17, 2023
“…If HO has not issued a tax invoice to the BO in respect of any particular services being rendered, the value of such services may be deemed to be declared as nil and shall be deemed as open market value….”
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