Delhi High Court clarification on Cross-Charging & IGST on Inter-Unit Services
Delhi High Court Clarifies Cross-Charging & IGST on Inter-Unit Services
W.P.(C) 6919/2025 – M/s KEI Industries Ltd. vs. Union of India & Ors. Order dated: 22.05.2025
In a crucial ruling, the Delhi High Court has provided much-needed clarity on the applicability of IGST on cross-charging between Head Office (HO) and Branch Offices (BOs) under the GST regime.
Background:
M/s KEI Industries Ltd. incurred common expenses at its Head Office, which were not cross-charged to its Branch Offices. The GST Department raised a demand, alleging that IGST was payable on such inter-unit services.
Court’s Observations & Findings:
The Court referred to CBIC Circular No. 199/11/2023-GST, which provides that where full Input Tax Credit (ITC) is available to the recipient BO, the value of internally generated services may be deemed to be Nil, even if no tax invoice is issued.
The judgment also relied on the precedent in Metal One Corporation India Pvt. Ltd., which held that Nil value = Nil tax liability in such inter-unit transactions.
The Court noted that the Adjudicating Authority ignored the above circular and judicial precedent, and accordingly remanded the matter for fresh consideration, directing adherence to the CBIC guidance and judicial reasoning.
Key Takeaways:
1. Inter-branch services are taxable under GST, but where full ITC is available, non-invoiced services may not attract tax.
2. As per Rule 28 (2nd proviso), the declared value can be deemed open market value, even if it is zero.
3. Businesses that have not cross-charged HO costs can find relief if BOs are fully eligible for ITC.
Practical Insight – Full ITC Eligibility Must Be Verified at the Cost Item Level:
Each expense must be examined for its ITC eligibility.
Expenses relating to exempt supplies or covered under blocked credits (Sec. 17(5)) may not be fully eligible.
In such cases, proper cross-charging becomes critical to maintain compliance.
The copy of the Hon’ble Delhi High Court order is attached herewith for reference.
The copy of the order is as under:
