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The Madras High Court has rejected the submission of the Revenue department that for distribution of Input Tax Credit under ISD mechanism, only the date of issuance of invoice is relevant. According to the Court, use of the expression 'distribution of credit shall be upon receipt of invoices' does not mean that distribution must take place even before the registered person is entitled to Input Tax Credit under Section 16(2) of the CGST Act, 2017.
Deciding the question as to whether Rule 39(1)(a) of the CGST Rules, stating the requirement of distribution of credit in the same month of receipt of invoice, is violative of Article 14 of the Constitution, and is ultra vires Section 20 of the CGST Act, 2017, the High Court in Reliance Jio Infocomm Ltd. v. Union of India [TS 137 HC MAD 2026 GST] observed the following:
- What is available for distribution is not the tax invoice, but the ITC.
- Distribution is triggered only upon fulfillment of conditions incorporated in Section 16(2).
- Amount of credit entitled to be distributed is not the amount mentioned in the invoice, but the amount of credit which is eligible as per Section 16(2).
- Mere possession of tax invoice, by itself, is not sufficient.
- Expression 'the input tax credit available for distribution in a month' contained in Rule 39(1)(a) must be interpreted in a manner consistent with Section 16 read with Section 20.
- Said expression would only mean ITC available for distribution in a month upon fulfillment of the conditions incorporated in Section 16(2).
- Requirement of distribution thus shall be in the month in which the registered person becomes entitled to ITC in terms of Section 16(2).
- Not a case where Rule 39(1)(a) is required to be declared ultra vires the enabling Act.
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