Full ITC Principle Continues to Strengthen GST Valuation Framework

 One of the most significant developments under GST valuation jurisprudence has been the consistent recognition that where the recipient is eligible for full Input Tax Credit (ITC), disputes regarding valuation become largely revenue neutral. Over the years, advance rulings, CBIC circulars, and judicial pronouncements have progressively reinforced this principle.

For transactions involving stock transfers or cross-charges between distinct persons, advance ruling authorities have consistently accepted the value declared in the tax invoice as the Open Market Value (OMV) when the recipient is entitled to full ITC. This position was affirmed in Cummins India Limited and GKB Lens Private Limited, where the authorities recognized that valuation disputes serve little purpose in a revenue-neutral environment. The principle received a further boost through CBIC Circular No. 199/11/2023-GST dated 17 July 2023, which clarified that where no invoice is issued and the recipient is eligible for full ITC, even a NIL value can be adopted. The Delhi High Court in the KEI Industries matter also directed the authorities to apply the benefit of Circular 199 in the context of cross-charge transactions.

The same rationale has subsequently been extended to transactions between related persons. Through CBIC Circular No. 210/4/2024-GST dated 26 June 2024, the Government clarified that services imported from a related foreign entity without consideration may also be assigned any value, including NIL, provided the Indian recipient is eligible for full ITC and no invoice has been issued. The Delhi High Court's ruling in Sony India further reinforced this position in secondment arrangements. The Court held that where the Indian entity had full ITC entitlement, the transaction value would be deemed as NIL in terms of Circular 210, and consequently, no interest liability would arise even if GST had been paid during the course of litigation.

Adding another dimension to this evolving jurisprudence, the West Bengal AAR in Wood India Engineering & Projects Private Limited (2026) adopted a particularly pragmatic approach. In this case, a foreign group entity provided IT support services and charged consideration to the Indian company. The AAR held that, based on the second proviso to Rule 28(1) and Circular 210, the value declared by the Indian company in its self-invoice would be deemed to be the OMV where the recipient enjoys full ITC eligibility. Importantly, this conclusion was reached irrespective of the commercial value charged by the foreign service provider.

These developments collectively demonstrate a clear policy and judicial trend towards reducing valuation-related litigation in full ITC scenarios. The underlying principle is straightforward: where tax paid by one entity is fully recoverable by the recipient as ITC, valuation disputes do not result in any revenue loss to the exchequer. Consequently, the GST framework is increasingly embracing a practical and business-friendly approach that prioritizes revenue neutrality over notional valuation adjustments.