The Gujarat High Court (Ahmedabad Bench) has quashed a Rs. 43.43 crore IGST demand raised on Gujarat Co-operative Milk Marketing Federation (Amul) for non-cross-charging of common head-office expenses to its branches and depots during July 2017 to March 2019. Applying CBIC’s valuation clarifications, the Court treated un-invoiced head-office services as “Nil” in the circumstances of the case and held that failure to cross-charge, by itself, did not establish fraud or suppression with intent to evade tax.
The High Court explained that under Sections 25(4) and 25(5) of the CGST Act, separately registered head offices and branches are distinct persons, and business supplies between them fall within Entry 2 of Schedule I even without consideration. Offices operating under a single GST registration fall outside this cross-charging framework. The Court explained that Circular No.199/11/2023-GST provides that, where the recipient is eligible for full ITC and the head office has not issued an invoice, the service value may be deemed “Nil” under Rule 28.
The authorities could not proportionately value common services merely because Amul had not allocated expenditure according to branch and depot turnover. The Court held that the notice must disclose facts supporting fraud, wilful misstatement or suppression with intent to evade tax. Information unearthed by DGGI, without findings establishing those ingredients, was insufficient to invoke the extended limitation period. The Court noted that tax paid on cross-charged services would have been available as ITC to the recipient branches and that the expenditure was duly recorded in Amul’s accounts.
Briefly, Gujarat Co-operative Milk Marketing Federation Limited, popularly known as Amul, challenged an order confirming an IGST demand of Rs. 43.43 crores, along with interest and penalty, for July 2017 to March 2019. Its Head Office at Anand incurred common corporate expenses, including advertising, IT services, legal fees and employee salaries, but did not allocate these expenses to its branches and depots through cross-charging.
The GST authorities treated the services as supplies between distinct persons and invoked Section 74 of the CGST Act, alleging deliberate non-disclosure and failure to cross-charge. The expenditure was, however, admittedly recorded in the Federation’s books of account, ledgers and balance sheets.
The Division Bench comprising Justice A.S. Supehia and Justice Vaibhavi D. Nanavati explained that a head office and branches holding different GST registrations are “distinct persons” under Sections 25(4) and 25(5). Supplies between them in the course or furtherance of business may attract GST even without consideration under Entry 2 of Schedule I, with valuation governed by Rule 28. However, offices operating under a single GST registration fall outside this distinct-person cross-charging framework.
On valuation, the Court considered the CBIC circulars dated 17 July 2023 and 26 June 2024. The quoted clarification provides that, where the recipient branch is eligible for full input tax credit and the head office has not issued an invoice, the service value may be deemed “Nil” and treated as its open market value. Applying the circulars to this case, the Court held that the services had to be valued at “Nil”, since no tax invoices had been issued. It criticised the adjudicating authority for brushing aside the clarification and held that the authorities could not determine value proportionately merely because the Federation had not allocated expenditure according to branch turnover.
The Court also found that Section 74 had been invoked mechanically. Discovery of information through a DGGI investigation did not, by itself, establish fraud, wilful misstatement or suppression with intent to evade tax. The Court noted that cross-charged tax would have been available as credit to the recipient branches, making the situation revenue-neutral, and that the expenditure was recorded in the Federation’s accounts. Mere failure to cross-charge therefore did not establish deliberate tax evasion.
