The Gujarat High Court has quashed a ₹43.43 crore GST demand against Amul, holding that the disputed head office services were to be valued at nil under the applicable CBIC clarifications where no invoices had been issued and input tax credit was available to the recipient branches.
The bench of Justice A.S. Supehia and Justice Vaibhavi D. Nanavati has observed that failure to adopt a cross-charging mechanism does not, by itself, establish fraud, wilful misstatement or suppression of facts warranting proceedings under Section 74 of the Central Goods and Services Tax Act, 2017.
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The dispute concerned the period from July 2017 to March 2019. The Federation’s head office at Anand incurred expenditure on advertisement and publicity, IT infrastructure, IBM and SAP maintenance, audit charges, legal fees and other corporate services benefiting its branches and depots.
The GST department alleged that these expenses should have been allocated to the branches through cross-charging, treating the head office and separately registered branches as distinct persons. They also sought to include head office employee salaries in the value of services supplied to the branches.
A show-cause-cum-demand notice was issued on August 31, 2022. The authorities invoked Section 74 on the allegation that the Federation had failed to disclose the common expenditure and had not undertaken cross-charging.
The Federation challenged the resulting demand, maintaining that the expenditure was fully reflected in its books, ledgers and balance sheets. It also relied on CBIC circulars addressing the valuation of services between offices of the same organisation.
The Bench explained that establishments with different GST registrations fall within the scope of distinct persons under Sections 25(4) and 25(5) of the CGST Act.
Services supplied between such establishments in the course or furtherance of business may constitute taxable supplies under Entry 2 of Schedule I even without consideration. Their valuation is governed by Rule 28 of the CGST Rules.
However, the Court clarified that where the head office and its branches or depots operate under a single GST registration, they fall outside the distinct-person framework for cross-charging.
The judgment therefore recognised the statutory basis for taxing services between separately registered establishments while examining whether the valuation adopted in this case could sustain the demand.
The Court considered Circular No. 199/11/2023-GST dated July 17, 2023, and Circular No. 210/4/2024-GST dated June 26, 2024.
Under the clarification governing head office–branch services, where the recipient branch is eligible for full input tax credit, the value declared in the invoice is deemed to be the open market value under the second proviso to Rule 28. Where no invoice has been issued for the relevant services, their value may be deemed to have been declared as nil.
The Bench noted that it was undisputed that the Federation’s head office had not issued tax invoices to its branches and depots for the services in question. Applying the circulars and the Delhi High Court’s decision in Metal One Corporation India Private Limited v. Union of India, it held that the disputed services were required to be valued at nil and that no tax liability arose in the present case.
The Court found that the adjudicating authority had referred to the circulars only cursorily and had failed to properly examine their effect on valuation.
It further held that the authorities could not determine the value of services merely by allocating common expenditure in proportion to the turnover of different branches and depots because the Federation had not adopted cross-charging.
The Bench separately rejected the invocation of the extended limitation period under Section 74.
The department had reasoned that the alleged tax evasion would not have come to light without the Directorate General of GST Intelligence investigation. However, the Court found that neither the notice nor the adjudication order recorded the foundational facts necessary to establish fraud, wilful misstatement or suppression with intent to evade tax.
Relying on the Supreme Court’s decision in Tata Steel Limited v. Union of India, as discussed in the judgment, the Bench emphasised that mechanically repeating statutory expressions cannot justify recovery beyond the normal limitation period. The notice must disclose the facts supporting those allegations.
The Court held that the discovery of information through an investigation, without an assessment establishing the necessary elements of fraud or suppression, could not attract Section 74.
The Bench also observed that tax paid by the head office on the cross-charged services would have been available as input tax credit to the recipient branches and depots. On the facts considered by the Court, the arrangement would therefore have been revenue-neutral.
It noted that the expenditure was recorded in the Federation’s accounts and that the jurisdictional GST authorities were aware of its functioning.
Consequently, the mere failure to cross-charge internally generated services could not automatically establish deliberate tax evasion or suppression of material facts.
The Court quashed the Additional Commissioner’s Order-in-Original.
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