The Gujarat High Court has set aside a ₹43.43 crore GST demand against the Gujarat Cooperative Milk Marketing Federation, which markets products under the Amul brand, holding that services provided by its head office to separately registered branches must be valued at nil under the applicable GST rules when the prescribed conditions are satisfied.
A Division Bench of Justice A S Supehia and Justice Vaibhavi D Nanavati ruled that the GST authorities could not impose tax liability merely because the federation had not adopted a cross-charging mechanism to distribute common corporate expenses among its branches and depots.
The Court quashed the January 1, 2025, order passed by the Additional Commissioner of Central GST, Ahmedabad South, confirming an Integrated GST demand of ₹43,43,12,441, along with interest and penalty.
No Tax Liability Without Taxable Value Under GST Rules
The dispute concerned expenditure incurred by Amul’s head office in Anand towards advertising, legal services, information technology systems and other common corporate functions between July 2017 and March 2019.
Although the expenses related to operations across different branches and depots, the federation had not issued invoices or allocated the expenditure through cross-charging.
The GST department maintained that branches holding separate GST registrations qualified as distinct persons under the law. According to the department, services provided by the head office to these units attracted GST, irrespective of whether internal invoices had been raised.
The High Court, however, examined the valuation framework under Rule 28 of the Central Goods and Services Tax Rules and the clarifications issued by the Central Board of Indirect Taxes and Customs (CBIC).
The Bench noted that the applicable clarifications permitted the value of internally provided services to be treated as nil where the head office had not issued invoices and the recipient branches were eligible for full input tax credit.
Since the authorities did not dispute that Amul had issued no tax invoices to its branches and depots for the services concerned, the Court held that the valuation provisions applied and no tax liability arose.
The Bench also rejected the department’s method of calculating the taxable value by distributing common head office expenses among branches in proportion to their turnover.
It held that the authorities could not determine the value of services on a proportionate basis solely because the federation had not followed the cross-charging mechanism.
Failure to Cross-Charge Does Not Establish Fraud or Tax Evasion
The High Court separately examined the department’s reliance on Section 74 of the CGST Act, which permits an extended limitation period for tax demands involving fraud, wilful misstatement or suppression of facts with intent to evade tax.
The department had invoked these provisions while alleging that Amul’s failure to cross-charge its head office expenses resulted in unpaid GST.
The federation contested the allegation, pointing out that the relevant expenditure had been disclosed in its accounting records.
The Bench found that the expenses were reflected in Amul’s books of account, ledgers and balance sheets. It also referred to a Supreme Court ruling while explaining that information coming to light during an investigation did not, by itself, establish the grounds required to invoke Section 74.
The Court held that merely failing to adopt cross-charging for internally generated services could not automatically establish fraudulent conduct, wilful tax evasion or deliberate suppression of material facts.
The department had not demonstrated the necessary elements to justify invoking the extended limitation provisions.
Court Takes Note of Revenue-Neutrality Argument
The federation also submitted that imposing GST on cross-charged services would be revenue-neutral because the recipient branches could claim corresponding input tax credit, subject to the applicable statutory conditions.
The High Court took note of this submission while considering the tax demand.
The Bench ultimately concluded that the authorities had incorrectly determined the taxable value of the services and had failed to establish grounds for invoking the provisions relating to fraud or suppression of facts.
Accordingly, the Gujarat High Court allowed Amul’s challenge and quashed the January 1, 2025, adjudication order confirming the ₹43.43 crore Integrated GST demand, including the associated interest and penalty.
