Can the GST department tax Amul’s head office for advertising, legal services, IT systems, and other expenses incurred for its branches, even when no bills have been raised between them? The Gujarat High Court has ruled in favour of the Gujarat Cooperative Milk Marketing Federation, which markets Amul products, quashing a Rs 43.43-crore tax demand and holding that the value of the services in question had to be treated as nil under the applicable GST rules.
The dispute arose over expenses incurred by Amul’s head office in Anand between July 2017 and March 2019. Amul had not allocated these common corporate expenses to its branches and depots through a process known as “cross-charging”, under which one unit raises a bill on another for services provided or expenses shared between them.
The Goods and Services Tax department argued that branches with separate GST registrations were distinct entities under the law and that services provided by the head office to these branches were taxable. It alleged that Amul’s failure to cross-charge the expenses had resulted in unpaid tax and invoked provisions dealing with fraud, wilful misstatement, and suppression of facts to raise the demand.
On January 1, 2025, the Additional Commissioner of Central GST, Ahmedabad South, confirmed an Integrated GST demand of Rs 43,43,12,441, along with interest and penalty. Amul challenged the order before the court, arguing that its expenses were recorded in its books and that the absence of cross-charging did not amount to tax evasion.
Central Board of Indirect Taxes and Customs clarifications
A bench of Justices A S Supehia and Vaibhavi D Nanavati relied on Central Board of Indirect Taxes and Customs (CBIC) circulars clarifying the valuation of services provided between separately registered units of the same organisation. Under these clarifications, where the prescribed conditions are met, the value of services may be treated as nil if the head office has not issued an invoice and the receiving branch is eligible for full input tax credit.
The court noted that the department did not dispute that Amul’s head office had not issued tax invoices to its branches and depots for the services in question. “Since it is not disputed by the Respondents that the HO of the petitioner has not issued any tax invoices to its branches and depots in respect of the services in question, the value of such services is required to be treated as ‘Nil’ in terms of Rule 28 of the CGST Rules, and consequently, no tax liability arises in the present case,” read the judgment delivered on Wednesday.
The court said the authorities could not arrive at a taxable value simply by allocating common expenses among branches in proportion to their turnover because Amul had not adopted cross-charging.
“The respondent authorities, therefore, cannot determine the value of the services on a proportionate basis merely on the ground that the petitioner did not adopt the cross-charging mechanism,” the court observed.
The court also questioned the department’s decision to invoke Section 74 of the Central Goods and Services Tax Act, which permits an extended period for raising demands in cases involving fraud, wilful misstatement or suppression of facts with intent to evade tax.
‘No grounds to allege deliberate tax evasion’
Referring to a Supreme Court ruling, the high court said the discovery of information during an investigation was not by itself sufficient to invoke the provision. It noted that the expenses were recorded in Amul’s books, ledgers, and balance sheets, and that the department had not established the necessary grounds to allege deliberate tax evasion.
“Thus, mere allegation that the petitioner failed to adopt cross-charging in respect of internally generated services provided by the Head Office to its branch offices cannot ipso facto lead to the conclusion that the petitioner wilfully or fraudulently evaded payment of tax or suppressed material facts with such intent,” the judgment states.
The court also took note of Amul’s argument that the transaction was revenue-neutral, as tax paid on cross-charged services could be available as input tax credit to recipient branches, subject to the applicable conditions.
The high court thus quashed the January 2025 order that confirmed the Rs 43.43-crore demand, along with interest and penalty.
Source from: https://indianexpress.com/article/legal-news/amul-wins-rs-43-crore-gst-battle-in-gujarat-high-court-10922679/
