Introduction
In M/s Gujarat Co-operative Milk Marketing Federation Limited v. Union of India & Ors. [R/Special Civil Application No. 7085 of 2025, decided on 14.10.2026], a Division Bench of the Hon’ble Gujarat High Court considered whether a head office that does not cross-charge common expenses to its branches can be made liable to GST and whether the extended period under Section 74 of the CGST Act, 2017, can be invoked in such a case. The Hon’ble Court quashed an IGST demand of Rs.43,43,12,441 along with interest and penalty, holding that the value of the services was ‘Nil’ in the absence of invoices and that Section 74 had been invoked mechanically.
Factual Background
The petitioner, popularly known as “Amul”, is an apex co-operative federation that markets dairy products manufactured by milk co-operatives in Gujarat. Its Head Office (“HO”) has always been at Anand, from where all corporate activities are managed and supervised. It holds an Input Service Distributor registration for the HO and, as recorded by the court, two GST registrations within the State of Gujarat under Section 25 of the CGST Act. For outside Gujarat, it holds distinct registrations across India.
For July 2017 to March 2019, the HO incurred common corporate expenses, such as advertisement and publicity, IT infrastructure, IBM and SAP annual maintenance, legal and litigation expenses, and employee salaries. These were not allocated to the branches and depots by way of cross-charging, although all of them were duly recorded in the HO’s books of account, ledgers and balance sheets.
The Department treated the branches as “distinct persons” under Section 25(4) of the CGST Act. A show-cause-cum-demand notice dated 31.08.2022 was issued under Section 74, alleging non-disclosure of the common expenditure and non-cross-charging, and the petitioner replied on 13.09.2022. During adjudication, CBIC issued Circular No. 199/11/2023-GST dated 17.07.2023 and Circular No. 210/4/2024-GST dated 26.06.2024. Despite these, Order-in-Original No. 74/CGST/(Ahmedabad South)/ADC/PBM/24-25 dated 01.01.2025 confirmed the demand, which the petitioner challenged in writ.
Contentions Before the Hon’ble Court
The petitioner relied on the Delhi High Court’s decision in Metal One Corporation India Pvt. Ltd. v. Union of India [2024], which dealt with the same circulars. It argued that-
- Cross-charging is an accounting practice and not a statutory mandate;
- If any liability existed, it lay on the HO, and the reverse charge mechanism had not been invoked;
- Proceedings were wrongly initiated against the Ahmedabad branch as the principal place of business;
- No invoices were issued, so the value of the services is deemed ‘Nil’ under Rule 28;
- There was no fraud, wilful misstatement or suppression to justify Section 74;
The Revenue submitted that the petitioner deliberately avoided cross-charging to evade GST, and that it began cross-charging from 01.04.2019, which showed that it had accepted the position. It argued that the concept of distinct persons applied under GST from 01.07.2017 and that Metal One was inapplicable. According to the Revenue, the circulars apply only where the recipient is eligible for full ITC, and the adjudicating authority had dealt with them in paragraph 20 of its order. The Revenue also contended that the petitioner held separate registrations outside Gujarat, that valuation was done under Rules 28, 30 and 31, and that the petitioner retained the entire ITC at the HO. Finally, they argued that the extended period was rightly invoked as the Department was never informed of the non-payment.
Reasoning- Distinct Persons and ‘Nil’ Valuation
The Hon’ble Court first examined the legal framework. Under Section 25(4) and (5), separate registrations are treated as distinct persons, and Entry 2 of Schedule I read with Section 7 treats supplies between distinct persons in the course or furtherance of business as supply even without consideration. Rule 28 prescribes valuation. The Hon’ble Court observed that the Act does not define “cross-charge”, but the mechanism arises from these provisions and is premised on separate registrations. It also noted that where the HO and branches operate under a single registration, they are not distinct persons and fall outside cross-charging.
On valuation, the Hon’ble Court extracted Circular No. 199/11/2023-GST, which provides that where the recipient is eligible for full ITC and no tax invoice has been issued, the value may be deemed ‘Nil’. Circular No. 210/4/2024-GST reiterated this. It was undisputed that no invoices were issued by the HO. The Hon’ble Court therefore held that the value was ‘Nil’ and no tax liability arose, following Metal One. It found that the adjudicating authority had referred to the circulars only cursorily and brushed them aside, showing non-application of mind. The Hon’ble Court also held that the Department cannot determine value proportionately to branch turnover merely because cross-charging was not adopted. Services from the HO to branches are input services, and the tax paid would be available as ITC under Section 16(1).
Reasoning- Section 74
The Hon’ble Court noted that the extended period was invoked only on the basis of the DGGI investigation, with nothing in the notice or the order establishing fraud, wilful misstatement or suppression. Relying on Tata Steel Ltd. v. Union of India [2026], it reiterated that the foundational facts must be evident from the notice itself and that statutory words cannot be mechanically recited. It further observed that even if cross-charging had been done, the exercise would have been revenue-neutral, since the HO’s tax could be discharged through ITC and the branches would in turn get credit. The expenditure was also fully recorded in the HO’s books, so the authorities were aware of the Federation’s functioning. Accordingly, the writ petition was allowed, and the Order-in-Original dated 01.01.2025 was quashed and set aside.
AMLEGALS Remarks
This ruling reinforces that a demand on internal HO-to-branch services cannot rest on the mere absence of cross-charging. Where no invoice is issued and the branch is entitled to full ITC, the circulars deem the value to be ‘Nil’, and the Department cannot substitute a proportionate valuation of its own. The ruling also shows that Section 74 requires specific, recorded findings of fraud, wilful misstatement or suppression, and not an assertion drawn from an investigation. This is particularly relevant for multi-registration businesses facing similar HO and branch demands for the period before cross-charging was adopted.
However, the ruling does not hold that supplies between distinct persons are outside GST, and the Hon’ble Court affirmed that such supplies fall within Schedule I. The relief rests on the circulars, the absence of invoices, the ITC position and the lack of findings under Section 74, so a case-by-case evaluation remains essential.
For any queries or feedback, feel free to connect with Dhwani.tandon@amlegals.com