Quick answer: In Gujarat Co-operative Milk Marketing Federation Limited v. Union of India & Others (R/Special Civil Application No. 7085 of 2025), decided on 14 October 2026, a Division Bench of the Gujarat High Court (Justice A.S. Supehia and Justice Vaibhavi D. Nanavati) quashed an Order-in-Original dated 1 January 2025 that confirmed an IGST demand of Rs.43,43,12,441 under Section 74 of the Central Goods and Services Tax Act, 2017, with interest and penalty, for July 2017 to March 2019. The Federation had not cross-charged corporate expenses and head office salaries to its branches and depots. The Bench held that, because the head office issued no tax invoice, the value of those services was to be treated as “Nil” under Rule 28 of the Central Goods and Services Tax Rules, 2017, as read with CBIC Circular Nos. 199/11/2023-GST and 210/4/2024-GST, and that the department could not value them proportionately instead. It further held that Section 74 had been invoked mechanically, without any finding of fraud, wilful misstatement or suppression. The judgment is marked as approved for reporting.
Key Takeaways
- Distinct-person status is accepted in principle. The Court confirmed that a head office and branches holding separate registrations are “distinct persons” under Section 25(4) and (5), and that services between them are supplies under Entry 2 of Schedule I (paragraph 42).
- No invoice means Nil value. Following the 2023 and 2024 CBIC Circulars and the Delhi High Court in Metal One Corporation India, the Bench treated the value of un-invoiced head office services as Nil, leaving no tax to demand (paragraph 47).
- The department cannot value by allocation. Authorities may not determine value “on a proportionate basis” merely because the assessee did not cross-charge (paragraph 48).
- Revenue neutrality weighed against intent. Tax paid on cross-charged services would have been available as credit to the branches, which made an intent to evade implausible (paragraph 52).
- Records in the books defeat suppression. Expenditure recorded in ledgers and balance sheets, and known to the authorities, did not support a finding of suppression (paragraph 52).
- A DGGI investigation is not itself a finding. The Court held that information unearthed by the Directorate General of GST Intelligence, without an opinion establishing the Section 74 ingredients, does not attract the section (paragraph 51).
- Several questions remain open. The Bench did not decide the salary-specific arguments, the identity of the supplier, or the effect of the ISD registration (paragraphs 19 to 23 and 35).
1. Introduction
Large organisations incur shared costs at a head office: advertising, software, audit, legal fees and the salaries of corporate staff. Under the Central Goods and Services Tax Act, 2017 (“the CGST Act”), a head office and a branch in another State that hold separate registrations are treated as different persons. Since 1 July 2017 the question has therefore been whether the head office must charge its branches for the shared services it procures and uses on their behalf, and what tax follows if it does not. Industry practice calls the charge a “cross-charge”. The Act does not use the word.
The Gujarat High Court has now answered part of that question in a case against the Gujarat Co-operative Milk Marketing Federation, popularly known as “Amul”. The Federation had not cross-charged common expenditure to its branches and depots between July 2017 and March 2019. The department treated the branches as distinct persons, valued the services proportionately to branch turnover, and confirmed an IGST demand of Rs.43,43,12,441 under Section 74, which carries the extended limitation period and heavier penalty reserved for fraud, wilful misstatement or suppression.
The Division Bench quashed the demand on two independent grounds. The first is valuation: with no invoice from the head office, the value of the supply is Nil, so no tax arises. The second is jurisdiction: the department invoked Section 74 without the foundational facts the Supreme Court demanded in Tata Steel Limited v. Union of India. Both holdings matter to every multi-registration business with centralised costs. Both also leave questions that the judgment does not close.
This article sets out the facts and the procedural history, analyses each issue the Court decided, identifies what remains unsettled, and explains what the decision means for compliance, audit and litigation. Paragraph references are to the judgment; the critique is the author’s own.
2. Case Summary and Background
The assessee and its registrations. The Federation is an apex co-operative society marketing dairy products made by milk co-operatives in Gujarat. Its head office is at Anand, from where all corporate activities are managed and supervised (paragraph 4). It holds a registration as an Input Service Distributor (“ISD”) for the head office and a common registration covering its branches and depots in Gujarat (paragraph 6). The petitioner said its Gujarat branches had no separate registrations (paragraphs 21 and 23). The department said the petitioner held separate registrations for branches outside Gujarat (paragraph 30), and the Court’s own summary records “distinct GST registration numbers across India” outside the State (paragraph 35).
The expenditure. The head office incurred advertisement and publicity costs, IT infrastructure expenses, IBM and SAP annual maintenance and audit charges, legal fees and litigation expenses, for its own use and that of branches (paragraph 7). It also paid head office salaries. All of this was recorded in the books, ledgers and balance sheets at Anand (paragraph 9). For July 2017 to March 2019 none of it was allocated to branches by cross-charge (paragraph 8). The Revenue noted that from 1 April 2019 the Federation began allocating expenses and discharging tax on them (paragraph 27).
The proceedings. A show-cause-cum-demand notice dated 31 August 2022 asked why GST should not be demanded on common expenditure and head office salaries, in proportion to the turnover of the branches situated within Gujarat (paragraph 12). The department invoked Section 74 on the allegation that the Federation had failed to disclose the common expenditure (paragraph 13). The Federation replied on 13 September 2022 (paragraph 14). During adjudication the Central Board of Indirect Taxes and Customs (“CBIC”) issued Circular No. 199/11/2023-GST dated 17 July 2023 and Circular No. 210/4/2024-GST dated 26 June 2024, on which the Federation relied (paragraphs 15 to 17). By Order-in-Original No. 74/CGST/(Ahmedabad South)/ADC/PBM/24-25 dated 1 January 2025, the Additional Commissioner of CGST, Ahmedabad South confirmed an IGST demand of Rs.43,43,12,441 with applicable interest and penalty (paragraph 17). The judgment does not state the interest and penalty amounts. The Federation then petitioned under Article 226 of the Constitution (paragraph 2).
The arguments. For the petitioner, Mr. Amal Paresh Dave relied on the Delhi High Court’s decision in M/s Metal One Corporation India Private Limited v. Union of India, 2024 (10) TMI 1534 (paragraph 18). He argued that cross-charging is an accounting practice and not a statutory obligation (paragraph 22), that the value of un-invoiced services is Nil (paragraph 24), and that no fraud or suppression was shown (paragraph 25). For the Revenue, Ms. Hetvi H. Sancheti argued that the petition should not be entertained because the non-allocation was deliberate (paragraph 26), that the circulars apply only where the recipient branch is eligible for full input tax credit (paragraph 29), that the Federation retained all credit at head office (paragraph 31), and that it never told the department it was not discharging IGST on services to branches outside Gujarat (paragraph 32).
The holding. The petition was allowed, the Order-in-Original quashed and the Rule made absolute (paragraph 54). Judgment was reserved on 8 October 2026 and pronounced on 14 October 2026.
3. Legal Analysis
3.1 The statutory scheme: distinct persons and cross-charging
The Court began with Section 25 of the CGST Act. Section 25(4) treats a person holding more than one registration as distinct persons in respect of each; Section 25(5) treats an establishment in another State as an establishment of a distinct person. The Federation and its branches holding different registrations across India fell within both (paragraph 42).
Section 7 ordinarily requires consideration for a supply, but Entry 2 of Schedule I dispenses with it for supplies “between related persons or between distinct persons as specified in Section 25”, made in the course or furtherance of business. Rule 28 of the Central Goods and Services Tax Rules, 2017 (“the CGST Rules”) prescribes the valuation. The Bench observed that the Act does not define “cross-charge”, but that these provisions together create it, premised on separate registrations. Where head office and branches “operate under a single GST registration, they will remain outside the scope of ‘distinct person’, and exempt from cross-charging” (paragraph 42).
This is accurate, and it cuts against the assessee. The Bench did not accept that cross-charging is a mere accounting device. It treated shared services as supplies under Schedule I; the Federation won on valuation and Section 74. One loose end remains: the notice apportioned tax by the turnover of branches “situated within the State of Gujarat” (paragraph 12), while the order confirmed IGST, which attaches to inter-State supplies. The judgment does not reconcile the two, and need not have, once value was Nil.
3.2 Valuation: no invoice, Nil value
The central holding is in paragraph 47. It was “not disputed” that the head office had issued no tax invoices to its branches. The Court held that “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”.
It reached this through Circular No. 199/11/2023-GST. Under clause (a) of Rule 28 the value of a supply between distinct persons is its open market value; under the second proviso, where the recipient is eligible for full input tax credit, the value declared in the invoice is deemed to be the open market value. Where full credit is available and no invoice is issued for a service, the circular says the value may be deemed declared as “Nil” (paragraph 44). Circular No. 210/4/2024-GST repeated the point (paragraph 45). The Bench reproduced paragraph 14 of Metal One, where the Delhi High Court held that, on conceded absence of invoices, the notices were “futile and impractical” (paragraph 46).
Two consequences followed. The adjudicating authority had referred to the circulars “cursorily”, dismissing them because the taxpayer had not shown that all the credit on an invoice was to pass to one branch; that was non-application of mind (paragraph 47). And the authorities “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” (paragraph 48). The Bench added that tax paid on the services would be available to branches as credit under Section 16(1) (paragraph 49).
Critique. The result is practical and consistent with the circulars, but three points may invite later scrutiny. First, the Nil rule is conditional on the recipient’s eligibility for full credit. The Revenue argued exactly this (paragraphs 29 and 31). The Court’s answer in paragraphs 49 and 52 assumes that the branches would have had credit, and makes no finding on which branches were registered, what credit each could claim, or whether head office credit was ever distributed. A narrower reading is that Nil value follows where eligibility is conceded or evident.
Second, the Court applied circulars without discussing their binding force or whether Nil value follows from Rule 28 alone. The Board can withdraw a circular; the holding is only as durable as the instrument.
Third, the salaries were not separately examined. The notice treated them as consideration for employee services to branches (paragraph 11). The Bench did not decide whether that characterisation is sound, nor how Schedule III applies to services by an employee to an employer. Salaries stand decided only through the Nil-value and Section 74 holdings.
3.3 Section 74 and the extended period
The department had invoked the extended period on the strength of a DGGI investigation, reasoning that without it the facts would not have emerged (paragraph 50). The Bench found nothing else in the notice or order to satisfy the requirement of fraud, wilful misstatement or suppression with intent to evade tax. It reproduced paragraphs 11 to 14 of Tata Steel Limited v. Union of India, 2026 (189) taxmann.com 520 (SC): the proper officer’s satisfaction must precede a Section 74 notice, foundational facts must be evident from the notice, and the statutory words “are not to be mechanically recited in the notice”. This site has discussed Tata Steel at /insights/tata-steel-v-union-of-india-section-74-cgst-limitation.
Applying it, the Bench held that the authority had “mechanically invoked Section 74” without a specific finding, and that “The mere exhuming of information by DGGI, without forming any opinion establishing the core vices on such information cannot attract the rigors of Section 74” (paragraph 51). It added two reasons of substance. Cross-charging would have been “revenue-neutral”: head office could have discharged the tax from credit on its own inputs, and the branches would have taken the tax as credit. And the authorities knew the Federation’s functioning, because the expenditure sat in its books (paragraph 52). Failure to cross-charge did not by itself show wilful evasion (paragraph 53).
Critique. This is the stronger holding. It follows Tata Steel closely and turns on the face of the notice and order. Revenue neutrality is used to doubt intent, not to deny tax; a demand under the ordinary limitation of Section 73 would need an answer on valuation without that help. The Court also did not address the Revenue’s point that the Federation began cross-charging from 1 April 2019 (paragraph 27). Later compliance is not an admission of earlier liability, but the Court did not say so.
The period here falls under Section 74 as it then stood. The Court did not refer to Section 74A, inserted by the Finance (No. 2) Act, 2024 for financial year 2024-25 onwards, so whether the Tata Steel requirement transfers to it in the same terms is untested.
3.4 What was not decided
The Revenue’s opening submission was that the petition should not be entertained (paragraph 26). The Bench did not treat alternative remedy under Section 107 as a separate question and decided on the merits. That differs from the Patna High Court in Amit Agency v. Commissioner, CGST and CX, which sent an assessee to appeal the previous day (discussed separately on this site); the cases are reconcilable, since the Gujarat order lacked findings and the circulars answered valuation. The Bench also left open whether the demand lay against the head office rather than the Ahmedabad branch (paragraphs 19 and 20), and the role of the ISD registration, which the judgment records (paragraphs 6 and 35) but does not analyse.
4. Practical Significance
Valuation positions for un-invoiced services. Businesses that have never cross-charged for past periods now have a reported High Court decision that treats un-invoiced head office services as Nil in value. The holding is strongest where each branch would have been entitled to full credit on the tax. Businesses should document that eligibility. Branches making exempt supplies, or those with blocked credit, stand on weaker ground because the circular’s condition is not met and the Court did not suspend it.
Do not read the judgment as a licence not to cross-charge. The Court confirmed that supplies between distinct persons are taxable under Schedule I (paragraph 42). The relief arises from the value. A business whose branches cannot take full credit, or which has issued some invoices and not others, may face a demand that the Nil rule does not answer. The Federation itself began cross-charging from 1 April 2019. Businesses should assess whether to follow a similar course.
Registration structure. The Court restated that a head office and branches under a single registration are outside distinct-person treatment. Businesses with separate registrations across States should map which branches receive which common services and whether the invoice and credit flows match.
Section 74 notices. Practitioners should test the notice for foundational facts. A notice resting on a DGGI investigation and on the bare allegation that cross-charging was not undertaken is open to challenge on the Tata Steel ground. Where the expenditure is in the books and the position is revenue-neutral, the suppression allegation is weak. Responding to such a notice should therefore include the ledger evidence and a credit-eligibility analysis for the recipient branches.
Choice of remedy. The Court entertained the writ petition without discussing alternative remedy. It would be unwise to treat that as a general rule. The Bench was dealing with an order quashed for non-application of mind and for want of the Section 74 ingredients, with a Division Bench decision of the Delhi High Court and two circulars directly on point. An assessee without comparable features should expect the department to argue for the Section 107 appeal, with its pre-deposit, and should file the appeal within time unless the case is clearly one for the High Court.
Departmental practice. Officers adjudicating similar matters must deal with the circulars on their terms. The Court’s criticism was that the adjudicating authority referred to them “cursorily”. An order that does not reason why the circulars do not apply, for example by recording that a branch lacks full credit, risks the same fate.
5. Conclusion
The Gujarat High Court has delivered a reasoned and reportable decision on a question that touches almost every multi-State business: what happens when a head office incurs shared costs and does not cross-charge its branches. Its answer has two parts. The services are in principle supplies between distinct persons under Schedule I. But where the head office issues no invoice, the value is Nil under Rule 28 as read with the 2023 and 2024 circulars, and the department cannot substitute a proportionate value of its own.
The second part of the answer concerns the extended period. A failure to cross-charge, recorded openly in the books and capable of being neutral on credit, does not show fraud, wilful misstatement or suppression, and an investigation that surfaces the facts does not substitute for a finding. The Bench applied Tata Steel faithfully.
The judgment is persuasive on Section 74. On valuation it is narrower than its headline suggests, because it rests on circulars whose condition is the recipient’s eligibility for full credit, and it records no finding on that point. Future benches will need to say whether the Nil value depends on the circulars or on Rule 28 alone, how salaries are to be treated, and what role an ISD registration plays. Until then, taxpayers should read the decision as strong authority against a Section 74 demand built on non-cross-charging alone, and as helpful but conditional authority on Nil valuation.
Authorities and Citations
Applied or relied on by the Court:
- M/s Metal One Corporation India Private Limited and Others v. Union of India & Others, 2024 (10) TMI 1534 (Delhi High Court) — conceded absence of invoices leads to Nil value under the 2023 circular; paragraph 14 reproduced (paragraph 46). Also relied on by the petitioner (paragraph 18).
- Tata Steel Limited v. Union of India, 2026 (189) taxmann.com 520 (Supreme Court) — foundational facts and satisfaction for Section 74; paragraphs 11 to 14 reproduced and applied (paragraphs 50 and 51). Discussed on this site at /insights/tata-steel-v-union-of-india-section-74-cgst-limitation
Cited by counsel only:
- Metal One was also relied on by counsel for the petitioner (paragraph 18). The judgment records no reported decision cited by the Revenue.
Legislation and instruments:
- Sections 7, 15(4), 16(1), 25(4) and (5), 31, 74, Central Goods and Services Tax Act, 2017; Entry 2 of Schedule I — https://www.indiacode.nic.in/
- Rules 28, 30 and 31, Central Goods and Services Tax Rules, 2017.
- CBIC Circular No. 199/11/2023-GST dated 17 July 2023 and Circular No. 210/4/2024-GST dated 26 June 2024 (as quoted and summarised in the judgment).
- Article 226, Constitution of India.
Judgment: Gujarat High Court, R/Special Civil Application No. 7085 of 2025, decided 14 October 2026 — https://indiankanoon.org/doc/137298528/
Frequently Asked Questions
Must a head office cross-charge its branches for shared costs? The Court confirmed that services between distinct persons, meaning separately registered units of the same person, are supplies under Entry 2 of Schedule I to the CGST Act. If the head office and the branches operate under a single registration, they are not distinct persons and no cross-charge arises (paragraph 42).
What value applies if no invoice was issued to the branches? The Bench held that the value is Nil under Rule 28 of the CGST Rules, read with CBIC Circular Nos. 199/11/2023-GST and 210/4/2024-GST, and that the department cannot value the services proportionately. The circulars apply where the recipient is eligible for full input tax credit.
Can the extended period under Section 74 be invoked because the assessee did not cross-charge? Not on that ground alone. The Court held that the authority must record foundational facts showing fraud, wilful misstatement or suppression with intent to evade tax. Expenditure recorded in the books and a revenue-neutral position weighed against any such finding (paragraphs 50 to 53).
Does the judgment decide the treatment of head office salaries separately? No. The salary demand fell with the Nil-value holding and the Section 74 holding. The Court did not separately analyse employee-related services.
This article is not legal advice and does not create an attorney–client relationship. Readers should verify the certified copy of the judgment and any subsequent clarificatory orders before relying on it, and consult a qualified advocate on the facts of their matter.