A ₹43.43 crore demand on Amul for not cross-charging its own head office, and not one finding of why that was fraud

Justices A.S. Supehia and Vaibhavi D. Nanavati quashed the order in original, holding the exercise would have been revenue-neutral and that Section 74 cannot be a routine formula for bypassing normal limitation.

The Gujarat Co-operative Milk Marketing Federation Limited is the apex body of the state's milk co-operatives and is known to every household in the country as Amul. Its head office has been at Anand since it was registered, and all its corporate activities are undertaken, managed and supervised from there. On 1 January 2025 the Additional Commissioner of CGST, Ahmedabad South, confirmed an IGST demand of ₹43,43,12,441 against it, with interest and penalty, under Section 74 of the Central Goods and Services Tax Act, 2017 — the provision that permits recovery over an extended period where tax has been short paid by reason of fraud, wilful misstatement or suppression of facts. On 14 October 2026 the Gujarat High Court quashed that order.

The accounting question underneath

The Federation runs the Amulfed Dairy at Village Bhat in Gandhinagar district, and there are 21 other district-level co-operative societies operating milk plants across Gujarat. It holds a GST registration as an Input Service Distributor for the head office at Anand, and a common GST registration covering all its branches and depots in the State.

As the apex body responsible for the sale, supply and distribution of milk and milk products, it incurs corporate expenses through Anand: advertisement and publicity, IT infrastructure, IBM annual maintenance service charges, SAP annual maintenance and audit charges, legal fees, litigation expenses and similar items. Those services are used by the Federation itself and by its branches. The dispute covers July 2017 to March 2019, during which the Federation incurred that expenditure without allocating it to its branch offices and depots by the method of cross-charging. The expenditure was recorded in its books of account, ledgers and balance sheets at Anand throughout.

The Directorate General of GST Intelligence began an inquiry on the footing that the expenditure incurred and paid by the head office was liable to GST, because the branch offices to which the head office provided such services are distinct persons under Section 25(4) of the CGST Act. The authorities went further and alleged that the salaries paid to employees at the head office were attributable to the supply of services by those employees to the branches, so that salary expenditure too was liable to GST as consideration. A show-cause-cum-demand notice of 31 August 2022 called on the Federation to show cause why GST should not be demanded on common expenditure and on head office salaries, in proportion to the turnover of the branches in Gujarat, and invoked Section 74 on the allegation that it had failed to disclose the common expenditure and had not undertaken cross-charging. The Federation replied on 13 September 2022 explaining how the head office services function.

Two circulars, both overlooked

While the adjudication was pending, the Central Board of Indirect Taxes and Customs issued Circular No. 199/11/2023-GST dated 17 July 2023 clarifying the taxability of services provided by one office of an organisation to another office of the same organisation. A further Circular No. 210/4/2024-GST dated 26 June 2024 clarified the valuation of services between related persons, including where the recipient is eligible for full input tax credit: in such cases the value of the supply may be deemed to be “Nil” where the invoice has not been issued by the related entity.

The Federation placed both circulars before the adjudicating authority. The order in original of 1 January 2025 confirmed the demand regardless. Mr Amal Paresh Dave and Mr Paresh M. Dave, appearing for the Federation, relied on the Delhi High Court's decision in M/s Metal One Corporation India Private Limited v. Union of India, which had dealt with an identical issue in the light of the same two circulars and quashed the demand notices issued by the GST authorities.

Three objections to the shape of the demand

Beyond the circulars, the Federation attacked the structure of the proceedings on three grounds, each of which the Court recorded.

The first was that the Revenue had demanded tax from the wrong person. If its case is that internally generated services were required to be supplied by the head office to the branch offices, the demand ought to have been raised against the head office. The reverse charge mechanism does not apply to such internally generated services provided by a head office to its branches, and the demand was not confirmed under the reverse charge mechanism either.

The second was that it had been made against the wrong place of business. The proceedings were initiated against the Ahmedabad branch office by treating it as the principal place of business, whereas the head office is admittedly at Anand. Since no corporate expenditure was incurred or paid by the Ahmedabad branch, there was no question of that branch being required to undertake cross-charging at all.

The third went to the foundation of the whole demand. The Revenue proceeded on an understanding of Section 25(4) by which the head office and the branch offices are distinct persons. But no separate GST registration had been obtained by the branch offices in Gujarat — the Federation holds an Input Service Distributor registration for Anand and a single common registration covering the branches and depots in the State. A demand raised by treating them as distinct persons was therefore misconceived.

The Federation also pointed out what cross-charging is for in accounting practice: it is adopted by an organisation to ascertain the performance of its units, not as a tax-collection device, and the choice not to adopt it says nothing about an intention to evade.

“Not mere lip service”

On the law the Bench relied on a recent Supreme Court passage on the discipline that an extended limitation period demands. Where a statute provides an extended period for recovering an excess benefit availed, a short payment or an excess refund, especially where the allegation is of fraud, wilful misrepresentation or suppression, it is not mere lip service to the provision that is intended. The foundational facts which led to the inference of fraud, wilful misrepresentation or suppression should be evident from the notice itself. The mere employment of such words will not indicate an application of mind, upon which alone the satisfaction can be arrived at; the words are not to be mechanically recited in the notice to enable recovery outside the normal limitation provided by the statute.

Two features of that passage bear on this record. One is that a department which takes its audit objections to the Public Accounts Committee thereby indicates that there was no satisfaction at the assessing officer's end as to a mismatch or shortfall, let alone as to suppression. The other is that but for a bland statement about availing input tax credit for three years without documentary evidence and suppressing the facts, the show-cause notice contained no foundational facts to validate the allegation of suppression.

Applying that, the Court held the adjudicating authority had mechanically invoked Section 74 without recording any specific finding establishing that the petitioner had resorted to fraud, wilful misstatement or suppression of facts with intent to evade tax by avoiding the cross-charging methodology. “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 of the CGST Act.”

Revenue neutrality

The second and more practical reason is that there was nothing to gain by evasion. Before invoking so stringent a provision, the Court held, the adjudicating authority ought to have appreciated that even if the Federation had adopted cross-charging, the tax liability on those services could have been discharged by utilising the input tax credit of the tax paid to the actual service providers at the head office. The tax so paid on the cross-charged services would in turn have been available as input tax credit to the respective branches and depots, which also hold GST registrations. The situation would therefore have been revenue-neutral.

In those circumstances the question of suppression, wilful misstatement or fraud with intent to evade payment of tax does not arise merely because the Federation did not adopt the cross-charging mechanism. The Court also recorded that the jurisdictional GST authorities were aware of how the Federation functions, because the expenditure in question was duly recorded in the books of account, ledgers and balance sheets maintained at the head office at Anand. A mere allegation that the petitioner failed to adopt cross-charging for internally generated services provided by the head office to its branches cannot ipso facto lead to the conclusion that it wilfully or fraudulently evaded tax or suppressed material facts with that intent.

The quashing is of the order in original rather than of the question underneath it. What the Court has decided is that this demand could not be made under Section 74, on this notice, against this entity, for this period — not that no tax was ever payable on services the head office supplies to its own branches.

The adjudicating authority had therefore failed to establish the essential ingredients for invoking Section 74, reflecting what the Bench called a clear non-application of mind. The writ petition succeeded and was allowed; the order in original of 1 January 2025 passed by the Additional Commissioner of CGST, Ahmedabad, was quashed and set aside, and rule was made absolute. Ms Hetvi H. Sancheti, Senior Standing Counsel, appeared for the respondent authorities.

For the Federation, the immediate consequence is that a demand of ₹43.43 crore, with interest and penalty, falls away along with the order that confirmed it.