Tax Vista

Your weekly tax recap

Edn. 294 - 19th October 2026

Dr. G. Gokul Kishore

Cross-charging in GST - Flogging dead issues

Cross-charge is something undefined in GST law but tax officers scrupulously started following it from day one. Allocation of cost to various branches, units and other offices by a company is a finance function as per accounting / costing provisions but GST officers could not resist the temptation of tasting revenue. In a particular case of milk cooperative federation, the Gujarat High Court starts with narration of adjudication order holding demand under Section 74 of CGST Act as sustainable for not charging GST by not cross-charging expenses incurred by head office on corporate functions for the sake of branch offices. A blunder, if one can use such term, is initiation of proceedings against the branch office in this case instead of HO. It is surprising that such demand was raised under Section 74 against a milk cooperative and that too, when the branch offices are in the same State as the head office. They were treated as distinct persons but the High Court clearly held that if the HO and branches operate under a single GST registration, they will be outside the scope of distinct person and also exempt from cross-charging.

One advantage of delayed issuance of SCN and delay in passing order is benefit of some circular which gets issued later. CBIC Circulars clarifying non-issuance of invoice for cross-charging and adoption of NIL value were discussed by the High Court to hold that no tax liability arose as per Rule 28 of CGST Rules. While exercising quasi-judicial functions, adjudicating authorities sometimes become very "independent" and consider themselves as not bound by such CBIC circulars. In this case also, the adjudicating authority ignored them to be castigated by the Court as non-application of mind. It is not clear why the issue of non-applicability of concept of distinct person to same State branches which are covered by same registration was not held as a clinching factor for the taxpayer. Somewhere in the order it is mentioned that branches / depots hold separate registration and ITC would have been available. During 2017-19 (relevant period), multiple registration for same vertical within the same State was not available.

Emergence of jurisprudence on invocation of Section 74 has been helpful to taxpayers. For every case booked by DGGI, so-called "unearthing" of information itself is enough to slap the taxpayer with intent to evade, etc. Apex Court judgment in Tata Steel [2026-VIL-87-SC] has been relied on by the High Court to hold - "In the present case, the adjudicating authority has mechanically invoked Section 74of the CGST Act without recording any specific finding establishing that the petitioner resorted to fraud, wilful misstatement or suppression of facts with the intent to evade payment of 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."

The grand litigation theatre set by DGGI on absence of cross-charging has already been nullified by CBIC Circulars. After certain High Court rulings, it has almost lost teeth. The issue itself ought to have been contained in the initial period when everyone started holding webinar on cross-charging versus ISD. GST regime is no different from pre-GST regime when it comes to flogging dead issues eternally. In the above case, the Standing Counsel for the GST department could have well conceded the matter instead of justifying an entirely futile litigation [Re: 2026-VIL-1185-GUJ].

Litigation on provisional attachment is never provisional

Despite amendments and numerous judgments starting from famed Radha Krishan Industries [2021-VIL-50-SC], provisional attachment of bank account continues to occupy judiciary's time. Online payment aggregator authorised by RBI was suspected of playing a role in GST evasion by online money gaming syndicate for routing payment / money laundering and the investigating sleuths found premises locked and this led to attachment. The petitioner handed out a list of reputed clients (including govt. / govt. entities) and argued they were not fly by night operator type.

The High Court noted that the attachment order contained only vague statements and did not show any GST liability of the petitioner as the case is about alleged money laundering by unnamed third parties. Relying on the fact that the petitioner was acting as payment aggregator for government entities, the Court ruled out coverage under fly by night operator category. Onboarding of customers after KYC was also relied on. Attachment of money in escrow account was held as not valid on the ground that such monies do not belong to the petitioner. Following Apex Court ruling in Radha Krishan, it held that the tests laid down were not satisfied and the attachment was illegal as it was based on suspicion without credible material for exercising power under Section 83 of CGST Act.

Tax law is agnostic when it comes to ethics. Online money gaming is defined in GST law to specifically state whether it is permitted by law or not. Huge controversy on taxing platform fee or the entire stakes, retrospective amendment being challenged in Supreme Court, etc., all made headlines for some time. The State does not consider tax revenue from illegal or so-called unethical activities as unholy and in fact, seeks to extract the maximum. While money gaming is given the respectable tag of industry employing so many (as if they were all waiting for such pious industry to commence), such activities have an ecosystem with mostly dual purpose and to separate the grain from chaff is like finding an absolutely clean politician. Investigations into the web and layers will take the agencies nowhere so long as the State is double-faced [Re: 2026-VIL-1197-BOM].

ITC available on services of furnishing of showroom

Input tax credit on services relating to furnishing of retail showroom is available and not restricted under Section 17(5)(d) of CGST Act if the GST component is not capitalized. This is a recent decision of GSTAT, Thiruvananthapuram. The services provided by the supplier was installation of wooden shelves in the showrooms and it appears that painting was also involved. They were classified under interior design services. The appellant showed them as detachable assets as they were not installed as a permanent structure / immovable property and had capitalized under movable asset block of Furniture and Fixtures. GST involved was not added to the cost of fixed assets and accounted for separately as ITC.

The department argued that irrespective of the head, capitalization is forbidden fruit and therefore, ITC is not available. It was contended that if it is revenue expenditure, it meant they were not capital goods and also not inputs considering affixation / embedding in the walls of the showroom.

The GSTAT opted to follow the settled principle on classification - once classification of services was not disputed at supplier's end, the same cannot be raised at buyer's end. On admissibility of ITC it said - "We find that such services are used for setting up wooden and glass shelves in the shop, which are required for the retail sales and furtherance of business. We find that the input credit is available to the appellant under section 16 (1) of the CGST Act, 2017 as it is in direct relation to their furtherance of business."

On the important issue of capitalization, it held that GST component was not capitalized and also excluded from depreciation claim and hence, it does not get covered under the restriction in Section 17(5)(d) of CGST Act. This is yet another reasoned order providing some relief to taxpayers from the smothering implementation of ITC provisions by the GST authorities. As a practice, Apex Court judgments are distinguished and CBIC / State circulars are ignored by adjudicating and appellate authorities and GSTAT rulings will not even be looked at by them. It will take a long journey upto the Apex Court to confirm the position of ITC in such cases. After reaching this summit, taxpayers will have to face a push down the hill through retro amendments. Pessimistic it may seem, but reality of experience cannot lead to mirage of optimism [Re: 2026-VIL-224-GSTAT-TVP].

GSTAT Appeals - Question of law begs answers

Section 109(8) of CGST Act provides for hearing of appeals by Single Member Bench if the tax / ITC is not more than Rs. 50 lakhs and such appeals do not involve question of law. In all other cases, appeals are required to be heard by a Bench comprising one Judicial Member and one Technical Member. Therefore, at the threshold, whether an appeal goes to Single Member Bench or Division Bench (where amount involved is less than Rs. 50 lakhs) gets stuck on the question as to whether there is any question of law involved. A few orders are being reported by VIL on this issue.

GSTAT, Chennai has held that the demand arising from mismatch in ITC between GSTR-2A and GSTR-3B involves questions of law like whether ITC can be availed based on tax invoices when tax is apparently not shown as paid by the supplier to the government. It said that such questions cannot be answered merely by verifying documents as provisions like Section 16(2)(c), Rule 36(4) and CBIC circulars have to be interpreted. It is an altogether different matter that the issue of mismatch between GSTR-2A and GSTR-3B is one of the atrocious and colossal exercises in wasting public resources on a non-issue particularly during the period before amendment to Section 16 on GSTR-2B and GSTR-2A did not have any legal backing [Re: 2026-VIL-214-GSTAT-CHE].

In another case involving inter-State movement of goods where invoice was raised in a State where goods did not originate and detention was ordered under Section 129 of the CGST Act. The department argued that the question whether omissions can be regarded as minor defects or penalty under Section 129 is warranted require examination of scope of Section 68 as well. The Chennai Bench of GSTAT held that the appeal involved question of law though the expression is not defined. This is another provision destined to be confined to dustbin later but the disputes will keep the bodies and practising fraternity busy for a long time. Imposing penalty for documentary disputes should be done away with and otherwise also, plenty of clauses exist in Section 122 for penalty [Re: 2026-VIL-215-GSTAT-CHE].

GST - Numbers & data stunting development of jurisprudence

In another meritless dispute of alleged availment of excess ITC by comparing GSTR-2A with GSTR-3B, the taxpayer pointed to various blunders like attempt to match IGST, CGST and SGST credit line by line instead of reckoning ITC on aggregate basis, non-consideration of latest GSTR-2A (as it is dynamic) and ignoring figures reflected in GSTR-9. ITC available in respect of IGST on import of goods has also been not considered by the department since the same was not part of system generated comparison report. It seems, on overall basis, the taxpayer had availed lesser credit.

GSTAT, Ernakulam Bench, relying on fungibility of credit and High Court ruling, held that excess IGST credit can be set off against shortfall in CGST / SGST credit and after setting off, overall ITC availed was less than the ITC available. A reconciliation statement has also been relied on. Such litigation shows GST architecture in terms of availment of ITC and filing of returns is oriented towards matching of numbers and reconciliation of figures whereas a business law should ideally lean in favour of interpretation of legal principles and propositions. So long as the design of law remains captive to numbers in books of accounts and returns, development of jurisprudence will be stunted [Re: 2026-VIL-225-GSTAT-ERN].

[Read previous edition dated 12.10.2026]

[The author is an Advocate. The views expressed are strictly personal.]