2026-VIL-1185-GUJ
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SGST High Court Cases

GST - Services provided by Head Office to branch offices as distinct persons - Non-adoption of cross-charging - Valuation under Rule 28 of the CGST Rules, 2017 where no invoice is issued – Petitioner held ISD registration for its Head Office and separate registrations for branches outside the State. It incurred common corporate expenses and salaries at the Head Office without allocating them to branches by cross-charging, and all expenses were recorded in its books of account - Revenue demanded IGST under Section 74 of the CGST Act on the footing that the services were supplied to distinct persons under Section 25(4) - Whether tax is payable on common expenditure and salaries incurred at the Head Office merely because cross-charging to branches was not adopted, when no tax invoice was issued - HELD - Under Section 25(4) and (5), entities with different registrations are distinct persons, and Entry 2 of Schedule I read with Rule 28 brings supplies between distinct persons into the net of GST. However, the Circulars dated 17.07.2023 and 26.06.2024 clarify that where full input tax credit is available to the branch and the Head Office has not issued a tax invoice, the value of such services may be deemed to be declared as 'Nil' and treated as open market value under the second proviso to Rule 28. Since it was not disputed that no tax invoices were issued, the value of the services is required to be treated as 'Nil' and no tax liability arises - The adjudicating authority referred to the Circulars cursorily and brushed them aside, which shows non-application of mind. The authorities cannot determine the value on a proportionate basis merely because cross-charging was not adopted. The services are input services and the tax paid by the Head Office would be available as credit to the branches under Section 16(1) - The demand is not sustainable on this ground. The petition is allowedrnrn rnrnIssue 2: Invocation of extended period under Section 74 - Requirement of fraud, wilful misstatement or suppression of facts - The extended period was invoked against the Petitioner on the basis of an investigation by the Directorate, on the allegation that without the investigation the facts relating to evasion would not have been known and that the Petitioner deliberately did not adopt cross-charging - Whether Section 74 could be invoked against the Petitioner for not adopting cross-charging - HELD - Except for the observation based on the investigation, nothing was recorded in the show-cause notice or the order-in-original to satisfy the ingredients of Section 74 - Mere exhuming of information by the Directorate without forming any opinion cannot attract Section 74. Even if cross-charging had been adopted, the tax could have been paid by utilising the credit available at the Head Office and the same would have been available as credit to the branches, so the situation would be revenue-neutral. Since the expenditure was recorded in the books, the authorities were aware of the functioning of the Petitioner. Mere failure to adopt cross-charging does not lead to the conclusion of wilful or fraudulent evasion or suppression with intent to evade tax - Section 74 was mechanically invoked without non-application of mind being excluded, the order-in-original is quashed and set aside.
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