A ₹43.43 crore GST demand over head-office expenses raises a question that businesses with multiple GST registrations should pay attention to.
Does every shared corporate expense need to be cross-charged to a branch?
The Gujarat High Court recently ruled in favour of Gujarat Cooperative Milk Marketing Federation, which markets Amul, quashing a ₹43.43 crore IGST demand relating to common expenses incurred between July 2017 and March 2019. These included advertising, legal services, IT infrastructure and other corporate costs.
The department’s case was that these expenses benefited branches and depots but had not been cross-charged.
The Court held that, in the circumstances of this case, the value of the un-invoiced services was to be treated as nil under Rule 28 of the CGST Rules. It also found that failure to cross-charge, by itself, did not establish fraud or deliberate tax evasion warranting action under Section 74.
There is a practical lesson here.
Businesses often allocate head-office costs for internal reporting, while GST treatment depends on the registrations involved, the nature of the services, invoicing and the applicable valuation rules.
These are related questions, but they are not interchangeable. The ruling should not be read as a blanket exemption from cross-charging. The facts and applicable conditions matter. For businesses reviewing their arrangements, three checks are worth making:
- Are the head office and recipient units separately registered?
- Are common services being supplied, and how are they valued?
- Does the current cross-charge or ISD approach match the applicable GST requirements?
where do you see the bigger risk today – deciding what to cross-charge, or defending how it has been valued?
