M/S Gujarat Co-Operative Milk Marketing Federation Limited vs. Union Of INDIA

Facts

The petitioner, Gujarat Co-operative Milk Marketing Federation Limited (Amul), a farmers' co-operative society, filed a writ petition challenging an Order-in-Original dated 01.01.2025 passed by the Additional Commissioner of CGST, Ahmedabad South. The dispute concerns the tax period July 2017 to March 2019. The petitioner incurred corporate expenses at its Head Office (HO) in Anand, such as advertisement, IT, legal fees, and salaries, which were utilized by both the HO and its branches. The respondent authorities initiated an inquiry, alleging that these expenses, including salaries paid to HO employees, were liable to GST as services provided by the HO to its branches, treated as distinct persons under Section 25(4) of the CGST Act. A show-cause notice was issued, and subsequently, the impugned order confirmed a demand of IGST amounting to Rs. 43,43,12,441/- along with interest and penalty, invoking Section 74 of the CGST Act.

Held

The Court allowed the writ petition and quashed the impugned Order-in-Original. The Court held that the adjudicating authority failed to establish the essential ingredients for invoking Section 74 of the CGST Act, indicating a clear non-application of mind. The Court noted that for Section 74 to apply, there must be foundational facts demonstrating fraud, wilful misrepresentation, or suppression of facts with intent to evade tax, which were absent. The Court reasoned that the expenditure was duly recorded in the petitioner's books, and the jurisdictional authorities were aware of the same, making the allegation of suppression untenable. Furthermore, the Court observed that even if cross-charging was adopted, the tax liability would have been revenue-neutral as the tax paid on cross-charged services would be available as ITC to the branches. Therefore, the mere failure to adopt the cross-charging methodology did not ipso facto lead to the conclusion of wilful or fraudulent evasion of tax. The Court relied on Supreme Court pronouncements emphasizing that the mere use of words like 'fraud' or 'suppression' in a notice does not suffice; foundational facts must be evident. The Court found that the adjudicating authority mechanically invoked Section 74 without establishing the core vices required by the provision.

Key Issues

1. Whether the impugned Order-in-Original dated 01.01.2025, which confirmed a demand of IGST, interest, and penalty under Section 74 of the CGST Act, is sustainable in law, considering the petitioner's contention that the invoked provisions and the demand were not justified? Petitioner's Arguments: - The petitioner argued that the Delhi High Court's decision in M/s. Metal One Corporation India Private Limited and others Vs. Union of India & Ors. supports its case, as it dealt with identical issues and considered relevant CBIC circulars, leading to the quashing of demand notices. - The petitioner contended that the invocation of Section 74 of the CGST Act was erroneous as there was no fraud, wilful misrepresentation, or suppression of facts with intent to evade tax. The expenditure was duly recorded in the books of account, and the jurisdictional GST authorities were aware of the Federation's functioning. - The petitioner also argued that even if cross-charging was adopted, the tax liability would have been revenue-neutral due to the availability of Input Tax Credit (ITC) for the branches. Revenue's Arguments: - The revenue authorities initiated proceedings on the premise that expenditure incurred and paid by the HO was liable to GST, treating branch offices as distinct persons. They also alleged that salaries paid to HO employees were attributable to services provided to distinct persons (branches), making salary expenditure liable to GST. - The authorities invoked Section 74 of the CGST Act on the allegation that the petitioner failed to disclose common expenditure and did not undertake cross-charging.