2018 (6) TMI 72 - AAR - GST

Valuation of a supply - Goods transferred to branches in another state - recipient eligible for full input tax credit - Optical Lenses and Frames for Spectacles and Accessories - transfer from the Head Office in West Bengal to its branches in other states - Section 97(2)(c) of the CGST/ WBGST Act, 2017 - whether such goods supplied to the branches in states other than West Bengal can be valued in terms of the Cost Price under the Second Proviso to Rule 28 of CGST Rules, 2017, instead of 90% of MRP as required under the First Proviso of the same Rule? Held that - The First Proviso to Rule 28, thus, is clear that where goods are supplied to a recipient for further supply as such, the valuation of these goods when transferred from the supplier to the recipient may, at the option of the supplier, be determined at 90% of the price that will be charged by the recipient to its customer, not being a related person - Whether or not the Supplier avails of this option is solely the discretion of the Supplier. The Second Proviso is applicable for both, goods further supplied to non related customers and to goods used in and for the course of business. It is stated that the value declared in the invoices shall be deemed to be the open market value of the goods. The expression where the recipient is eligible for full input tax credit , is to be considered in the light of Section 17(1) of GST Act, to mean that the recipient will be eligible to take full input tax credit of the amount of tax paid by the suppler as mention in the respective invoice or any other document valid under Section 16(2)(a) of GST Act. Ruling - The Applicant has the option of not supplying goods to its branches under the First Proviso of Rule 28 and is eligible to value these goods by applying the terms of the Second Proviso to Rule 28 of GST Act. The expression where the recipient is eligible for full input tax credit , as used in the Second Proviso to Rule 28 of CGST Rules, 2017, means that the recipient will be eligible to take full input tax credit of the amount of tax paid by the suppler as mentioned in the respective invoice or any other document valid under Section 16(2)(a) of GST Act.

Summary

Issues:
1. Valuation of goods supplied to branches in states other than West Bengal under CGST Rules, 2017.
2. Interpretation of the Second Proviso to Rule 28 regarding input tax credit eligibility.

Issue 1: Valuation of Goods Supplied to Branches:
The Applicant sought an advance ruling on whether goods supplied to branches in states other than West Bengal could be valued based on the Cost Price under the Second Proviso to Rule 28 of CGST Rules, 2017, instead of 90% of MRP as required by the First Proviso. The ruling was sought under Section 97(2)(c) of the GST Act, and the application was admitted as the question was not previously decided or pending. The Applicant clarified that separate registrations were obtained for business establishments in different states, making supplies to branches qualify as supplies between distinct persons, thus subject to Rule 28 for valuation.

Issue 2: Interpretation of Second Proviso to Rule 28:
The Applicant questioned whether the value of goods supplied to branches in states other than West Bengal could be determined under the Second Proviso to Rule 28 instead of the First Proviso, which values goods at 90% of MRP. The Second Proviso states that if the recipient is eligible for full input tax credit, the value declared in the invoice is deemed the open market value. This provision applies to goods supplied for further retail sale or for use in the business, including non-trading stock like stationery and office equipment. The ruling clarified that the Second Proviso applies to goods supplied for further retail sale to non-related customers and for goods used in the course of business, and the recipient can avail full input tax credit based on valid invoices or documents under Section 16(2)(a) of the GST Act.

In conclusion, the ruling stated that the Applicant has the option to value goods supplied to branches by applying the terms of the Second Proviso to Rule 28 of the CGST Rules, 2017. The expression "where the recipient is eligible for full input tax credit" means the recipient can claim full input tax credit based on the tax paid by the supplier as mentioned in valid invoices or documents under Section 16(2)(a) of the GST Act. This ruling is valid unless declared void under the relevant provisions of the GST Acts.