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2019 (8) TMI 368 - AAR - GSTValuation - transfer to branches located outside the State - distinct person or not - applicant is of the view that the second provision is applicable to their case, i.e., where the recipient is eligible for full input tax credit, the value declared in the invoice shall deemed to be the open market value of the goods or services - HELD THAT - In the case at hand, the applicant has branches outside the state of Tamil Nadu, hence, both are said to be related as per the explanation to Section 15. The supply is also to distinct person and therefore the value to be adopted is governed by rules prescribed as per Section 15(4) of CGST Act. As per Rule 28(a), it is clear that for supply between distinct persons, the value shall be the open market value of such supply. As per Explanation (a)to Chapter IV of CGST Rules, 2017, Determination of value of supply, Open Market Value of a supply of goods means the full value in money, excluding the integrated tax, central tax, State tax, Union territory tax and the cess payable by a person in a transaction, where the supplier and the recipient of the supply are not related and the price is the sole consideration, to obtain such supply at the same time when the supply being valued is made - In the instant case the applicant supplies the same goods i.e. Lenses, Frames, Sun Glasses, Contact Lenses as well as Reading Glasses, Complete spectacles to both recipients in Tamil Nadu and its branches outside Tamil Nadu. In the case at hand, the applicant states that their recipients in other states further supply such goods to their customers without any further value addition, repackaging, labeling etc. i.e. they are supplied as such. In such a scenario, Rule 28 gives an option to the supplier, i.e. the applicant, to adopt an amount equivalent to 90% of the price charged for the supply of goods of like kind and quality by the recipient to his customer not being a related person as the value at which the supplier .i.e. the applicant supplies to his distinct/ related branch in another state - In the instant case, the applicant has the option to adopt a value which is 90% of supplies made by the branch outside Tamil Nadu to an unrelated customer which are made under similar circumstances in respect of the characteristics, quality, quantity, functional components, materials, and the reputation of the goods supplied to the branch recipient by the applicant. If the applicant does not use this option for supplies to the recipient who further supplies to their customers as such, he has to supply at open market value which is available as per Rule 28(a). The applicant shall adopt the open market value as per Rule 28(a) as the same is available for the supplies made to the distinct recipient outside the state. Instead of the available open market value, the applicant can also opt to value the same at 90% of the price charged for the supply of goods of like kind and quality by the recipient to his customer not being a related person. If the recipient is eligible for full input tax credit, such a value shall be deemed to be the open market value.
Issues Involved:
1. Determination of the value to be adopted for the transfer of goods to branches located outside the state. Detailed Analysis: Issue 1: Determination of the Value to be Adopted for Transfer to Branches Located Outside the State Background: The applicant, a company engaged in importing and locally procuring various optical products and re-selling them, has branches outside Tamil Nadu. These branches are distinct persons under GST law, necessitating the discharge of CGST/SGST/IGST while supplying goods to these branches. The applicant seeks clarity on the value to be adopted for such transfers. Applicant’s Position: The applicant argues that under Rule 28 of GST Rules, 2017, they can adopt the value declared in the invoice as the open market value if the recipient is eligible for full input tax credit. They prefer this approach to avoid locking up funds in input tax credit, which would occur if the transfer is based on market value. Legal Provisions: - Section 25(4) of CGST Act: Treats the applicant and its branches as distinct persons requiring separate GST registrations. - Section 15 of CGST Act: Defines the value of supply as the transaction value where the supplier and recipient are not related, with further provisions for determining value when this is not applicable. - Rule 28 of CGST Rules, 2017: Provides methods for valuing supplies between distinct or related persons: - Rule 28(a): Open market value. - Rule 28(b): Value of goods/services of like kind and quality if open market value is not available. - Rule 28(c): Value as determined by applying Rule 30 or Rule 31 if neither (a) nor (b) is applicable. - First Proviso: Option to adopt 90% of the price charged by the recipient to an unrelated customer. - Second Proviso: Where the recipient is eligible for full input tax credit, the value declared in the invoice is deemed to be the open market value. Authority’s Analysis: 1. Distinct Persons: The applicant and its branches are distinct persons under GST law, and supplies between them are treated as supplies between related persons. 2. Open Market Value: The applicant supplies the same goods to unrelated recipients in Tamil Nadu, establishing an open market value for these goods. 3. Sequential Application of Rules: Rule 28(a) must be applied first if an open market value is available. Only if this is not possible should Rule 28(b) or (c) be considered. 4. Option Under First Proviso: The applicant can adopt 90% of the price charged by the recipient to an unrelated customer if the goods are supplied as such without further value addition. 5. Second Proviso: This proviso must be read in conjunction with the first. If the applicant uses the first proviso, the value in the invoice (after applying the 90% rule) will be deemed the open market value if the recipient is eligible for full input tax credit. Conclusion: The applicant must adopt the open market value for supplies to branches outside Tamil Nadu as per Rule 28(a). Alternatively, they can opt for 90% of the price charged by the recipient to an unrelated customer if the goods are supplied as such. If the recipient is eligible for full input tax credit, this value will be deemed the open market value. Ruling: The value for the supply of goods to branches outside Tamil Nadu shall be the open market value as per Rule 28(a) and the relevant explanations under the CGST/TNGST Rules 2017. The applicant also has the option to adopt 90% of the price charged by the recipient to an unrelated customer as the value, provided the recipient is eligible for full input tax credit, making this value the deemed open market value.
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