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TMI Blog2021 (1) TMI 697X X X X Extracts X X X X X X X X Extracts X X X X ..... o be adopted for the supply which do not have any relation to the credit accumulation at the recipient end but for the fact that the recipient is eligible to avail the entire credit of tax paid by the applicant. In the case at hand, the applicant and the distinct persons outside the state of Tamil Nadu are different legal persons hence, both are said to be related as per the explanation to Section 15. Therefore the value to be adopted is governed by rules prescribed as per Section 15(4) of CGST Act. Rule 28 of CGST Rules, 2017 provides the value to be adopted when the supply is between distinct persons - In the case at hand, the applicant supplies to their distinct persons, for which presently they adopt the approximate sale value of the distinct person. The distinct person undertakes supply to their ultimate-unrelated customer 'as such' and the value adopted is that on the Purchase Order issued to such distinct persons by the ultimate customer. Also, the distinct units are eligible to avail full Input Tax credit of the tax paid by the applicant. Therefore, following the judicial discipline, we hold that the value to be adopted by the applicant can be arrived at followin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they are also engaged in Stock transfer of their finished products to their units (depots) located in other states, who are distinct units as per Section 25 of the Act and to their agents in other States. At present, stock transfers from Ranipet are made to warehouses (depots) situated in Gujarat Maharashtra being distinct entities. To reach out to the customers on time and to maintain optimum inventory at depot level, there is always movement of goods from factory to depot under the concept of stock transfers. Further, Rule 28 of GST Rules 2017 deals with valuation of a supply when it is made between distinct or related persons. They have stated that at present the valuation adopted for stock transfer to their distinct entities in other states are made in accordance with the provisions of Rule 28(a) of the CGST Rules, which says that the value of the supply of goods or services or both between distinct persons as specified in sub-section (4) and (5) of section 25 or where the supplier and recipient are related, other than where the supply is made through an agent, shall- (a) be the open market value of such supply; i.e., they are adopting the `Open market value' as provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tegrated Goods and Service Tax availed from Stock transfer receipt is more than sufficient to discharge the outward liability at the time of sales made at the depots. The above trend would be almost similar in other periods also and as such the accumulated and unutilized input tax credit continues to be on the higher scale. Except for sale of stock transfer receipts, no other sales are in place in Maharashtra 8r, Gujarat. Hence, the inflow of input tax credit continues to surpass the outflow GST liability. This expresses the distinct person's inability for maximum utilization of input tax credit. In view of this, they need to revisit the existing pricing pattern adopted for stock transfers. The revised strategy is adopting a reduced or zero valuation for stock transfers fully in compliance with the provisions of Rule 28 of CGST Rules, 2017 without any deviations, wherein the outflow of GST liability would be either reduced or Zero and in turn the inflow of input tax credit on stock transfer receipts at depots would be greatly reduced or would be Zero. This would prompt the depots to focus their attention on the alternative source of accumulated input tax credit available which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... redit of stock transfer received 86 other input tax credit availed after setting the same toward the discharge of GST liability in respect of sales done at depots. Rule 28(a) provides that, the value of the supply of goods or services or both between distinct persons as specified in sub-section (4) and (5) of section 25 or where the supplier and recipient are related, other than where the supply is made through an agent, shall be the open market value of such supply; With regard to the second proviso, when full input tax credit is available, it is provided that the value declared in the invoice is to be treated as open market value of the goods or services. In other words, there is no requirement that these provisos should be applied only sequentially. They are provided to take care of different situations and taking into account the fact that the open market value is specifically defined in Chapter IV of CGST Rules, 2017, the value declared in the invoices in respect of cases where the recipient is eligible to take full input tax credit will be the value relevant for payment of tax when the goods are transferred to the branch. It is only with the intention to avoid blocking of cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unrelated customers by the Applicant. They have placed reliance on the following case laws to substantiate their contentions: APPELLATE AUTHORITY ADVANCE RULING No. AAAR/09/2019(AR), DATED 13th November 2019 in IN RE : SPECSMAKERS OPTICIANS PRIVATE LIMITED = 2020 (1) TMI 63 - APPELLATE AUTHORITY FOR ADVANCE RULING, TAMILNADU In Re : Gkb Lens Pvt. Ltd. - 2018 (13) G.S.T.L. 343 (A.A.R. - GST) = 2018 (6) TMI 72 - AUTHORITY FOR ADVANCE RULING - WEST BENGAL In Re : Gkb Lens Pvt. Ltd - 2018 (17) G.S.T.L. 698 (App. A.A.R. - GST) = 2018 (9) TMI 1768 - APPELLATE AUTHORITY FOR ADVANCE RULING, WEST BENGAL In Re: Kansai Nerolac Paints Ltd.- 2019 (26) G.S.T.L. 257 (A.A.R. - GST) = 2019 (6) TMI 1108 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA They have submitted that they wish to determine 86 adopt the value of supply of goods (Stock transfer to their distinct persons) as per second proviso to Rule 28 of CGST Rules, 2017, and apply the same by replacing the existing method of valuation of goods, i.e., open market value as prescribed under Rule 28(a) of CGST Rules 2017 and has sought to clarify the same. 3.1 Due to the prevailing PANDEMIC situation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied. If the recipient is eligible for full input tax credit, the invoice value will be deemed to be the open market value as provided under Proviso 2 to Rule 28 of the CGST Rules, 2017. With regard to the word Proviso , the applicant has submitted as below: It carves out an exception to the main provision to which it has been enacted as a proviso and to no other. In other words, Proviso 2 provides an exception to the wording be the open market value of such supply under Rule 28(a) of CGST Rules, 2017 by stating that the Open market value in the event of the recipient is eligible to avail input tax credit, shall be the one which is declared on the face of the invoice. A proviso qualifies the generality of the main enactment by providing an exception and taking out from the main provision, a portion, which, but for the proviso would be part of the main provision. A proviso, must, therefore, be considered in relation to the principal matter to which it stands as a proviso. A proviso should not be read as if providing by way of an addition to the main provision which is foreign to the principal provision itself. They have explained the term proviso in words of LORD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ft smaller quantities take it from depot/Agents) Exports The above pattern is likely to exist in the future also excepting for the fact that there would be another factory operating from Gujarat doing similar activities and for the same product upon its commissioning Phthalic Anhydride is the major product. Apart from this, there are other products also, but the quantum is very minimal as compared to Phthalic anhydride Most of the recipients are industrial consumers. There are few traders also who again are probably supplying to small Industrial consumers They sought additional time to furnish the details of Sample purchase orders for sale to the ultimate consumer with trail of stock transfer. The applicant furnished the copies of purchase Orders for which they had already furnished the invoice raised on the customers by their Distinct units at Gujarat and Maharashtra vide their letter dated 28.11.2020 5.1 The central jurisdictional authority reported that there are no pending proceedings in the applicant's case on the issues raised by the applicant in the ARA application in their jurisdiction. 5.2 The State Jurisdictional authority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is within the ambit of this authority and the application is accordingly admitted. 7.1 The facts of the case is that the applicant is engaged in the business of manufacture and trading of Chemicals. Apart from the domestic and export sales they are also engaged in Stock transfer of their finished products to their units (depots) located in other states as well as to their agents in other States. At present, stock transfers from Ranipet are made to warehouses (depots) situated in Gujarat Maharashtra. The depots at Gujarat and Maharashtra are distinct units as per Section 25 of the CGST/TNGST Act and these distinct units are registered in the respective States. The present valuation adopted for stock transfer to their distinct units in other states are made in accordance with the provisions of Rule 28(a) of the CGST Rules, which says that the value of the supply of goods or services or both between distinct persons as specified in sub section (4) and (5) of section 25 or where the supplier and recipient are related, other than where the supply is made through an agent, shall be the open market value of such supplies. The said distinct units are eligible to avail full input tax c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices are defined under Section 15 of CGST Act, 2017, which is as below: 15. (1) The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply. ---------------------------- (4) Where the value of the supply of goods or services or both cannot be determined under sub-section (1), the same shall be determined in such manner as may be prescribed. (5) Notwithstanding anything contained in sub-section (1) or sub-section (4), the value of such supplies as may be notified by the Government on the recommendations of the Council shall be determined in such manner as may be prescribed. Explanation .-For the purposes of this Act,- (a) persons shall be deemed to be 'related persons if- (i) such persons are officers or directors of one another's businesses; (ii) such persons are legally recognised partners in business; (iii) such persons are employer and employee; (iv) any person directly or indirectly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pply of goods or services or both 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; The above rules provides that the value to be adopted is to be the 'Open market Value' i.e., the price of sale charged to an independent buyer; if such 'open market value' is not available then value charges for like goods and quality is to be adopted; and if the value cannot be ascertained by both the above means, then the value is to be determined by cost construction or best judgement method. The Proviso to the above rule presents two scenario- (1) when the goods are intended for supply as such, then the supply to the related person can be valued at 90% of the ultimate sale value and this is at the option of the supplier; (2) when the recipient is eligible for full Input Tax Credit, then the value declared in the invoice is deemed to the 'Open Market Value' 8.3 We find that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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