Page 35 - GSTL_23rd April 2020_Vol 35_Part 4

2020 ] VALUATION MECHANISM OF SUPPLIES BETWEEN DISTINCT PERSONS J63
Valuation of supplies between distinct persons
The present scenario of business an entity has different establishments in
different States or Union territory on with PAN India basis for the purpose of
running their business. Each business unit of the same establishment depends
upon another unit for day-to-day transaction but there is no amount of consider-
ation in money is paid by the receiving unit. This is a general practice of book
adjustment of transaction between two units of the same establishment with sin-
gle PAN. Schedule I (Section 7) of the CGST Act, 2017 list the activities that have
to be treated as supply even if made without consideration, such as permanent
transfer or disposal of business assets where input tax credit has been availed on
such cases, or supply of goods or services between related persons, or between
distinct persons as specified in Section 25. Therefore, transfer of goods or services
between two distinct units has to be treated as supply even if supply is made
without consideration. So these distinct company or related companies have to
pay Tax/GST in case of inter-units transfer of goods or services. In this connec-
tion, Rule 28 of CGST Rules, 2017 provides special treatment of valuation of sup-
plies between such distinct persons.
Value of supply of goods or services or both between distinct or related persons,
other than through an agent : (Rule 28 of the CGST Rules, 2017)
A person who is under influence of another person is called a related
person like members of the same family or subsidiaries of a group company etc.
Under GST law various categories of related persons have been prescribed and a
relation may influence the price between two related persons thereof special val-
uation rule has been framed to arrive at the taxable value of transactions between
related persons. In such cases following values have to be taken sequentially to
determine the taxable value :-
(a) be the open market value of such supply;
(b) if the open market value is not available, value of supply of goods
or services like kind and quality;
(c) if the value is not determined under clause (a) or (b) , be the value
as determined by the application of Rule 30 and supply based on
cost i.e. cost of supply plus 10% mark-up;
(d) the value of supply determined by the application of Rule 31 i.e. us-
ing reasonable means consistent with principles and general provi-
sions of Section 15 (Best judgment method) :
Provided that where the goods are intended for further supply as
such by the recipient, the value shall, at the option of the supplier,
be an amount equivalent to ninety per cent 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 :
Provided further that where the recipient is eligible for full input tax
credit, the value declared in the invoice shall be deemed to be the
open market value of goods or services.
Entitlement of ITC on intra-company transfer
Second proviso to Section 16(2) of the CGST Act mandates that if a recip-
ient fails to pay value and tax amount to the supplier within 180 days from the
date of issue of invoice, an amount equal to the input tax credit availed by the
recipient shall be added to his output tax liability, along with interest thereon,
and in such cases the recipient unit is required to reverse the input tax credit in
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