GST Rule 28: Value of Supply Between Distinct or Related Persons (Other Than Through an Agent)

Summary: GST Rule 28 outlines the methods for determining the value of goods or services supplied between distinct persons (e.g., branches in different states) or related persons, excluding transactions involving an agent. The primary method is the Open Market Value (OMV). If OMV is not available, the value of goods or services of like kind and quality is used. If neither is determinable, valuation defaults to Rule 30 (110% of cost) or Rule 31 (reasonable means). Special provisions exist: if the recipient intends to further supply the goods as such, the supplier may opt to value the supply at 90% of the recipient’s sale price. Crucially, if the recipient is eligible for full Input Tax Credit (ITC), the invoice value declared is accepted as the open market value. For corporate guarantees provided to a bank or financial institution on behalf of a related person in India, the value is 1% per annum of the guaranteed amount or the actual consideration charged, whichever is higher, with the invoice value being accepted if the recipient can claim full ITC. This rule aims to ensure appropriate GST valuation in transactions where typical market forces may not apply.

GST Rule 28: Value of Supply Between Distinct or Related Persons (Other Than Through an Agent)

This rule applies when:

♦ Goods/services are supplied between distinct persons (like branches of the same company in different states), or

♦ The supplier and recipient are related persons under GST,

♦ Not involving an agent.

Sub-rule (1): Valuation Methods

When a supplier supplies goods or services to a related or distinct person, the value is determined as:

(a) Open Market Value (OMV)

♦ This is the full value in money that a buyer (not related) would pay for such goods/services in a transaction.

Example:

♦ Company A (Maharashtra) sends 100 mobile phones to its branch Company A (Delhi).

♦ Market price = 10,000 per phone.

♦ Value = 10,00,000 (Rs.10,000 x 100)

 (b) Like Kind and Quality

♦ If OMV is not available, then use value of similar goods/services (similar features, quality, use, etc.)

Example:

♦ If the mobile phone model sent isn’t sold in the open market, but another similar model is sold at 9,500.

♦ Value = 9,50,000 (Rs.9,500 x 100)

(c) Rule 30 or Rule 31

If neither OMV nor similar product value is available:

♦ Rule 30: 110% of cost of production or provision of service

♦ Rule 31: Reasonable means (best judgment method)

First Proviso (Optional 90% Valuation)

If the recipient is further supplying goods as such (no changes made), then supplier may opt to value at 90% of the recipient’s sale price.

 Example:

♦ Company A (Maharashtra) sends goods to its branch (Company A Delhi).

♦ Delhi branch sells the goods to customers at 1,000 per unit.

♦ Supplier can value the supply at 900 per unit (90% of Rs.1,000).

Second Proviso (Invoice Value Accepted if Full ITC is Available)

If the recipient is eligible for full Input Tax Credit (ITC), then the invoice value is accepted as the open market value.

Example:

♦ Company A invoices goods at 8,000/unit to its branch.

♦ Branch can claim full ITC.

♦ 8,000 is accepted as the value, even if market value is Rs.10,000.

Sub-rule (2): Corporate Guarantee Valuation

When a supplier gives a corporate guarantee to a bank or financial institution on behalf of a related person located in India:

The value of such guarantee = 1% per annum of the guaranteed amount OR Actual consideration charged, whichever is higher

Example 1:

♦ Company A gives corporate guarantee of 10 Cr to bank on behalf of its related company B.

♦ No consideration charged.

♦ Value = 10 Cr × 1% = Rs.10,00,000 per annum

Example 2:

♦ If Company A charges 15,00,000 for the guarantee,

♦ Value = 15,00,000 (since it is higher than 1% value)

Proviso (Corporate Guarantee – Full ITC)

If the recipient of the guarantee can take full ITC, then invoice value is accepted as the value.

Summary Table

Source: Rule 28. Value of supply of goods or services or both between distinct or related persons, other than through an agent. –

¹[(1)] 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;

(b) if the open market value is not available, be the value of supply of goods or services of like kind and quality;

(c) if the value is not determinable under clause (a) or (b), be the value as determined by the application of rule 30 or rule 31, in that order:

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 percent 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 the goods or services.

¹[(2) Notwithstanding anything contained in sub-rule (1), the value of supply of services by a supplier to a recipient  who  is  a  related  person ²[located in India],  by  way  of  providing  corporate  guarantee  to  any  banking  company  or financial institution on behalf of the said recipient, shall be deemed to be one per cent of the amount of such guarantee offered ²[per annum], or the actual consideration, whichever is higher.]

²[Provided that where the recipient is eligible for full input tax credit, the value declared in the invoice shall be deemed to be the value of said supply of services.]

1. Inserted vide Notification No. 52/2021- CT dated 26.10.2023.

2. Inserted vide Notification No. 12/2024- CT dated 10.07.2024 w.e.f. 26.10.2023.

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