This Article discusses on liability of GST on Stock Transfer from the Head Office in one State to its Branches in other States and GST credit on Stock transfer.
For the purpose of understanding the questions involved, following relevant provisions of the GST law are highlighted:
(i) . Rule 28 deals with valuation of a supply when it is made between distinct or related persons. If a person obtains or is required to obtain more than one registration in more than one State and/or Union Territory, then, in accordance to the provisions under Section 25 of the GST Act, each registration shall be treated as “distinct persons” for the Purpose of the GST Act. When Head office in one State Supplies to its Branches in other state, qualify as supplies made between the distinct persons and provisions of Rule 28 will be applicable for valuation of such supplies.
(ii) Rule 28 provides that the value of a supply to a distinct person shall be the open market Value, if available, of such supply.
The First Proviso states that “Provided that where the goods are intended for further supply as such by the recipients, the value shall, at the option of the supplier, be 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”.
The Second Proviso to Rule 28 states “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.
(iii) 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. The two clauses important to note in this Proviso are: a) goods received by the recipient are to be sold to a customer not being a related person and b) the determination of value at 90% of the price that will be charged by the recipient to this customer is an option. Whether or not the Supplier avails of this option is solely the discretion of the Supplier.
(iv) The Second Proviso to Rule 28 does not mention, unlike the First Proviso, “where goods
are supplied to a recipient for further supply as such”, nor is the Proviso barred to such goods when further supplied as such. In other words, 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.
(v) Chapter V of the GST Act in Sections 16 to 21 are related to Input Tax Credit. The Independently registered business establishments i.e. Branches in different states with Head Office in one State are eligible to avail of Input Tax Credit in terms of Section 16 of GST Act. Again, as per Section 17(1) where the goods (or services, or both) are used by the registered person partly for the purpose of any business and partly for other purposes, the amount of credit shall be restricted to so much of the input tax as is attributable to the purposes of his business.
On careful analysis of the above provisions, it is clear that Supplier (Head office/ Branch offices) has the option of not supplying goods to its Branches/ Head Office 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. And hence, the value declared in the invoices shall be deemed to be the open market value of the goods. And if the supplier supplies the goods at Zero Value, obviously, no GST shall be charged/ mentioned in the respective invoice or any other document valid under Section 16(2)(a) of GST Act. Accordingly, 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. if the value declared in such invoice is zero, no GST shall be charged in the respective invoices and no input tax credit is available to the recipient.
From a plain reading of law laid down under section 16 of the GST Act, it is clear that, inter alia, input tax credit is available only when the recipient is in possession of a tax or debit note issued by the supplier registered under the GST Act, and in case of a supply between distinct and/or related persons, as between Head Office and Branches, the value declared in the invoice shall be deemed to be the open market value of the goods or services supplied. It is therefore clear that if the value declared in such invoice is zero, no input tax credit is available to the recipient.