Valuation of Taxable Value in case of Inter-state Stock Transfer between Branches under GST
Under GST, The Persons with same PAN having pan-India presence required to take GST registration state wise and it is quite common for businesses to transfer its stock to its other units, depots, warehouses for timely delivery of orders. During the pre-GST era, Inter-State stock transfers was the major concern for businesses due to additional cost of CST and submission of statutory forms.
As per Section 7 of CSGT Act, 2017 read with Schedule I, the stock transfer made with the related or distinct persons* even without consideration would be treated as “Supplies” and hence attract GST on these transactions but on which Value?
(*If a person obtains or is required to obtain more than one registration in more than one State (e.g. for warehouses, depots, branches) then as per Section 25, each registration shall be treated as “distinct persons.)
Rule 28 of the CGST Rules, 2017 provides that the value of supply to a distinct persons shall be open market value, if available, of such supply.
If value of the supply cannot be determined in terms of open market value, then there are two proviso provided under Rule 28. The first proviso provides that an option to the supplier either valuing the supply at open market value or ninety percent of the price charged for goods or services of like kind and quality. However, this option is available only in case of stock transfer of those goods which the recipient is intended for further supply to an unrelated person.
And second proviso provides that in cases where recipient of goods is eligible to take full input credit of those goods that are stock transferred, then whatever the value adopted by the supplier shall be deemed to be the open market value.
Therefore, stock transfers for further supply can be valued on the basis of open market value which could be any value as declared by supplier in the invoice if recipient of goods eligible to take full Input tax credit (second proviso) or on the basis of 90% of the price charged for goods of like kind and quality (first proviso).
For example, AFA Ltd. has head office in Rajasthan and also has warehouses in Uttrakhand, Maharashtra. Here HO has transferred the goods costing of Rs. 1,50,000 (FMV Rs 3,10,000) to its branch located in Maharashtra for further supply to a unrelated customer of Rs 300,000.
In this case, AFA Ltd. where the goods are transferred for the further supply then HO has an option of valuing the goods at FMV Rs. 3,10,000 or 2,70,000 (90% of price charged from unrelated customer). Since, the receiving branch is entitled to full ITC, HO can even transfer the goods at cost of Rs.1,50,000/- to their liking by mentioning the same in the invoice issued for this purpose.