Invoice value applies for supply to related persons eligible for ITC

The Andhra Pradesh AAR in the matter ofIn Re: M/s Sri Lakshmi Ganesh Cement and Iron General Stores - 2025 (11) TMI 107 - AUTHORITY FOR ADVANCE RULING, ANDHRA PRADESH held that for supply of cement and iron to unrelated persons, the transaction value as per Section 15(1) of the CGST Act, 2017 applies; for supplies to related persons eligible for full input tax credit, the invoice value is deemed value of supply under Rule 28 of the CGST Rules, 2017; further, the registered person providing transportation services to unregistered persons is not liable to pay GST on the transportation charges, as such services are exempt under Serial No. 21A of Notification No. 12/2017-CT (Rate), as amended.

Facts:

Sri Lakshmi Ganesh Cement and Iron General Stores (“the Applicant”) is engaged in trading cement and iron to both wholesale and retail, to registered and unregistered persons, including sales to M/s Sri Lakshmi Ganesh Steels (owned by the applicant’s wife).

The Applicant also owns a tempo van and provides transportation services to mostly unregistered persons, such as farmers and individuals; the goods transported are at consignor's risk, and the Applicant does not issue consignment notes or assume responsibility for the goods.

The Applicant sought an Advance Ruling on (i) the value of supply under Section 15CGST Act, 2017 for unrelated and related persons, (ii) liability to pay tax on transportation services provided to unregistered persons, and (iii) applicability of exemption notifications to transportation services rendered to unregistered persons.

Issue:

• What is the value of supply U/s 15 of GST Act, 2017 in case of a supply of cement, iron or both to an unrelated person for which price is the sole consideration?
• What is the value of supply U/s. 15 of GST Act, 2017 in case of a supply of cement, iron or both to M/s. Sri Lakshmi Ganesh Steels, a related person who is eligible to claim input tax credit on the said supply?
• Whether the registered person is liable to pay tax on the services of transportation of goods by the road to an unregistered person or not? If yes, at what rate of tax?

Held:

The Andhra Pradesh AAR in In Re: M/s Sri Lakshmi Ganesh Cement and Iron General Stores - 2025 (11) TMI 107 - AUTHORITY FOR ADVANCE RULING, ANDHRA PRADESHheld as under:

• Observed that, the value of supply under Section 15(1)CGST Act for unrelated persons, where price is sole consideration, is the transaction value—the mutually agreed price actually paid or payable.
• Noted that, for supplies to related persons eligible for full input tax credit, the invoice value as per the second proviso to Rule 28CGST Rules is deemed to be the open market value for valuation purposes.
• Held that, supply of cement and iron to related entities like M/s Sri Lakshmi Ganesh Steels (owned by applicant’s wife) would be valued at invoice value in accordance with Rule 28, subject to full ITC availability.
• Observed that, transportation services by the Applicant to unregistered persons, mostly farmers and individuals, without issuing consignment notes or assuming responsibility for goods, do not amount to Goods Transport Agency (GTA) services as defined in Notification No. 12/2017-CT (Rate). Issuance of consignment note is essential to qualify as GTA.
• Noted that, serial number 21A of Notification No. 32/2017-CT (Rate) dated October 13, 2017 exempts services provided by GTA to unregistered persons from GST liability. Therefore, such transportation services provided by the Applicant to unregistered persons are exempt from GST.
• Directed that, the Applicant is not liable to pay GST on the freight charges received for transportation of goods by road to unregistered persons notwithstanding GTA status and that (i) value of supply to unrelated persons shall be transaction value, (ii) invoice value shall apply for related persons eligible for ITC, and (iii) transportation services to unregistered persons are exempt.

Our Comments:

The ruling provides clarity on valuation principles under Section 15CGST Act, 2017 for related and unrelated party transactions, aligning with Rule 28CGST Rules that provide alternate valuation methods for related parties with full ITC entitlement. Further the interpretation of Goods Transport Agency (GTA) services aligns with the Notification No. 12/2017-CT and its definition of GTA, particularly the requirement to issue consignment notes. Exemption under serial no. 21A of Notification No. 32/2017-CT (Rate) on transportation services to unregistered persons is upheld here, reflecting the government’s intent to exempt rural, casual, and small transportation providers.

Relevant Provisions:

Section 15(1), CGST Act, 2017:

“15. Value of Taxable Supply.-

(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.”

Rule 28 of the CGST Rules, 2017:

“28. Value of supply of goods or services or both between distinct or related persons, other than through an agent. -

(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.

(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 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 per annum, or the actual consideration, whichever is higher.

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.”

 (Author can be reached at [email protected])