CGST Rule 28(a) on Open Market Value for Interstate Supplies

The ruling determined that the applicant must adopt the open market value for supplies to branches outside Tamil Nadu as per Rule 28(a) of the CGST Rules. Alternatively, they can choose to use 90% of the price charged by the recipient to an unrelated customer if the goods are supplied without further value addition. If the recipient is eligible for full input tax credit, the value declared in the invoice will be considered the open market value.

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Issues Involved:
1. Determination of the value to be adopted for the transfer of goods to branches located outside the state.

Detailed Analysis:

Issue 1: Determination of the Value to be Adopted for Transfer to Branches Located Outside the State

Background:
The applicant, a company engaged in importing and locally procuring various optical products and re-selling them, has branches outside Tamil Nadu. These branches are distinct persons under GST law, necessitating the discharge of CGST/SGST/IGST while supplying goods to these branches. The applicant seeks clarity on the value to be adopted for such transfers.

Applicant’s Position:
The applicant argues that under Rule 28 of GST Rules, 2017, they can adopt the value declared in the invoice as the open market value if the recipient is eligible for full input tax credit. They prefer this approach to avoid locking up funds in input tax credit, which would occur if the transfer is based on market value.

Legal Provisions:
- Section 25(4) of CGST Act: Treats the applicant and its branches as distinct persons requiring separate GST registrations.
- Section 15 of CGST Act: Defines the value of supply as the transaction value where the supplier and recipient are not related, with further provisions for determining value when this is not applicable.
- Rule 28 of CGST Rules, 2017: Provides methods for valuing supplies between distinct or related persons:
- Rule 28(a): Open market value.
- Rule 28(b): Value of goods/services of like kind and quality if open market value is not available.
- Rule 28(c): Value as determined by applying Rule 30 or Rule 31 if neither (a) nor (b) is applicable.
- First Proviso: Option to adopt 90% of the price charged by the recipient to an unrelated customer.
- Second Proviso: Where the recipient is eligible for full input tax credit, the value declared in the invoice is deemed to be the open market value.

Authority’s Analysis:
1. Distinct Persons: The applicant and its branches are distinct persons under GST law, and supplies between them are treated as supplies between related persons.
2. Open Market Value: The applicant supplies the same goods to unrelated recipients in Tamil Nadu, establishing an open market value for these goods.
3. Sequential Application of Rules: Rule 28(a) must be applied first if an open market value is available. Only if this is not possible should Rule 28(b) or (c) be considered.
4. Option Under First Proviso: The applicant can adopt 90% of the price charged by the recipient to an unrelated customer if the goods are supplied as such without further value addition.
5. Second Proviso: This proviso must be read in conjunction with the first. If the applicant uses the first proviso, the value in the invoice (after applying the 90% rule) will be deemed the open market value if the recipient is eligible for full input tax credit.

Conclusion:
The applicant must adopt the open market value for supplies to branches outside Tamil Nadu as per Rule 28(a). Alternatively, they can opt for 90% of the price charged by the recipient to an unrelated customer if the goods are supplied as such. If the recipient is eligible for full input tax credit, this value will be deemed the open market value.

Ruling:
The value for the supply of goods to branches outside Tamil Nadu shall be the open market value as per Rule 28(a) and the relevant explanations under the CGST/TNGST Rules 2017. The applicant also has the option to adopt 90% of the price charged by the recipient to an unrelated customer as the value, provided the recipient is eligible for full input tax credit, making this value the deemed open market value.

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