Appellate authority permits invoice value as open market value for interstate supply under GST

The appellate authority allowed the appellant to adopt the invoice value as the open market value for the supply of goods from Tamil Nadu to branches in other states under GST, as per the second proviso to Rule 28 of the CGST/TNGST Rules 2017. This decision was based on the interpretation that the provisos to Rule 28 should be read independently, not mandating sequential application.

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Issues Involved:
1. Determination of value for supply of goods to distinct persons under GST.
2. Application of Rule 28 of CGST/TNGST Rules 2017.
3. Interpretation of provisos to Rule 28.
4. Eligibility to adopt invoice value as open market value.

Issue-wise Detailed Analysis:

1. Determination of Value for Supply of Goods to Distinct Persons under GST:
The appellant is engaged in the business of spectacle frames, sun glass lenses, contact lenses, and reading lenses, which are procured locally and through imports. These goods are transferred to branches outside Tamil Nadu for subsequent supply to customers. Under GST Law, such transfers are considered as supply between distinct persons, requiring appropriate tax payment. The appellant sought to determine the value to be adopted for these transfers under Rule 28 of CGST Rules, 2017.

2. Application of Rule 28 of CGST/TNGST Rules 2017:
Rule 28 provides various options for determining the value of supply between distinct persons. The original authority ruled that the value should be the open market value as per Rule 28(a) and Explanation (a) to Chapter IV of CGST/TNGST Rules 2017, read with Section 15 of the CGST/TNGST Act 2017. Alternatively, the appellant could adopt 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, as per the proviso to Rule 28.

3. Interpretation of Provisos to Rule 28:
The appellant argued that the provisos to Rule 28 cater to different situations and should not be applied sequentially. The first proviso applies when goods are intended for further supply as such by the recipient, allowing the supplier to adopt ninety percent of the price charged by the recipient to his customer. The second proviso applies when the recipient is eligible for full input tax credit, allowing the invoice value to be treated as the open market value. The appellant contended that these provisos should be read independently and not sequentially.

4. Eligibility to Adopt Invoice Value as Open Market Value:
The appellant claimed that when the recipient is eligible for full input tax credit, the invoice value should be deemed the open market value, as per the second proviso to Rule 28. The lower authority's interpretation that the provisos should be read together and not independently was challenged. The appellant argued that adopting a higher value for the initial supply would lead to unnecessary blocking of capital and funds.

Discussion and Ruling:
The appellate authority examined Rule 28 and its provisos, concluding that the rule does not mandate sequential application of the provisos. The second proviso, which allows the invoice value to be treated as the open market value when the recipient is eligible for full input tax credit, is independent and not subordinate to the first proviso. Therefore, the appellant is entitled to adopt the invoice value as the open market value for supplies to distinct persons when the recipient is eligible for full input tax credit.

Conclusion:
The appellate authority set aside the original ruling and held that the appellant is eligible to adopt the value as per the second proviso to Rule 28 of the CGST/TNGST Rules 2017. This means that the invoice value can be treated as the open market value for the supply of goods from Tamil Nadu to branches in other states, provided the recipient is eligible for full input tax credit.

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