valuation for related person

[Arun Aggarwal]

Sir

I would like to knows the procedure of valuation under GST regime as compare to the excise rules of today, in the case where intermidate goods manufactured and supplies to a related firm and valuation done as per CAS 4 and charged accordingly.

Tnx

[DR.MARIAPPAN GOVINDARAJAN]

No clear picture in GST in this regard.

[Arun Aggarwal]

Tnx

and lets wait for the clarification in this regard.

Arun

[Rajagopalan Ranganathan]

Sir,

According to Section 15 (1) of CGST Act, 2017 "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."

According to Section 15 (4) of the same Act, "where the value of the supply of goods or services or both cannot be determined under sub-section (1), the same shall be determined in such manner as may be prescribed. Till necessary rule for determination of value of supply of goods or services or both to a related person are issued I cannot give any categorical suggestion on this point.

[Ganeshan Kalyani]

Yes clear provision is yet to be provided by the Government.

[Rajagopalan Ranganathan]

Sir,

As per rule 2 of Draft Rules dated 31-3-2017 for GST - Determination of Value of Supply -

"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 open market value is not available, be the value of supply of goods or services of like kind and quality;

(c) if value is not determinable under clause (a) or (b), be the value as determined by application of rule 4 or rule 5, in that order:

Provided where the recipient is eligible for full input tax credit, the value declared in the invoice shall be deemed to the open market value of goods or services.

Here necessary clarification is required regarding what is "open market value" and Is it same as transaction value? The rule has clearly stipulated that in case where the receiver is eligible to full input tax credit the value declared in the invoice shall be deemed to be open market value of goods or services.

[Rajagopalan Ranganathan]

Sir,

Explanation (a) under Sub section 5 of Section 15 of CGST Act, 2017 define 'related persons' as-

"persons shall be deemed to be “related persons” if––

(i) such persons are officers or directors of one another’s businesses;

(ii) such persons are legally recognised partners in business;

(iii) such persons are employer and employee;

(iv) any person directly or indirectly owns, controls or holds twenty-five per cent or more of the outstanding voting stock or shares of both of them;

(v) one of them directly or indirectly controls the other;

(vi) both of them are directly or indirectly controlled by a third person;

(vii) together they directly or indirectly control a third person; or

(viii) they are members of the same family."

[Arun Aggarwal]

Sir

As I am awailing certain area based exemptions, can I opt for the valuation as per sec 4 of GST means on cost and charge 110 % on supplies made to related parties for their captive consumption?

AI Summary

Valuation between related persons: open market value governs; invoice deemed market value if recipient claims full input tax credit. Supplies between related persons must be valued by applying open market value; if open market value is not available, value of like goods or services applies, and thereafter prescribed fallback rules govern. Where the recipient is eligible for full input tax credit, the invoice value is deemed to be the open market value. The statute defines related persons by ownership, control, partnership, officer/director relationships, employer-employee links, common control and family membership. Clarification on the precise meaning of open market value and availability of cost based valuation is pending.