Supply to related person

[Kaustubh Karandikar]

‘Son’ is a director of XYZ Pvt.Ltd. and ‘Father’ is a director of PQR Pvt. Ltd. If 1) XYZ is supplying goods exclusively to PQR, what should be the valuation method being related persons? 2) XYZ is partly supplying goods to PQR and partly to unrelated buyers in that case what should be the valuation method in case of supply to PQR?

[Shilpi Jain]

They would jot be related persons if there is no element of control which exists between the 2 entities.

In case u conclude related and the re intent eligible for credit then any value mentioned in invoice will be omv. Else open market value should be adopted.

[Kapil Mahani]

The Valuation cannot be challenge till the time the recipient of the goods/services are eligible for the credit. In case, the same is not eligible, then the valuation rules of Open Market value has to be adopted.

Having said the above, it is suggested that valuation shall be reasonable, it should not happen that INR 1 is being adopted on the ground that recipient is eligible for the credit and that shall be deemed market value.

The opinion expressed are personal view and should not be adopted before any authority/law/company for the business practise untill the same is validated with the facts.

Regards

Kapil Mahani

AI Summary

Related-party supply valuation: invoice value may stand if recipient claims input tax credit, otherwise open market value applies. Valuation for related-party supplies depends on the existence of control; absent control the parties are not related. If related, the invoice value may be accepted where the recipient is eligible to claim input tax credit, but where the recipient is not eligible the open market value must be used. Valuation must be reasonable and cannot be artificially minimal.