exclusive show room been treated as related party transaction

[suresh sathyamurthy]

Dear Expert

Our client is brand owner having own showroom and also has third party showroom, (wherein in Third party showroom is exclusive showroom owned by different proprietary firm/person/entity), in the third party showroom only our client product are been stored and sold, our client has shared some SOP on shop maintenance, staff, offers on products accordingly only third party has to make sales, on sales at third party stores, he gets his agreed commission and balance amount to be remitted to our client, with his commission he has meet out all his stores expenses and his profitability.

The issue is department contention is since Third party showroom follows the SOP and instruction of our client, they are treating Third party as related party transaction under section 15(5)

a) is department contention valid,

b) is there any ruling against the department contention please share

AI Summary

Related party treatment under GST can trigger valuation re assessment and ITC denial for promotional supplies in exclusive showrooms.
Related party characterisation under GST can prompt Rule 28 valuation adjustments where a brand owner supplies promotional goods to an exclusive third party showroom operating under brand SOPs. The department may deny ITC on promotional free supplies and demand re valuation to open market value, but contractual terms and the applicant specific nature of AARs are material to rebutting related party treatment; circulars cannot override the statute.