Example 30

 X being an individual engaged in manufacturing of SS Pipes/Tubes having plant/manufacturing facilities in Ahmedabad in Gujarat as Head Office and the  Supply of Product is  taxable under GST. It is also having a Branch Office in Chennai (Tamil Nadu). Sales are made both from Ahmedabad & Chennai. So far Sales at Branch is concerned the Stock is transferred to Branch from H.O. Out of Stock received from H.O., the Branch sells Goods from Chennai by way of issuing Sales Invoices to Customers from Chennai itself. Goods costing Rs. 1 lakh are transferred to Chennai branch having open market value of such goods at Rs.130000. Branch is also selling goods of like quality to unrelated person at Rs. 140000.  How to deal for the said activities in relation to supply under GST?

Ans. According to section 25, establishment in different State is treated as distinct person. Thus, according to this section, H.O in Ahmadabad (Gujarat State) and Branch in Chennai (Tamil Nadu) deemed as distinct persons/establishments even though they have same PAN. Branch transfer outside the state treated as supply even made without consideration according to Schedule I paragraph (2). Valuation of supply is made according to Rule 28(Value of supply of goods or services or both between distinct or related persons, other than through an agent) of Chapter IV of CGST Rules, which specifies manner to determine value of supply when made in between distinct but related persons.

According to said rule 28 (a), value in open market would be the value of goods transferred by HO to branch i.e Rs. 130000. Proviso to this rule provides another option to supplier to value the supply that is an amount equivalent to 90% of supply of like kind and quality of goods by recipient to unrelated customer, where the goods intended for further supply as such by recipient. Thus, at the option of HO value of branch transfer can be 90% of Rs. 140000 = Rs. 126000.