Example 39

 XYZ Ltd sold goods to YMC ltd on invoice for RS. 16000 (excluding tax under GST) on 07/08/2017. The buyer YMC Ltd & XYZ Ltd are related persons according to Explanation of Section 15 of CGST Act. It did not sell the goods further but used as intermediary goods. Open market value and value of same kind and quality not available on such date. The cost of production as per CAS-4 was Rs.17000. Determine the value of Supply in the below cases.

(i)           When YMC Ltd used goods supplied by XYZ Ltd wholly for exempted goods.

(ii)         When YMC Ltd used for the purpose of business and eligible for full ITC.

Answer

(i)  As per Rule 28 of Chapter - IV of CGST Rules, 2017 specifies that the manner of determine value of supply of goods or services or both between distinct or related persons, other than through an agent. According to this rule if open market value and value of supply of goods or services of like kind and quality are not available, then value as determined by application of rule 30 or rule 31 in that order will become operative. Rule 30 provides that value of supply shall be 110% of cost of product / manufacture/ cost of Provision of services of such supply.

    Where input is fully used for exempted goods then input tax paid on input is not eligible for ITC.

     Value of supply = 110% of Rs. 17000

                                = Rs. 18700

(ii)Second proviso to rule 28 further provides that where the recipient is eligible for full input tax credit, the value declared in the invoice shall be deemed to be the open market value of goods or services.

    In the above example YMC Ltd is eligible for ITC according to conditions of section 16 and full ITC is available on goods received from XYZ Ltd. Hence the value declared in invoice i.e. Rs. 16000 is deemed as open market value and value for the purpose of GST.