QUESTION

How to decide value of supply of Elec, Motors from HO Maharashtra to Branch at Delhi, Please guide in the matter. My client have a branch at Delhi where they maintain stock of Electric motors to expedite the supply to northern region of India. Motors are supplied to Delhi from Maharashta on regular basis by raising Invoice. These motors are supplied further by Delhi branch to customers without adding any margin; the reason being the invoice raised on Delhi branch by Maharashtra HO is at open market value. As there is no margin on sales the GST payable at Delhi is always lesser than Input Tax Credit (ITC) available to it. In addition Delhi branch pays GST to Vendors on Input Services such as C&F agent charges, other general expenses at branch & also it pays GST on RCM for transport services. As from inception of GST Act these ITC amounts have got accumulated, the current ITC lying in credit ledger is of around ?26.25 lakhs. Out of which around ?10.5 lakhs is of accumulated GST on input services for expenses incurred & rest is of input goods received from Maharashtra and which are lying in stock.

ANSWER

Facts of the case: A having a branch at Delhi where they maintain stock of Electric motors to expedite the supply to northern region of India. Motors are supplied to Delhi from Maharashta on regular basis by raising Invoice. These motors are supplied further by Delhi branch to customers without adding any margin; the reason being the invoice raised on Delhi branch by Maharashtra HO is at open market value. As there is no margin on sales the GST payable at Delhi is always lesser than Input Tax Credit (ITC) available to it. In addition Delhi branch pays GST to Vendors on Input Services such as C&F agent charges, other general expenses at branch & also it pays GST on RCM for transport services. As from inception of GST Act these ITC amounts have got accumulated, the current ITC lying in credit ledger is of around 26.25 lakhs. Out of which around 10.5 lakhs is of accumulated GST on input services for expenses incurred & rest is of input goods received from Maharashtra and which are lying in stock.

Law Applicable: SCHEDULE I OF CGST ACT
2. Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business:

SECTION 25 OF CGST ACT
(4) A person who has obtained or is required to obtain more than one registration, whether in one State or Union territory or more than one State or Union territory shall, in respect of each such registration, be treated as distinct persons for the purposes of this Act.

(5) Where a person who has obtained or is required to obtain registration in a State or Union territory in respect of an establishment, has an establishment in another State or Union territory, then such establishments shall be treated as establishments of distinct persons for the purposes of this Act.

Reply: Delhi branch is supplying goods to customers without adding any margin because the invoice raised on Delhi branch by Maharashtra HO is at open market value. Since the valuation is done as per Rule 28 of CGST Rules, therefore the route of changing value in order to utilize the accumulated ITC is not correct.

As per section 25(4) both the units will be treated as Distinct persons.

Further, Delhi branch is not getting any consideration for services performed for Maharashtra HO. In GST Supply of service even without consideration between related person or distinct person is also taxable when made in the course or furtherance of business as per clause 2 of Schedule I.

In view of above Delhi branch will issue an invoice to Maharashtra HO  for Business support services for the average cost of expenses and thereby utilise the accumulated ITC. (Reply dt. 22/07/2021)