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GST: VALUATION RULES & RELATED PARTIES TRANSACTIONS !
Rule 28 of the CGST Rules, 2017 pertains to determination of value of supply of goods or services or both between distinct or related persons, other than through an agent. It is stated that the value of the supply of goods or services or both between distinct persons as specified in sub-section (4) and (5) of section 25 or where the supplier and recipient are related, other than where the supply is made through an agent, shall-
(a) be the open market value of such supply;
(b) if the open market value is not available, be the value of supply of goods or services of like kind and quality;
(c) if the value is not determinable under clause (a) or (b), be the value as determined by the application of rule 30 being 110% of cost of production or rule 31 being residual rule, in that order:
Furthermore, there are two provisos to this Rule. The first proviso states that where the goods are intended for further supply as such by the recipient, the value shall, at the option of the supplier, be an amount equivalent to ninety percent of the price charged for the supply of goods of like kind and quality by the recipient to his customer not being a related person.
The second proviso states 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 the goods or services.
The provision contained in the second proviso was appreciated as it ruled out the requirement of applying various valuation techniques for determining the value in case the recipient was eligible for full input tax credit. Hence, it can be inferred that in cases where supplies are made to distinct/related persons wherein the recipient is eligible to take full input tax credit, the value declared in invoice would be accepted. However, a twist in this interpretation is being observed as many experts are of the opinion that the benefit of this second proviso is available only if the recipeint is not required to reverse any credit under Rule 42/43 of the CGST Rules, 2017. It is being interpreted that if the recipeint is liable to reverse credit under Rule 42/43 of the CGST Rules, 2017, it cannot be said that the recipient is eligible for ‘full input tax credit’ so as to be covered by this provision. In our opinion, this interpretation will lead to absurd results as it will tantamount to a situation wherein no assessee is able to claim the benefit of this provision. In our opinion, the meaning of the term ‘eligible for full input tax credit’ implies admissibility of full credit only with respect to goods supplied by the related/distinct persons and not on overall basis. It is hoped that the government issues suitable clarification in this regard in the interests of all assessees so that the possibility of disputes is avoided in future.
This is solely for the educational purpose.
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