As per Sec 25(4) of CGST Act, 2017 every branch/office of a company/entity having separate GSTIN belonging to one legal entity (single PAN) is a distinct person, whether located in the same state or different states. So, the supply of goods or services between these branches are covered within the meaning& scope of supply U/s 7(1). Further, as per Para 2 of Schedule I of CGST Act, even if consideration is not involved, 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 is taxable under GST, if the said supply is otherwise not exempted.
Rule 28 of Central Goods and Service Tax Rules, 2017, deals with the valuation provisions of the supply of goods or services or both between distinct or related persons. Rule 28 states that the value of supply in such case would be as follows:
(a) the value of supply shall 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 or Rule 31, in that order:
The proviso to Rule 28 states that in case the goods are going to be supplied as such by the recipient, then, the value of supply in such case shall be an amount equal to 90% of the price charged for the supply of goods, by the recipient to his customer, of like kind and quality. However, such valuation can be adopted at the option of the supplier.
Further, the second proviso to Rule 28 states that the value declared in the tax invoice shall be the open market value of goods or services transferred, in case the recipient unit is eligible to avail full input tax credit.
Invoicing of Inter Branch Transfer
Since all inter-branch transfers having different GSTIN ( though under same company/entity) are treated as normal supply under GST provisions, such transfers from one branch to another located in the same States or different States/UT shall be effected under a tax invoice. E Way bill also required for inter-state branch transfer if the value of supply (including GST) under single consignment exceeds Rs. 50,000/-. However, the inter-branch transfers within the same State/UT (same GSTIN) shall be effected under a delivery challan.
Treatment of Input Tax Credit
Section 16 of the Central Goods and Service Tax Act, 2017 deals with eligibility and conditions for availing input tax credit. If the inter-unit transfer satisfies all the required conditions, the recipient would be eligible to avail input tax credit. However, the same may vary depending upon situations.
Value on which GST shall be paid in case of supply of capital goods or Plant & Machinery on which ITC has been availed (Section 18 (6) of CGST Act )
When the activity or transaction becomes supply and ITC has been availed then the next step is to ascertain the taxable value and calculate the tax to be paid thereon:
The supplier shall be liable to pay GST on higher of the following :
- Amount equal to the input tax credit (ITC) taken on the said capital goods or plant and machinery reduced by such percentage points as may be prescribed ( Total ITC - ITC pertain to un-expired life of assets ) or
- The tax on the transaction value of such capital goods or plant and machinery determined under section 15.
In CGST Rules, there are two provisions which refer to the above-mentioned Section 18(6) and prescribes the method for calculating the input tax credit for the said purpose.
1) Rule 40(2) of CGST Rules, 2017: The amount of credit in the case of supply of capital goods or plant and machinery, for the purposes of section 18 (6), shall be calculated by reducing the input tax on the said goods at the rate of five percentage points (5%) for every quarter or part thereof from the date of the issue of the invoice for such goods.
2) Rule 44(1)(b) of CGST Rules, 2017: The input tax credit involved in the remaining useful life in months shall be computed on pro-rata basis, taking the useful life as five years.
Illustration
- Capital goods have been in use for 4 years, 6 month and 15 days.
- The useful remaining life in months= 5 months ignoring a part of the month
- Input tax credit taken on such capital goods= C
- Input tax credit attributable to remaining useful life= C *( 5/60 )
The author is a Fellow member of The Institute of Chartered Accountants of India & Fellow member of The Institute of Cost Accountants of India. He can be reached at gstresolve@gmail.com.
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