Provisos to Rule 28 of CGST Rules to be read independently, providing options to determine the value in respect of supply made to distinct persons – AAAR, Tamil Nadu
by ReinHeads Team | Jan 7, 2020
Provisos to Rule 28 of CGST Rules to be read independently, providing options to determine the value in respect of supply made to distinct persons – AAAR, Tamil Nadu
| Facts |
- Specsmakers Opticians Private Limited (‘the Appellant’) is carrying on business activities in respect of spectacle frames, sun glass lenses, contact lenses as well as reading lenses from its head office in the State of Tamil Nadu
- The Appellant procures the items locally as well as by way of import and thereafter transfers the same to its branches located outside Tamil Nadu for subsequent supply to customers
- Under the GST law, supply to branches outside the state is considered as supply. Since the branches in other states are eligible to avail full input tax credit in respect of such supplies, the Appellant wanted to adopt the price as per second proviso to Rule 28 for payment of tax (i.e., value declared on the invoice)
- However, the original Authority for Advance Ruling (‘AAR’) held that since goods are intended to be supplied ‘as such’ by the branches, the Appellant is required to apply the first proviso to Rule 28 as per which value would be the amount equivalent to 90% of the price charged for supply of goods by the recipient to unrelated customers
- The Appellant challenged the said order of AAR before the Appellate Authority for Advance Ruling (‘AAAR’)
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| Issue before the Appellate Authority for Advance Ruling (‘AAAR’) |
| Whether the provisos to Rule 28 shall be read independently for determination of the value to be adopted in respect of supply to distinct persons? |
| Discussion & Ruling |
- Rule 28(a) of CGST Rules, 2017 provides that the ‘Open Market Value’ of such supply shall be the value for supplies made between distinct or related persons
- The first proviso to Rule 28 provides for adopting 90% 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 (in cases of ‘as such supply’) and the second proviso states that when the recipient is eligible for full ITC, the value declared in the invoice is to be treated as the Open Market Value
- There is no specific regulation in the CGST Rules,2017 that the rules are to be applied seriatim
- The law provides the taxpayer an option to adopt 90% of the price charged as value to be adopted initially (i.e., supply between distinct persons) and in the alternative, in case of full input tax being available to the recipient as credit, the invoice value is declared as the ‘Open Market Value’
- The second proviso is not subordinate to the first and it independently deals with a scenario where the recipient is eligible for full ITC
- When the supply is to the distinct person of the Appellant and the recipient is eligible for full ITC, the second proviso provides the value declared in the invoice to be the ‘Open Market Value’ for such transaction
- The second proviso does not restrict its application as in the first proviso, which is to be applied for cases of ‘as such supply’ only
- Therefore, the AAAR set aside the ruling of the AAR and held that the Appellant may adopt the value for supply to distinct person as per the second proviso to Rule 28 of the CGST/TNGST Rules 2017.
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