AAR carves out Methods for arriving at Value regarding transfer to branches located outside State
The Authority of Advance Ruling, Tamil Nadu (AAR) carved out the method for arriving at value in respect of transfer to branches located outside the state
The Coram consists of Kurinji Selvan and B. Senthilvelavan held that M/s. Thirumalai Chemicals Limited (applicants) can adopt any one of the three methods provided under Rule 28 of the Central Goods and Services Tax (CGST)/ Tamil Nadu Goods and Service Tax Rules, 2017 (TNGST Rules) read with Section 15 of the CGST/TNGST Act 2017 to arrive at the value in respect of supply to distinct persons.
The applicants have been engaged in the business of manufacture and trading of Chemicals, they manufacture Phthalic Anhydride, Malic Acid, and Fumaric Acid.
Apart from the above business the applicants have revenues from Sales of power from wind operated generators and they also have income from letting out of storage facilities. They also have units and branches located in Gujarat, Maharashtra and Dadra & Nagar Haveli.
The present valuation adopted for stock transfer to their distinct units in other states are made in accordance with the provisions of Rule 28(a) of the CGST Rules, which says 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 be the open market value of such supplies.
The said distinct units are eligible to avail full input tax credit on supplies made by the Ranipet unit Tamil Nadu as per second proviso of Rule 28 of CGST Rules, 2017. The distinct units are availing input tax credit of the stock transfers received from the distinct unit in Tamil Nadu and said stock transfers are sold by the distinct person to unrelated customers from their depots.
An application was filed by the applicant before the AAR Tamil Nadu for seeking advance ruling on the questions regarding the value that is to be adopted for transfer to branches located outside the state.
The issues before the AAR were-
- Whether the value of such supplies can be determined in terms of the second provision to rule 28 in respect of supplies made to distinct units in accordance with clause (4) & (5) of Section 25 of the CGST Rules?
- Whether the method of valuation prescribed under the Second proviso is applicable to the supply to distinct persons of the applicant?
The AAR stated "The applicant supplies to their distinct persons, for which presently they adopt the approximate sale value of the distinct person. The distinct person undertakes supply to their ultimate-unrelated customer 'as such' and the value adopted is that on the Purchase Order issued to such distinct persons by the ultimate customer. Also, the distinct units are eligible to avail full Input Tax credit of the tax paid by the applicant"
The AAR carved out the method of calculation as under by referring to the ruling of the Appellate Authority for Advance Ruling, Tamil Nadu in Specsmakers Opticians Private Limited Vide AAAR order No.09/2019, Dated 13 November 2019, wherein AAAR has examined the above Rule 28 and its provisos-
a. On the basis of open Market Value as is presently being adopted by them;
b. 90% of the ultimate sale value was raised by the distinct persons to the un-related ultimate customers based on the Purchase Orders in cases of 'as such' supplies;
c. The distinct persons being eligible for full Input Tax credit of Taxes paid by the applicant, the 'Invoice value' is the deemed 'Open Market Value'.