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CA Intermediate · Taxation · Value of Supply

Anand Industries, Chennai, supplies machinery to its related person Bharat Engineering (a distinct person, not a recipient eligible for full ITC). The supply is made for a price of Rs 6,00,000, but the open market value of like kind and quality supply is Rs 8,00,000, and the relationship has influenced the price. Bharat is not eligible for full input tax credit. Under the CGST Valuation Rules, what is the value of supply?

The value is Rs 8,00,000. Because the supplier and recipient are related, the price is influenced by the relationship and the recipient is not eligible for full input tax credit, the open market value of like kind and quality supply replaces the transaction price.

  1. ARs 6,00,000
  2. BRs 8,00,000Correct
  3. CRs 7,00,000
  4. DRs 14,00,000

Explanation

When parties are related and the price is influenced by the relationship, transaction value is not accepted and the value is determined under the valuation rules. Rule 28 deems the open market value of the supply as the value only where the recipient is not eligible for full ITC; here that applies, so open market value of Rs 8,00,000 is the value. Rs 6,00,000 ignores the relationship.

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