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CA Intermediate · Taxation · Value of Supply

Kapoor Engineering Ltd, Pune, supplies machinery to its sister concern Kapoor Tools Pvt Ltd, Nashik, which is a related person, and is a registered person eligible to claim full ITC. The identical machinery is not sold to others at a stated price. Kapoor Engineering's open market value of like kind and quality supply to unrelated parties is not available, but the machine's cost of production is Rs 4,00,000. The supply is not of a kind where the recipient is ineligible for ITC. Per the Valuation Rules, how will the value of supply be determined if the invoice value is Rs 3,50,000?

The value of supply is Rs 3,50,000. Under Rule 28 of the CGST Rules, where the recipient related person is eligible for full input tax credit, the value declared in the invoice is deemed to be the open market value, so the lower invoice value is accepted.

  1. ARs 3,50,000, since the recipient is eligible for full ITC, the invoice value is deemed to be the open market valueCorrect
  2. BRs 4,00,000, being the cost of production
  3. CRs 4,40,000, being cost plus 10%
  4. DRs 4,72,000, being cost plus 18% GST

Explanation

Under Rule 28, for supplies between related persons the value is the open market value, or where unavailable, other methods. But the first proviso says 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. Hence Rs 3,50,000 stands. The cost-based options apply only if the invoice value cannot be accepted.

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