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CA Final · Indirect Tax Laws · Value of Supply

Lakshmi Textiles Pvt Ltd, Surat, supplies fabric to Lakshmi Retail Pvt Ltd, a related person that is registered. The open market value of the fabric is not available. The recipient sells identical fabric to unrelated customers at Rs 1,000 per unit. The recipient will resell the goods as such and is not eligible for full input tax credit. At the supplier's option, the value per unit under the CGST Rules is:

The value is Rs 900 per unit. Since the related recipient will resell the goods as such, the supplier may choose ninety percent of the price the recipient charges unrelated customers for like goods, and ninety percent of Rs 1,000 is Rs 900.

  1. ARs 900, being ninety percent of the price charged by the recipient to unrelated customersCorrect
  2. BRs 1,000, the resale price
  3. CRs 1,100, being the resale price plus ten percent
  4. DRs 100, being the margin of the recipient

Explanation

For supplies between related persons, where goods are intended for further supply as such by the recipient, the supplier may opt for ninety percent of the price charged by the recipient to an unrelated customer for goods of like kind and quality. 90% of Rs 1,000 = Rs 900. Rs 1,000 is wrong because it ignores this option.

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