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CA Intermediate · Taxation · Value of Supply

Sundaram Traders, Chennai, sold goods to its related person, Kaveri Distributors, Madurai, for use in the course of business. The open market value of identical goods is Rs 5,00,000, and the recipient is eligible for full input tax credit. Sundaram invoiced the goods at Rs 4,20,000. Under the CGST Valuation Rules, what is the value of supply?

The value of supply is Rs 4,20,000. When supplier and recipient are related and the recipient is eligible for full input tax credit, the invoice value is accepted for GST. The open market value rule is not needed, so the Rs 5,00,000 market value is not used.

  1. ARs 4,20,000, because the invoice value is accepted where the recipient is eligible for full input tax creditCorrect
  2. BRs 5,00,000, being the open market value of identical goods
  3. CRs 4,60,000, being the average of the invoice value and the open market value
  4. DRs 80,000, being the difference between the open market value and the invoice value

Explanation

Where the supplier and recipient are related persons, the value declared in the invoice is accepted as the value of supply if the recipient is eligible for full input tax credit. Here the recipient is eligible for full credit, so Rs 4,20,000 stands. Rs 5,00,000 would apply only if the open market value route were needed, for example where the recipient could not take full credit.

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