Provisions for Branch Transfer under GST – Understand With Examples. The GST, which is being implemented from July 1, will have significant changes in the country. Which will be benefited from business people, foreign investors and common man. This is what the Revenue Secretary of the Ministry of Finance is like. According to him, the country’s ambition will increase through GST. This will create opportunities for companies from profitability to new jobs. Here we provide complete details for Branch Transfer under GST under GST Regime….
Provisions for Branch Transfer under GST
- A Branch in common sense is a location, other than the main office, where business is conducted.
- In VAT Regime, Branch Transfer against F Form
- No such form in GST Regime
- Concept of Distinct Person
25(4) A person who has obtained or is required to obtain more than one registration, whether in one State or Union territory or more than one State or Union territory shall, in respect of each such registration, be treated as distinct persons for the purposes of this Act.
Schedule I – Branch Transfer even if without consideration to be treated as supply if
Supply of goods or services between distinct persons or between distinct persons as specified in Section 25, when made in the course or furtherance of business.
Intra State Supply……????????
Different Business verticals in same state Branches in same state
2(85) “PLACE OF BUSINESS” includes –– (a) place from where the business is ordinarily carried on, and includes a warehouse, a godown or any other place where a taxable person stores his goods, supplies or receives goods or services or both; (b)….. (c)……
Value of supply of goods or services or both between distinct or distinct persons, other than through an agent (Rule 2)
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 distinct, other than where the supply is made through an agent, shall,-
- (a) be the open market value of such supply;
- (b) if open market value is not available, be the value of supply of goods or services of like kind and quality;
- (c) if value is not determinable under clause (a) or (b), be the value as determined by application of rule 4 or rule 5, in that order:
Provided that where goods are intended for further supply as such by the recipient, the value shall, at the option of the supplier, be an amount equivalent to ninety percent of the price charged for the supply of goods of like kind and quality by the recipient to his customer not being a distinct person.
Provided further 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 of goods or services.
Cost based Valuation (Rule 4)
- Applicable when specific methods prescribed are unavailable for specific reasons.
- It provides that the value will be ‘cost plus 10%’
Residual method (Rule 5)
- Applicable when valuation can not be determined under Rule 1 to 4.
- The same shall be determined using reasonable means consistent with the principles and provisions of section 15 and these rules.
“open market value” of a supply of goods or services or both means the full value in money, excluding the integrated tax, central tax, State tax, Union territory tax and the cess payable by a person in a transaction, where the supplier and the recipient of the supply are not related and price is the sole consideration, to obtain such supply at the same time when the supply being valued is made.
“supply of goods or services or both of like kind and quality” means any other supply of goods or services or both made under similar circumstances that, in respect of the characteristics, quality, quantity, functional components, materials, and reputation of the goods or services or both, is the same as, or closely or substantially resembles, that supply of goods or services or both.
A and B are distinct persons. ‘A’ supplies raw material ‘X’ to ‘B ’. ‘A ’ supplied 100 Kgs of ‘X’ to ‘B’ in October for Rs. 800 per Kg. The following transactions of sale of ‘X’ are undertaken by ‘A’ in October.
- Supply of 100 kgs to another distinct party ‘C’ for 850 per kg
- Supply of 500 kgs to an unrelated party for Rs. 800 per kg
On what value will ‘A ’ charge GST?
A supply to distinct party cannot be considered as an open market value and hence the value of supply to ‘C’ cannot be considered as a value for levying GST. Similarly, a supply of different quantity (500 kgs) cannot be considered as a supply of goods of like kind and quality (100kgs).
The only option left to ‘A ’ is to resort to cost based valuation under rule 4.
Illustration 2 : Facts are same as in Illustration 1. Further B can take full input tax credit for supply of ‘X’. On what value will ‘A ’ charge GST?
The proviso to Rule 2 provides that where the recipient is eligible for full credit then value declared in the invoice will be the value on which GST will be levied. Hence ‘A ’ can charge GST on supply value of Rs 800 per kg and need not resort to Rule 4.
Illustration 3 :
Rajguru Industries stock transfers 1,00,000 units (costing Rs.10,00,000) requiring further processing before sale, from Bijapur in Karnataka to its Nagpur branch in Maharashtra. The Nagpur branch, apart from processing units of its own, engages in processing of similar units by other persons who supply the same variety of goods, and thereafter sells these processed goods to wholesalers. There are no other factories in the neighbouring area which are engaged in the same business as that of its Nagpur unit. Goods of the same kind and quality are supplied in lots of 1,00,000 units each time, by another manufacturer located in Nagpur. The price of such goods is Rs.9,70,000.
In case of transfer of goods between two registered units of the same person (having the same PAN), the transaction will be treated as a supply even if the transfer is made without consideration, as such persons will be treated as ‘distinct persons’ under the GST law. The value of the supply would be the open market value of such supply. If this value cannot be determined, the value shall be the value of supply of goods of like kind and quality. In this case, although goods of like kind and quality are available, the same may not be accepted as the ‘like goods’ in this case would be less expensive given that the transportation costs would be lower. Therefore, the value of the supply would be taken at 110% of the cost, i.e., Rs. 11,00,000 (i.e., 110% * 10,00,000).
Input Tax Credit: –
Section 16(1) Every registered person subject to Section 49, shall be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business.
A Company has Branch-A which is a registered taxable person in Andhra Pradesh conducts conference in a hotel in Lonavla (Maharashtra) where CGSTSGST is charged by the hotel. This Company also has Branch-M which is a registered taxable person in Mumbai.
Now the provisions of section 16(1) operate as follows:
- *CGST-SGST charged by the hotel in Lonavla (Maharashtra) is ‘used in the business of Branch-A’ in Andhra Pradesh and not in the business of Branch-M in Mumbai.
- * Hotel would not be aware about the above fact and would not resist to issue the bill in the name of Branch-M because both are branches of the same Company
- * Since, CGST-SGST has been charged by the hotel, input tax credit would not be available to Branch-A as tax paid in Maharashtra is not a creditable tax in Andhra Pradesh
- * Branch-M may be compelled to forego the tax paid to the hotel. However, there may be a tendency to save this loss by informing the hotel about the GSTIN of Branch-M. In fact, the Company need to obtain ISD registration in Maharashtra and distribute this credit entirely to Andhra Pradesh.
- * But, Branch-M in Mumbai cannot justify this input tax credit as it is not ‘used by him’ in ‘his business’ but it is ‘used by another’ in ‘that others business’
Section 16(2) and stock transfers:
Proviso to Section 16(2) of CGST Act provides that:
“where a recipient fail to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon, in such manner as may be prescribed “.
Now consider the case where there is a stock transfer of goods or services or both, should the unit receiving these goods or services transfer funds equivalent to invoice value to supplying unit or corporate office? A literal reading of the above proviso and applying it to inter-unit transactions would mean that there has to be funds transfer within 180 days, otherwise the receiving unit would have to pay interest for the 180 days and as well should treat such ineligible credit as its output tax in the immediate month following the period of 180 days.
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