Treatment of Inter-Unit Transfer under GST

Treatment of Inter-Unit Transfer under GST

Treatment of Inter-Unit Transfer under GST

In order to grow a business, organisations do establish various units at different geographical locations. Internally, such organisation are required to transfer goods (raw-material or semi-finished or finished goods) from one unit to another unit or warehouse or depots etc. with a view to link the time gap between the demand and the supply.

In connection to GST, inter-unit transfer can be inter-state (i.e. transfer from one state to another) or intra-state (i.e. transfer within the same state). It is important to understand the treatment of inter-unit transfer under GST, which is being taken up and explained in the current article.

Valuation in case of Inter-Unit Transfer

As per Section 25 of the Central Goods and Service Tax Act, 2017, in case of establishment/person having more than one registration, each registration shall be treated as a separate registration. For example, M/s. A has one registration in the state of Gujarat and has another registration in the state of Maharashtra, then, both the registration shall be treated separately.

Generally speaking, since the transfer is between one unit to another of the same organisation, it would typically not involve any sale consideration. Hence, valuation rules are to be referred to. Rule 28 of Central Goods and Service Tax Rules, 2017, deals with the valuation provisions of supply of services or goods or both between distinct or related persons. Rule 28 states that the value of supply in such case would be as follows:

  • Value of supply will be the open market value of such goods or services; or
  • In case the open market value is not available, the value of supply shall be a supply of goods or services of like kind and quality; or
  • In case none of the above option is available, the value of supply shall be determined as per residuary rule 30 or rule 31.

The proviso to rule 28 states that in case the goods are going to be supplied as such by the recipient, then, the value of supply in such case shall be an amount equal to 90% of the price charged for the supply of goods, by recipient to his customer, of like kind and quality. However, such valuation can be adopted at the option of the supplier.

Further, the second proviso to rule 28 states that the value declared in the tax invoice shall be the open market value of goods or service transferred, in case the recipient unit is eligible to avail full input tax credit.

Treatment of Input Tax Credit

Section 16 of the Central Goods and Service Tax Act, 2017 deals with eligibility and conditions for availing input tax credit. If the inter-unit transfer satisfies all the required conditions, the recipient would be eligible to avail input tax credit. However, the same may vary for each and every situation.

Relevant Advance Ruling in the Matter

In the matter of Sanghvi Movers Ltd., Maharashtra AAR has held that movement of a crane from one registered office to another registered office with the intention to further supply on hire charges to the customers would be a taxable supply. Further, in the same matter of Sanghvi Movers Ltd., Tamil Nadu AAR held that since the applicant is not paying the full amount to their supplier, he shall not be eligible to avail input tax credit on the same.

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Post by Arnold Thomas

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