A novelty under the Goods and Service Tax Act (GST Act) is the fact that the inter branch transfers are also taxable under it. This means that if one branch transfers goods or renders services to Company’s another branch, GST shall be applicable on such transfers.
Meaning And Scope of Supply
The meaning of supply under the GST Act is very wide. It includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.
Further, as per Schedule I of GST Act, Supply of goods or services or both between related persons or between distinct persons as specified in Section 25 of GST Act, when made in the course or furtherance of business (even if made without consideration) is also covered under the ambit of scope of Supply. GST Act also defines distinct person as a person who has obtained or is required to obtain registration in a State/Union territory in respect of an establishment. If a person has an establishment in another State/ Union territory, then such establishment shall be treated as establishments of distinct persons.
It implies that all the branches of a Company situated in different States/Union territories and from where the Company is making taxable supplies shall be liable to be pay GST.
Valuation For Supply Of Goods Or Services From Distinct Persons
The value of the supply of goods or services or both between distinct persons is specified in sub-section (4) and (5) of Section 25 of GST Act. It provides that where the supplier and recipient are related, the value of supply shall-
(a) be the open market value of such supply;
(b) if the open market value is not available, be the value of supply of goods or services of like kind and quality;
(c) if the value is not determinable under clause (a) or (b), be the value as determined by the application of Rule 30 or Rule 31, in that order:
Provided that where the 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 related person.
It further provides 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 the goods or services.
Invoicing of Inter Branch Transfer
Since all inter branch transfers are treated as normal supply under GST provisions, such transfers from one branch to another located in different States/UT shall be effected under a tax invoice. However, the inter branch transfers within the same State/UT shall be effected under a delivery challan.
Combined reading of the above provisions implies:
- that all the branches of a Company situated in different States/UT and from where the Company is making taxable supply of goods and services shall be liable to be registered if the aggregate turnover of the Company computed on all India basis exceeds Rupees Twenty Lakh (Rupees Forty Lakh in case of supply of goods only) in a financial year.
- In case, the State has more than one branch and/or warehouse location, one location shall be shown as principal place of business and others place as additional place of business.
- Since branches in different states shall be treated as distinct entities, any transfer from one branch to another located in different States/UT will be treated as a “supply” under GST Act and the supplying branch shall be liable to the payment of GST.
- However, any inter branch transfer from one branch to another within the same State/UT shall not be subject to the payment of GST.