GST Input Tax Credit Rules for Zero-Value Stock Transfers
The Appellate Authority for Advance Ruling clarified that you cannot claim input tax credit on stock transfers if the invoice value is zero.
- Ruling
- Appeal Case No. 05/WBAAAR/2018 dated 27.09.2018
- Authority
- Appellate Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- Stock transfers between branches require a non-zero invoice value.
- Input tax credit is not available for supplies valued at zero.
- Section 16 of the CGST Act requires a valid tax invoice for credit.
- The ruling modifies the valuation rules for inter-state stock transfers.
In short
The company asked if they could transfer goods between branches at a zero-value invoice and still claim input tax credit. The Appellate Authority for Advance Ruling (AAAR) in West Bengal decided that a zero-value invoice does not allow the recipient to claim credit because no tax was paid on the supply.
What has changed
How it worked before
Businesses were uncertain if they could use the second proviso to Rule 28 to value stock transfers at zero and still claim full input tax credit.
What has changed
The authority ruled that for a recipient to claim input tax credit, the supplier must issue an invoice with a non-zero value. This means you cannot bypass tax payment on stock transfers and expect the receiving branch to claim credit.
Who this affects
Businesses with multiple branches in different states that transfer goods between themselves.
An example
Imagine a retail chain, 'Vision Optics', that transfers frames from its Kolkata head office to a Delhi branch. If Vision Optics issues an invoice for zero rupees, the Delhi branch cannot claim any input tax credit. To claim credit, the Kolkata office must issue an invoice with a value and pay the corresponding GST.
What you should do
Ensure your inter-branch stock transfers are valued correctly and include a tax amount on the invoice. Remember that this ruling only applies to the specific company that asked; it is not a general law for all businesses.
If you do nothing
If you claim input tax credit on zero-value transfers, a tax officer may disallow the credit during an audit. You would then be required to pay back the credit amount plus interest and potential penalties for incorrect filing.
The terms explained
- Input tax credit
- The tax a business pays on its purchases that it can use to reduce the tax it owes on its own sales.
- Stock transfer
- Moving goods from one branch of a business to another branch located in a different state.
- Advance ruling
- A formal decision from tax authorities on how GST rules apply to a specific business situation.
The ruling in detail
Appellate Authority for Advance Ruling
Assistant Commissioner, CGST & CX, Tollygunge Division, Kolkata South Commissionerate
Appeal Case No. 05/WBAAAR/2018 dated 27.09.2018 · West Bengal
Questions before the authority
- whether the transfer of goods (optical lenses and frames for spectacles and accessories) from Head Office in West Bengal to its branches in other states, can be done at cost price, by applying the second proviso to Rule 28 of CGST Rules, 2017 (instead of 90 % of MRP as required under the First Proviso to Rule 28 of CGST Rules, 2017
- what is meant by the expression "where the recipient is eligible for full input tax credit" as used in the second proviso to Rule 28 of CGST Rules, 2017.
Facts
The respondent, M/s GKB Lens Pvt. Ltd., is a reseller and importer of optical goods. They sought an advance ruling regarding the valuation of stock transfers from their Head Office in West Bengal to branches in other states. The appellant challenged the original ruling, arguing that it created an impression that input tax credit would be available even if the supplier paid tax on a zero-value supply.
Ruling
| Question | What the authority ruled |
|---|---|
| Valuation of stock transfer at cost price | Permissible under the second proviso to Rule 28 Subject to the condition that the recipient is eligible for full input tax credit |
| Meaning of 'eligible for full input tax credit' | Recipient is eligible to take full input tax credit of the amount of tax paid by the supplier No input tax credit is available for supply of goods/services at Zero Value |
The Appellate Authority modified the original ruling to clarify that no input tax credit is available if the value declared in the invoice is zero. It affirmed that for a recipient to be eligible for input tax credit, the supplier must issue a tax invoice or debit note with a non-zero value. Consequently, the original ruling was modified to explicitly state that no input tax credit is available for supplies at zero value.
Reasoning
The authority relied on Section 16 of the CGST Act, which mandates that input tax credit is only available when the recipient is in possession of a tax invoice or debit note issued by a registered supplier. Since the value declared in an invoice for a supply between distinct persons is deemed to be the open market value, a zero-value invoice results in no tax being paid. Therefore, the authority concluded that **no input tax credit is available** if the value declared in the invoice is zero. The ruling was modified to remove any ambiguity regarding the **non-admissibility of credit** for zero-value supplies.
Provisions relied on
- Section 16 of the CGST Act, 2017
- Section 100(1) of the CGST Act, 2017
- Rule 28 of the CGST Rules, 2017
For the practitioner
This ruling clarifies that while stock transfers between distinct persons can be valued at cost under the second proviso to Rule 28, this is contingent upon the recipient being eligible for full input tax credit. It explicitly settles that **no input tax credit is available** for supplies made at zero value. Practitioners should note that this order prevents taxpayers from claiming credit on stock transfers where no tax liability is discharged by the supplier.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/2024-02/wbaaar_appeal_no.05_2018_dt._27_09_2018.pdf
Legibility of the scan, as read: high.
Prepared 13-10-2026.
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