GST Input Tax Credit Not Allowed on Zero Value Branch Transfers
Branch transfers billed at zero value carry no GST, meaning receiving branches cannot claim any input tax credit.
- Ruling
- Appeal Case No. 05/WBAAAR/Appeal/2018 dated 06.07.2018 (Order dated 27.09.2018)
- Dated
- 06 Jul 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
- Tax authorities appealed a ruling about inter-state transfers between branches
- Goods transferred at zero invoice value carry zero GST liability
- Receiving branches cannot claim input tax credit without tax on invoices
- Companies must declare a positive value to pass input tax credit
In short
The tax department challenged an advance ruling regarding how a company valued optical goods sent from its West Bengal head office to branches in other states. The main argument was whether issuing stock transfer invoices at zero value allows the receiving branch to claim input tax credit under Rule 28 of the CGST Rules 2017.
What has changed
How it worked before
Many businesses assumed they could transfer goods between branches using zero-value invoices while still allowing the receiving branch to claim full input tax credit on the underlying stock.
What has changed
The Appellate Authority for Advance Ruling in West Bengal Order 05/WBAAAR/2018-2019 clarified that zero-value invoices charge zero GST, which leaves no tax credit for the branch to claim. To pass input tax credit to another branch, the sender must declare a positive value on the GST tax invoice.
Who this affects
Multi-state businesses that regularly transfer stock, equipment, or goods between a head office and branch offices in different states.
An example
A clothing manufacturer in Kolkata sends surplus inventory to its retail branch in Mumbai. If the Kolkata office issues a GST invoice with a value of zero, no tax is charged on the transfer. Consequently, the Mumbai branch receives zero input tax credit to offset against its sales. If Kolkata instead values the transfer at cost with applicable GST, Mumbai can claim the full input tax credit.
What you should do
Review your inter-state branch transfer billing to ensure invoices carry a positive value if you plan to pass on tax credits. Remember that an advance ruling legally binds only the business that asked for it and its tax office, so consult your tax advisor before changing billing setups.
If you do nothing
If your business issues zero-value branch invoices and the receiving branch still claims input tax credit, tax officers can disallow those credit claims during an audit. You will be required to pay back the credit amount along with interest and penalties under Section 16 of the CGST Act. Uncorrected branch billing across multiple states can lead to substantial unexpected tax demands.
The terms explained
- input tax credit
- The GST a business pays on its purchases that it can subtract from the GST it collects on its sales.
- stock transfer
- Moving goods from one branch or factory of a business to another branch in a different state.
- distinct persons
- Separate branches of the same legal business that are registered under GST in different states.
- open market value
- The standard price a buyer would pay for the same goods in a regular commercial sale.
The ruling in detail
Appellate Authority for Advance Ruling
Assistant Commissioner, CGST & CX, Tollygunge Division, Kolkata South Commissionerate
Appeal Case No. 05/WBAAAR/Appeal/2018 dated 06.07.2018 (Order 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, and
- 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
M/s GKB Lens Pvt. Ltd. transfers goods, such as optical lenses and frames, from its Head Office in West Bengal to its branches in other states. The original ruling addressed valuation under Rule 28 of the CGST Rules, 2017 and input tax credit eligibility. The Department appealed, contending that the ruling created a misleading impression regarding ITC availability on stock transfers made at zero value.
Ruling
| Question | What the authority ruled |
|---|---|
| Transfer of goods at cost price and ITC eligibility under Rule 28 | Modified to specify no ITC for zero-value supplies If invoice value is zero, no tax is charged and no credit can be claimed by the recipient branch. |
The Appellate Authority modified the original Advance Ruling to explicitly clarify that **no input tax credit would be available for supply of goods or services at zero value**. The appeal of the Department was disposed of accordingly.
Reasoning
Under Section 16 of the GST Act, input tax credit is available only when the recipient is in possession of a valid tax invoice or debit note issued by a registered supplier. In transactions between distinct or related persons such as Head Office and branches, the value declared in the invoice is deemed to be the open market value under Rule 28. If the value declared in such an invoice is zero, no tax is levied, and consequently **no input tax credit is available to the recipient**.
Provisions relied on
- Section 16 of CGST Act, 2017
- Section 16(2)(a) of GST Act
- Rule 28 of CGST Rules, 2017
- Section 100(1) of CGST/WBGST Act, 2017
For the practitioner
This ruling establishes that while entities transferring goods to distinct branches can adopt invoice value under Rule 28, generating invoices at **zero value eliminates ITC availability** for the recipient branch. Practitioners must ensure a positive tax invoice value is declared when input tax credit needs to be passed on to branches.
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_0.pdf
Legibility of the scan, as read: high.
Prepared 20-10-2026.
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