GST Valuation Rules for Inter-State Branch Transfers Under Rule 28
Businesses can use invoice value for inter-state branch transfers under GST if the receiving branch claims full input tax credit.
- Ruling
- 07/WBAAR/2018-19 dated 30/05/2018
- Dated
- 30 May 2018
- Authority
- 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
- Company asked if inter-state branch transfers can use invoice value instead of retail price.
- Authority ruled that suppliers are not forced to charge 90% of market value.
- Declared invoice value is valid if the receiving branch gets full input tax credit.
- Inter-state branches count as distinct persons requiring tax invoices under GST rules.
In short
M/s GKB Lens Pvt Ltd imports and sells optical goods, transferring stock from its West Bengal head office to branches in other states. Under GST law, branches in different states are treated as separate entities called distinct persons. The company asked whether it must value these transfers at 90% of the wholesale or retail price, or if it can simply use its own invoice value. It also sought clarity on how input tax credit rules apply when sending non-trading goods like stationery and office equipment.
What has changed
How it worked before
Before this ruling, many multi-state businesses were unsure if Rule 28 forced them to calculate GST on 90% of retail market prices for routine branch transfers. Many assumed higher valuations were compulsory, which blocked extra working capital in tax payments when moving inventory internally.
What has changed
The West Bengal Authority for Advance Ruling clarified that using 90% of the market price under Rule 28 is strictly optional for the supplier. Under the second proviso to Rule 28, any value listed on the tax invoice is treated as the legal open market value, provided the receiving branch can claim full input tax credit (ITC). This applies to both trading stock and non-trading items like office equipment.
Who this affects
Businesses that transfer goods, office supplies, or machinery between branches in different states that hold separate GST registrations.
An example
ABC Electronics operates a warehouse in West Bengal and a retail branch in Odisha. ABC transfers 50 laptops to the Odisha branch with a cost price of ₹30,000 each, even though end customers pay ₹50,000. Under the logic of ruling 07/WBAAR/2018-19, ABC can issue the transfer invoice at ₹30,000 or any declared value rather than calculating 90% of the customer price. Because the Odisha branch uses the laptops for taxable business sales and claims full input tax credit on the GST billed, the tax department accepts the declared invoice value.
What you should do
Review how your company prices stock transfers across state lines and verify whether the receiving branches qualify for full input tax credit. Keep in mind that an advance ruling legally binds only the business that applied for it and its specific tax officer. Do not treat this ruling as automatic law for your business without consulting a tax professional or seeking your own ruling.
If you do nothing
If you assume this ruling protects you without checking your receiving branch's tax status, your tax officer might dispute your transfer values. If the receiving branch makes exempt sales and cannot claim full input tax credit, the second proviso of Rule 28 will not apply. This can result in unpaid tax demands, interest charges, and financial penalties during a GST audit.
The terms explained
- Input tax credit
- The tax a business pays on its purchases and inward transfers, which it can use to reduce the GST owed on its own sales.
- Distinct persons
- Separate branches or units of the same business entity that are registered under GST in different states.
- Open market value
- The full price a customer would pay for a product or service in an ordinary sale between unrelated parties.
The ruling in detail
Authority for Advance Ruling
GKB Lens Pvt Ltd
07/WBAAR/2018-19 dated 30/05/2018 · West Bengal
Questions before the authority
- Whether goods supplied to the branches in states other than West Bengal can be valued in terms of the Cost Price under the Second Proviso to Rule 28 of CGST Rules, 2017, instead of 90% of MRP as required under the First Proviso of the same Rule.
- Clarification regarding the phrase "eligible for full input tax credit" especially in the context of the fact that apart from trading goods, non-trading stock like stationery and office equipment are transferred to branches.
Facts
The Applicant is a reseller and importer of optical lenses, frames, and accessories with its Head Office in West Bengal. It transfers goods to its independently registered branches located in other states, which qualify as distinct persons under GST law. The Applicant sought an advance ruling on whether inter-state stock transfers to branches can be valued under the Second Proviso to Rule 28 (invoice value) instead of 90% of MRP under the First Proviso, and the legal meaning of recipient being eligible for full input tax credit.
Ruling
| Question | What the authority ruled |
|---|---|
| Valuation of stock transfers to distinct branches in other states under Rule 28 | Eligible to value goods by applying the terms of the Second Proviso to Rule 28 Supplier has full discretion whether or not to exercise option under the First Proviso |
| Meaning of expression 'eligible for full input tax credit' under Second Proviso to Rule 28 | Recipient branch is eligible to take full credit of tax paid as mentioned in the supplier's invoice Must be supported by a valid tax document under Section 16(2)(a) and used for business purposes |
The Authority held that the Applicant has the option not to value goods under the First Proviso to Rule 28 and **is eligible to value branch supplies under the Second Proviso to Rule 28**. It further held that the expression eligible for full input tax credit means the recipient branch is entitled to claim full ITC of the tax amount shown on the invoice or valid document issued under Section 16(2)(a) of the GST Act.
Reasoning
The Authority observed that separate registrations in different states render HO and branches distinct persons under Section 25, making Rule 28 applicable for supply valuation. The First Proviso to Rule 28 gives an option to value goods at 90% of the price charged to unrelated end customers, but availing this option is strictly at the supplier's sole discretion. Under the Second Proviso to Rule 28, where the recipient is eligible for full input tax credit, the value declared in the invoice is deemed to be the open market value. Reading Section 16(2)(a) and Section 17(1) together, as long as the branch receives a valid tax invoice for business purposes, it is eligible for full ITC, making the invoice value legally acceptable regardless of cost or retail price.
Provisions relied on
- Section 16
- Section 16(2)(a)
- Section 17(1)
- Section 25
- Section 97(2)(c)
- Rule 28 of CGST Rules, 2017
For the practitioner
This ruling establishes that **suppliers are not bound to adopt 90% of retail price** for inter-state branch transfers under Rule 28. Businesses can freely determine declared invoice values under the Second Proviso as long as the recipient distinct person can claim full ITC. It does not validate or decide on zero-value transfers without an invoice.
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/AAR/wbaar-07_2018-19_dt_30-05-18_gkb_lens.pdf
Legibility of the scan, as read: high.
Prepared 18-10-2026.
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