GST – Branch Transfer

About Branch Transfer

CMA Sandeep Kumar

  • As per Section 3(c) of Model GST law read with propose ‘Schedule I of GST Law’ ,a supply of goods by a taxable person to another taxable person or non-taxable person in the course of furtherance of business without consideration is also included within the ambit of ‘supply’
  • In other words, proposed Schedule I cover the transaction of stock transfer which is without consideration.
  • Moreover, as per proposed Section 162 C O Model GST law; any input credit reversed prior to the appointed day shall not be admissible as credit of input tax under the GST law. Therefore, any material which remains transferred before the appointed day should be brought back to claim the reversal of Input tax credit based on other economic condition.

Section 3 of Model GST Law- Meaning and scope of supply

  • Supply includes
  • All forms of supply of goods and/or services such as sale, transfer, barter, exchange, license, rental, lease or disposals made or agreed to be made for a consideration by a person in the course of furtherance of business,
  • Importation of service, whether or not for a consideration and whether or not in the course or furtherance of business, and
  • A supply specified in schedule I, made or agreed to be made without a consideration.

 



Schedule I

Matters to be treated as supply without consideration

  1. Permanent transfer/disposal of business assets.
  2. Temporary application of business assets to a private or non – business use.
  3. Services put to a private or non – business use.
  4. Assets retained after deregistration.
  5. Supply of goods and/ or services by a taxable person to another taxable or non-taxable person in the course or furtherance of business.
  • Provided that the supply of goods by a registered taxable person to a job-worker in terms of section 43A shall not be treated as supply of goods.

Tax on Branch transfer

  • Under GST, the movement of goods or services from one State to another on transfer basis shall be leviable to integrated Goods and Services Tax (IGST),
  • The transfer of goods or services within a State shall be leviable to SGST and CGST, A new concept of ‘business vertical’ within an organization within a State needing separate registration shall also come into force.
  • In both the cases the branch can avail the credit.

Section 2(18) of GST law:

“Business Vertical” shall have the meaning assigned to a ‘business segment’ in Accounting Standard 17 issued by the Institute of Chartered Accountants of India.

Valuation in case of Branch transfer

Rule 3 of the proposed GST Valuation (Determination of the Value of Supply of Goods and Services) Rule, 2016



Methods of determination of Value

  • Subject to rule 7, the value of goods and/or services shall be the transaction value.
  • The “transaction Value” shall be the value determined in monetary terms.
  • Where the supply consists of both taxable and non-taxable supply, the taxable supply shall be deemed to be for such part of the monetary consideration as is attributable thereto.
  • The transaction value shall be accepted even where the supplier and recipient of supply are related, provided that the relationship has not influenced the price.
  • Where goods are transferred from-
  • One place of business to another place of the same business.
  • The principal to an agent or from an agent to the principal, whether or not situated in the same State, the value of such supply shall be the transaction value.
  • The value of supplies specified in sub-section (4) of section 15 of the Act shall be determined by proceeding sequentially through rules 4 to 6

Impact of GST on Branch Transfer

  • As per existing DVAT law, when goods are transferred by a dealer to its own branch in different state, then the dealer has to reverse the tax credit by the prescribed percentage (equivalent to CST rate) as per Section 9(6) of DVAT Act, 2004 read with Rule 7(1) of the DVAT Rules, 2005. Due to reversal of tax credit, cost of product increases. However, as per proposed GST law there shall no such effect on cost of product.
  • Under proposed GST Scheme, if stock transfers are made liable to tax in originating State, then in case of seasonal industries, where production continues on 24*7 basis but sale happens in specific periods (fertilizer, woolen clothes etc), businesses may land in a situation of funds blockage Entrepreneur will have to pay in cash (or through accumulated credit) in the month/ quarter of dispatch.