CGST Rule 28 of Central Goods and Services Tax Rules, 2017 – Value of supply of goods or services or both between distinct or related persons, other than through an agent

The Central Goods and Services Tax Act, 2017

The Central Goods and Services Tax Rules, 2017

Chapter-IV Determination of Value of Supply

Rule 28: Value of supply of goods or services or both between distinct or related persons, other than through an agent.

28. ¹[(1)] The value of the supply of goods or services or both between distinct persons as specified in sub-section (4) and (5) of section 25 or where the supplier and recipient are related, other than where the supply is made through an agent, 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:

Provided further 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.

¹[(2) Notwithstanding anything contained in sub-rule (1), the value of supply of services by a supplier to a recipient who is a related person ²[located in India], by way of providing corporate guarantee to any banking company or financial institution on behalf of the said recipient, shall be deemed to be one per cent of the amount of such guarantee offered ²[per annum], or the actual consideration, whichever is higher.]

²[Provided that where the recipient is eligible for full input tax credit, the value declared in the invoice shall be deemed to be the value of said supply of services.]

References

Enforcement:

Enforced w.e.f. July 01, 2017 [Notification No. G.S.R. 663(E) dated 28.06.2017].

Amendments:

1. Inserted by Central Goods and Services Tax (Fourth Amendment) Rules, 2023 vide Notification No. 52/2023-Central Tax dated 26th October, 2023, w.e.f. 26.10.2023.

2. Inserted by Central Goods and Services Tax (Amendment) Rules, 2024 vide Notification No. 12/2024 – Central Tax dated 10th July, 2024, w.e.f. 26.10.2023.

Circulars:

c1. Clarification regarding taxability of services provided by an office of an organisation in one State to the office of that organisation in another State, both being distinct persons (Head Office (HO) and Branch Offices (BOs). [Circular No. 199/11/2023-GST dated 17.07.2023]

c2. Director’s Personal Guarantee: The activity of providing personal guarantee by the Director to the banks/ financial institutions for securing credit facilities for their companies is to be treated as a supply of service, even when made without consideration. However, as per RBI, no consideration can be paid to the director by the company. Hence, the open market value of the said transaction/supply may be treated as zero. In such a scenario, no tax is payable on such supply of service by the director to the company. In cases where the director, who had provided the guarantee, is no longer connected with the management but continuance of his guarantee, the taxable value of such supply of service shall be the remuneration/ consideration provided to such a person/ guarantor by the company, directly or indirectly. The Rule 28(2) shall not apply in respect of the activity of providing personal guarantee by the Director to the banks/ financial institutions for securing credit facilities for their companies. [Circular No. 204/16/2023-GST dated 27.10.2023]

C3. In case of import of services by a registered person in India from a related person located outside India, the tax is required to be paid by the registered person in India under reverse charge mechanism. In such cases, the registered person in India is required to issue self-invoice under Section 31(3)(f) of CGST Act and pay tax on reverse charge basis. In cases where the foreign affiliate is providing certain services to the related domestic entity, and where full input tax credit is available to the said related domestic entity, the value of such supply of services declared in the invoice by the said related domestic entity may be deemed as open market value in terms of second proviso to rule 28(1) of CGST Rules. Further, in cases where full input tax credit is available to the recipient, if the invoice is not issued by the related domestic entity with respect to any service provided by the foreign affiliate to it, the value of such services may be deemed to be declared as Nil, and may be deemed as open market value in terms of second proviso to rule 28(1) of CGST Rules. [Circular No.210/4/2024-GST dated 26.06.2024]

C4. For clarification on Corporate Guarantee, intra-group corporate guarantee etc., refer Circular No. 204/16/2023-GST dated 27.10.2023 and Circular No. 225/19/2024-GST dated 11.07.2024.