Rule 28 of the CGST rules prescribes a manner to determine the value of supply of goods or services or both between distinct or related persons, other than through an agent. Sub-rule (1) of Rule 28 states the value of supplies between distinct or related persons, except agent shall be-

a. the Open Market Value (OMV) of such supply;

b. if the OMV is not available, be the value of supplies 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.

Second Proviso to the sub-rule (1) of Rule 28 states where the recipient is eligible for full ITC, the value declared in the invoice shall be deemed to be the OMV of the supplies.

Sub-rule 2 of Rule 28 prescribes value of services supplied by way of providing corporate guarantee between related parties. As per the said rule, the value of corporate guarantee services shall be 1% of the guaranteed amount per annum or the actual consideration, whichever is higher. 

The Proviso to the sub-rule (2) of Rule 28 states where the recipient is eligible for full ITC, the value declared in the invoice shall be deemed to be the value of said supply of services.

Attention is invited to the phrase 'eligible for full ITC' used in both provisos to sub-rules (1) and (2) of Rule 28. Whether the said phrase be interpreted on a per-transaction basis or in relation to the recipient as a whole? 

Every business will have both taxable and exempt supplies. Even if the core business transactions are taxable, there may be some transactions that are exempt under GST.  When a recipient procures any supplies, it is determinably whether the inward supplies made are used exclusively for taxable supplies, exempt supplies, or common for both. 

It is only on the common inward supplies that proportional reversal is attracted under GST. Even the eligibility and conditions to avail ITC specified under Section 16 and blocked ITC under Section 17 of the CGST Act, 2017 are on a per-transaction basis.

Further, a plain reading of Rule 28 suggests that the rule determines the value of supplies on a per-transaction basis. Thus, it would be incorrect to infer the eligibility of ITC for a recipient as a whole under the provisos to Rule 28. 

Having said that, a CBIC circular on this point would help to clarify the intent of the law maker and prevent unnecessary demand notices from the Revenue.