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Determination of value for transactions between the Related parties under GST Laws.

Goods and Services Tax - GST - By: - Anuj Bansal - Dated:- 17-10-2016 - This article is in continuity of Author s earlier articles in regard to transition of registration and input tax credit from present regime to GST regime. In the earlier articles, legal provisions in regard to transition of registration and closing balance of input tax credit from present regime to GST regime were discussed in detail and it was explained that registration as well as input tax credit will automatically be tra .....

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pting the transaction value for the purpose of levy of tax that the parties should not be related to each other and the price should be the sole consideration, meaning thereby, the price should be determined as if they are the independent parties. The aforesaid condition obviously has been imposed to avoid under valuation of transactions between the parties who are related to each other. The term related person has been defined under Model GST Law vide section 2(82) as under: (a) They are office .....

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ers of the same family; As per the above provision, the definition of related persons is very wide and extends to even the employer & employees, family members, etc. In the aforesaid background and the provisions of Model GST Law, it is important to examine the provisions which will govern determination of transaction value in case the transactions are between the related parties. In this regard, Rule 3(4) of GST Valuation Rules provides that transaction value shall be accepted where the sup .....

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n doubt, the transaction will be deemed to be transaction not as per the valuation principle and the assessing officer will determine the transaction value. Before rejecting any transaction value between the related parties, the officer shall, however, supply in writing the grounds for having doubt in regard to truth and accuracy of the value and also give proper and reasonable opportunity to the supplier to present his case. If after hearing the supplier, the officer is not satisfied, the offic .....

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ces of like kind and quality. However, in determining the value on the basis of comparison, certain adjustments are prescribed in Rule 4(2) which the officer shall consider while determining the transaction value. The adjustments prescribed includes difference in dates of supply, difference in commercial level and quantity level, difference in composition / quality and design between goods and services and difference in freight and insurance charges depending on place of supply. However, if the .....

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he transaction value. Even if the value is not determinable under Rule 5 above, the officer will further proceed to Rule 6 which is residual method for calculating the value. Residual Method - Vide Rule 6 of the GST Value Rules, the value shall be determined using reasonable means consistent with the principles and general provisions of these rules. It is stated in this regard that vide the aforesaid rules of Model GST law, discretionary powers have been given to the officers to hold that transa .....

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ead to litigation. It is also important in this regard to examine whether such powers were necessary to be provided under the law. As per GST law, tax will be leviable at the prescribed percentage at each of the stage of transaction. Accordingly, in case intervening transactions i.e. prior to the last transaction with the consumer, are between the related parties and assuming same are at value less than the reasonable value, the tax if charged at a lower value at the initial stage, same will be .....

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e provided that in case the final consumer is a related party to the supplier, the related rules discussed above regarding determination of value will be applicable. In this regard, reference can be made to existing provisions of Excise & Customs laws. Presently, Section 4(1) of the Central Excise Act read with Rules 9 & 10 of the Central Excise Valuation Rules, 2000 deals with related party transactions. Similarly, Second 14 of Customs laws deal with related party transactions. Under bo .....

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