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GST Applicability on Inter-Unit Transfers, Job Work, Repair

GST Electronic Ledger System

GST Applicability on Inter-Unit Transfers, Job Work, Repairs or Return of Goods

Transportation of Goods for Job Work :

Goods can be sent by the principal (owner of goods) to a job worker for processing, repair, or any work that transforms or enhances the goods. (Rule 45 and 55 of the CGST Rules, 2017).

Documentation: A Delivery Challan must accompany the goods. Details such as description, quantity, and purpose (e.g., “For Job Work”) must be mentioned. The principal must report such goods in Form ITC-04.

How goods sent on an approval basis were treated during the transition to GST.

Goods Sent for Testing or Approval: Goods can be transported for quality checks, testing, or approval before finalizing a transaction. This is often done when goods need to be certified or validated by the buyer or an external agency.

Documentation: Delivery Challan with the description of goods and the purpose (e.g., “For Testing/Approval”). The location of the testing/approval center must be mentioned. No GST liability arises unless the goods are eventually supplied or sold. Some key takeaways for goods sent on an approval basis:

  • Return within 6 Months: No GST is payable if goods sent on approval before 1st July 2017 are returned within six months from GST implementation. This period could be extended by an additional two months if justified.
  • Return after 6 Months: If the goods are returned after six months, both the buyer (returning the goods) and the seller will be liable to pay GST.
  • Invoice Requirement: An invoice must be issued at the time of supply or within six months from the date of removal, whichever is earlier.
  • Compliance Requirement: Businesses were required to declare details of such goods in FORM GST TRAN-1 within 90 days of GST implementation.

Movement of Goods for Repairs or Return of Goods :

  • Goods needing repair or servicing can be transported under a Delivery Challan. Similarly, repaired goods being returned to the original owner may also use the same process.
  • Documentation: Delivery Challan mentioning “For Repairs” or “Return after Repairs.” Reference to the original invoice, if available, should be included. The repaired goods should ideally return to the sender within a reasonable time.

Inter-Unit Transfers & GST Applicability :

  • Transportation of Semi-Finished Goods Between Two Branches: Manufacturing businesses often need to transfer semi-finished goods to another branch or facility for further processing.
  • Documentation: Delivery Challan mentioning “For Further Processing” or “Semi-Finished Goods.” Include details of both branches’ GSTIN and addresses. GST may apply if the transfer is between branches registered in different states (treated as distinct persons).
  • Since separate GST registrations are treated as distinct persons, any inter-unit transfer between such registrations qualifies as a “supply” under GST, even if made without consideration (as per Schedule I of CGST Act, 2017). IGST applies to inter-state transfers, while CGST & SGST apply to intra-state transfers.

Valuation as per Rule 28

  • Open Market Value is the primary method. If Open Market Valueis unavailable, the value of similar goods/services should be used. If neither is available, Rule 30 (110% of cost) or Rule 31 (best judgment) is used. If the recipient is eligible for full ITC, the invoice value is deemed as OMV, reducing the valuation complexity.
  • Input Tax Credit Considerations: ITC is allowed if conditions under Section 16 of CGST Act are met. Any restriction on ITC (e.g., non-payment of supplier’s tax) can impact credit eligibility.
  • Advance Rulings Precedents:
    • Sanghvi Movers Ltd. (Maharashtra AAR): Crane movement between branches for further supply on hire is a taxable supply.
    • Sanghvi Movers Ltd. (Tamil Nadu AAR): ITC was denied due to incomplete payment to the supplier, reinforcing the importance of full compliance for availing ITC.

Stock Transfer Between Branches Registered Under the Same GSTIN (If in the Same State):

Goods moved between two locations of the same GST registration in a single state can be done without a tax invoice.

Documentation: Delivery Challan mentioning “Stock Transfer.” The GSTIN of the sender and receiver must be the same. This avoids treating the movement as a “supply,” provided both branches are under the same GST registration.

Valuation rules under Rule 28 of the GST Act, particularly for stock transfers between related entities (such as Head Office and branches). If a Head Office supplies goods to its branch at zero value, no GST is payable, but the branch cannot claim ITC. If GST is charged on the invoice, ITC can be availed by the recipient branch, subject to conditions under Section 16 & 17 of the GST Act. key takeaways on valuation rules under Rule 28 of the GST Act.

  • First Proviso to Rule 28: If goods are supplied to a recipient for further supply as such, the supplier has the option to value them at 90% of the price that the recipient charges its unrelated customer. This is an option, not a mandatory requirement.
  • Second Proviso to Rule 28: If the recipient is eligible for full Input Tax Credit (ITC), the invoice value itself is deemed to be the open market value of the goods or services. Unlike the First Proviso, it is not limited to goods meant for further supply, meaning it applies even when the recipient uses the goods for business purposes.
  • Impact on Stock Transfers: A Head Office (HO) can value stock transfers to branches at any declared value (including zero) if the recipient branch is eligible for full ITC. If the invoice value is zero, no GST is charged, and consequently, no ITC is available to the recipient branch.
  • Section 16 & Section 17(1) of the GST Act: ITC is only available if the recipient has a valid tax invoice with GST charged. If goods are used partly for business and partly for other purposes, ITC is restricted proportionally.

Goods Being Transported Without a Supply (e.g., Exhibitions or Demonstrations):

Goods moved for display or promotional purposes at exhibitions or for demonstrations do not constitute a supply since there is no consideration involved. This CBIC clarification reinforces key principles of GST regarding “supply” and tax implications for goods sent to exhibitions:

Definition of Supply: A transaction is considered a “supply” under GST only if:

a) It is made for consideration (i.e., there is payment involved).
b) It is made in the course of business advancement.

Goods Sent to Exhibitions (Not a Supply): If goods are sent for display at an exhibition, even involving interstate movement, they do not qualify as “supply” because:

  1. a) There is no consideration (no sale or payment).
  2. b) The movement is not for business expansion but for exhibition purposes.

Zero-rated Supply Clarification:

Defined under Section 16 of the IGST Act, 2017 : GST defines zero-rated supply as applicable only to:

  1. Exports of goods/services.
  2. Supplies to Special Economic Zone (SEZ) developers or units..

Supplies to SEZs are treated as zero-rated. and Input Tax Credit (ITC) is available on zero-rated supplies. A Special Economic Zone (SEZ) is a designated area with different trade laws to encourage global competitiveness. Since goods sent for exhibition do not constitute a “supply,” they do not qualify for zero-rating under GST.

Documentation Requirement: Instead of a tax invoice, the consignor must issue a delivery challan while removing goods for transportation. And The delivery challan should clearly mention that the goods are meant for exhibition and will be returned after the event.

As the movement is covered only by a delivery challan (without an invoice or payment), there is no legal obligation for GST payment. GST law does not specify a detailed procedure for this, but businesses should ensure proper documentation to avoid any compliance issues.

Documentation: Delivery Challan stating “For Exhibition” or “For Demonstration.” Include details of the event/location where the goods will be displayed. Such goods must be brought back or accounted for in case of damage or loss.

General Points for All Scenarios: Mandatory Details in Delivery Challan:

  • Date and number of the challan.
  • Names, addresses, and GSTINs (if applicable) of both consignor and consignee.
  • Description and quantity of goods.
  • Purpose of transport.
  • Place of delivery and vehicle details (if applicable).

E-Way Bill: An E-Way Bill is mandatory if the value of the goods exceeds ₹50,000 or as per state-specific thresholds, even when using a Delivery Challan.

Retention and Record-Keeping: Delivery Challans must be retained by the consignor, consignee, and transporter for audit purposes.

Inter-State Supply & Intra-State Supply

  • Inter-State Supply – Supply between two different states or union territories, attracting IGST.
  • Intra-State Supply – Supply within the same state or union territory, attracting CGST & SGST.

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