Schedule-I of CGST Act 2017 provides a list of activities which would be considered as supply even if made without consideration. Entry no. 2 of such list provides that “Supply of goods or services or both between related persons or between distinct persons as specified in section 25 of CGST Act, when made in the course or furtherance of business” shall be considered as supply for the purpose of levy of GST.
As per Section 25(4) and 25(5) of CGST Act, distinct persons includes:-
Section 25(4) All registered persons under same PAN : A person who has obtained or is required to obtain more than one registration, whether in one State or Union territory or more than one State or Union territory shall, in respect of each such registration, be treated as distinct persons for the purposes of GST laws.
Section 25(5) All establishments under same PAN : Where a person who has obtained or is required to obtain registration in a State or Union territory in respect of an establishment, has an establishment in another State or Union territory, (whether or not registered under GST), then such establishments shall be treated as establishments of distinct persons for the purposes of this Act.
Further, as per Explanation to Section 8 of IGST Act, where a person has:
(i) an establishment in India and any other establishment outside India;
(ii) an establishment in a State or Union territory and any other establishment outside that State or Union territory; or
(iii) an establishment in a State or Union territory and any other establishment being a business place registered within that State or Union territory,
then such establishments shall be treated as establishments of distinct persons.
In this article, we will discuss the levy of GST in case of supply of goods or services between distinct persons.
These supplies are commonly known as Branch transfers or as Stock transfers. Followings are different scenarios for such transactions:
Case 1: One GST number in Same State for multiple places:-
Mr. A has principal place of business in Pune of Maharashtra and a branch in Mumbai i.e. in same state. Branch in Mumbai is doing business under the same GST number i.e. of Pune.
In this case, both units will remain connected with same GST number because of same GST number. Now, if there is a case of stock transfer, then Mr. A has to issue a stock transfer challan along with E-way bill. This transfer is not liable to GST, however other requirements must be complied with.
Case 2: Different GST Number in Same State for different places:-
Mr. A has two businesses. One business place is in Pune of Maharashtra and another in Mumbai of same state and both are independently GST registered persons.
In this case, both units are acting as independent to each other and have different GST numbers. As per GST laws, both units will be assumed as Distinct persons for the purpose of payment of GST, ITC, Returns, Assessments, etc.
Thus, in case one unit supply any goods or services to unit at another place, first mentioned unit will raise an invoice for such supplies and will pay GST considering it as normal outward supply, whether or not, consideration involved in such supply.
Case 3: Branch in Different State and is registered under GST
Mr. A has two business places. One business place in Mumbai, Maharashtra and another of in Delhi. Both places are GST registered due to mandatory requirement under GST laws.
In this case, both units are acting as independent units and have different GST numbers. As per Section 25(4), both units will be assumed as distinct persons for the purpose of payment of GST, ITC, Returns, Assessments, etc.
Thus, in case one unit supply any goods or services to unit at another place, first mentioned unit will raise an invoice for such supplies and will pay GST considering it as normal outward supply, whether or not, consideration involved in such supply.
Case 4: Branch in Different State but not registered under GST
Mr. A has principal place of business in Mumbai. He has set up a branch in Delhi for various activities except that of supply of goods or services or both. Thus, unit in Delhi is not a registered person under GST.
As per section 25(5), both the places shall be considered as establishments of distinct persons.
Thus, as per Schedule-1, where unit in Mumbai supplies any goods or services to both to branch in Delhi, unit in Mumbai will raise an invoice for such supplies and will pay GST considering it as normal outward supply, whether or not, consideration involved in such supply.
Value of supplies in case of Branch transfers or stock transfers shall be computed as per CGST Rules for Valuation.
Refer >> Value of Taxable Supply of goods or services or both in GST
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