Valuation Of Supply Of Goods And Services Between Related Persons Under GST


Date: 20 Sep 2022

Value Of Supply Of Goods Or Services Between Related Person Under GST


The value of supply for the transaction is the price or consideration paid by the customer to the supplier. Goods and services tax will be changed on the value of supply made. Various rules can be referred to for determining the value of supply on which GST has to be charged. In short, these rules will help determine GST's charging value. To know more about value of supply rules, read here


What Does the term 'Related Person' Mean?

Many companies have numerous locations spread out across the states. They must register separately in each state where they conduct business under the new GST law. Additionally, a conglomerate may contain various entities needing numerous GST registrations.

For example, TATA Steel and TATA Motors are different legal entities under TATA, even though the former supplies inputs to the latter. The GST law defines a ‘Related Person’ as any corporate entity that has shared control over multiple entities that may have independent legal identities.


What Should Be the Value Of Supply In Case Of Supply Between Related Person?

  • The open market value of supply between a 'related person' will be the reasonably available amount in the open market.

  • If the open market value is unavailable, it will be the value of the supply of goods or services of like, kind, and quantity. The taxable person can use similar goods or services as a reference for determining the supply value.

  • If neither of the above two situations allows the value to be calculated, then the cost method or the residual approach must be used. The value stated in the invoice shall be assumed to be the open market value of the goods or services if the recipient qualifies for the total input tax credit.


Related Person Under GST

Below is the list of people/entities considered as 'Related Persons' under GST:

  • Officers or directors of one another's business

  • A person is legally recognised as a partner in business 

  • Employer and employee

  • Any person who owns, controls, or has 25% or more of the company's outstanding voting stock or shares, directly or indirectly.

  • One of them directly or indirectly controls the other

  • The third person directly or indirectly controls both of them


According to the GST, "related parties" also refer to legal entities that are connected through the fact that one acts as the other's sole agent, distributor, or concessionaire. Furthermore, in terms of GST, related parties can alternatively be referred to as associated people or separate people.


Cost Method For Determining Value of Supply Under GST 

The value for the supply of goods or services should apply at 110% of the cost involved for the production, manufacturing, and acquisition of such goods or provision of such services if the goods or services or both are left unclassified in any of the rules prescribed in the procedure for determining the value of supply under GST.