Example
38
ABC ltd. has two segment of
production one is segment A for product Pet coke (fuel) and another segment B
for Product Refectory (Bricks). ABC Ltd voluntarily takes separate registration
for their business vertical i.e. pet coke and refectory. Segment A transfers
1000 kg. of pet coke to their segment B without consideration. Segment B used
pet coke as intermediary product for further production of Bricks. ABC Ltd has a
single PAN for their both segments and both the segments are located in one
State but have taken voluntarily separate registration. The elements of costs of
production are listed below;
| Particulars | Amount (Rs) | |
| (i) | Cost of Direct material( inclusive of IGST @ 5%) | 17,325.00 |
| (ii) | Cost of Direct labour | 11,200.00 |
| (iii) | consumables stores and repair | 7,200.00 |
| (iv) | Quality control cost | 4,200.00 |
| (iv) | Research and development Cost | 2,200.00 |
| (v) | Administration Cost | |
| Production related | 2,500.00 | |
| others | 1,200.00 | |
| (vii) | selling and distribution expense | 3,200.00 |
(i)
Whether transfer of
pet coke from segment A to segment B is covered under supply.
(ii)
If yes, then
calculate value of supply for such transfer.
Answer
(i)
As per Section 25(4)
of CGST/SGST Act, who has obtained or is required to obtain more than one
registration, whether in one State or more than one State, shall, in respect of
each such registration, be treated as distinct persons for the purposes of this
Act. In the above example ABC Ltd obtained separate registration for their
business verticals for product pet coke and Bricks. Thus, as per section 25
Segment A and Segment B are deemed as distinct persons. As per Schedule I,
Supply of goods or services between distinct person for the purpose of business
or furtherance of business even without consideration shall be considered as
supply for GST.
Hence, transfer of 1000 kg of pet coke from segment A to Segment B even
without consideration is deemed as supply under GST.
(ii)
Rule
28 of Chapter - IV of CGST Rules, 2017 specifies the manner of determining
value of
supply of goods or services or both between distinct or related persons, other
than through an agent. According to this rule, if open market value and
value
of supply of goods or services of like kind and quality are not available, then
value as determined by application of rule 30 or rule 31, in that order would be
applied. Rule 30 provides that value of supply shall be 110%
of cost of product / manufacture/ cost of provision of services of such supply.
In the above example, cost of production is to be determined as per rule
30 above in other words according to
‘cost accounting standard (CAS)-4.
Bu
applying cost of production as per CAS-4, the value of supply would be computed
as under;
| Particulars | Amount (Rs) | |
| (i) | Cost of Direct material( inclusive of IGST @ 5%) | 17,325.00 |
| less: IGST 17325*(5/105) | 825.00 | |
| Cost of material exclusive of tax under GST | 16,500.00 | |
| (ii) | Cost of Direct labour | 11,200.00 |
| (iii) | consumables stores and repair | 7,200.00 |
| (iv) | Quality control cost | 4,200.00 |
| (iv) | Research and development Cost | 2,200.00 |
| (v) | Administration Cost | |
| Production related | 2,500.00 | |
| Cost of Production as per CAS-4 | 43,800.00 | |
| Value of SUPPLY ( 110% of 43800) | 48,180.00 | |
Notes:-
(i)
Section 15 specifies
that Integrated tax (IGST) or other tax under GST shall not form part of Value
of supply and ITC is available on IGST paid on material .
(ii)
Administration cost
other than production related shall not form part of cost of production as per CAS -4
(iii)
Selling and
distribution expense do not relate to production activity, as such, the same
shall not form part of cost of production as per CAS-4.