Page 14 - Chapter 6_Value of Supply

Q.12
M/s Ronak Ltd. having a registered head office in Maharashtra, provides a service to its branch office
in Kerala in the month of April 2024 by way of carrying out administrative work with the use of service of the
employees working in the head office. However, the head office has not included the salary cost of employees
involved in providing the said services while issuing tax invoice to its branch office.
You are required to decide the following:
What will be the value of service and also discuss whether the salary cost of head office employees involved in
providing the said services has to be mandatorily included in the computation of value of service provided by
head office to branch office (when full ITC is available to the concerned branch office)?
What will be the value of service if head office has not issue invoice to the branch office?
Also discuss in brief the relevant provisions of GST law. [CA Final Nov 24 Exam]
Answer:-
1) Ü The value of supply of services by Head Office (HO) to its Branch Office (BO) [HO and BO being the
distinct persons], shall be the open market value (OMV) of such supply.
Ü Further, where the recipient - BO - is eligible for full input tax credit (ITC), the value declared in the
invoice by HO shall be deemed to be OMV of such services.
Ü Moreover, the cost of any particular component of said services including the salary cost of the HO
employees involved in providing the said services is not required to be mandatorily included in the value
of the services in the invoice.

2) If HO has not issued a tax invoice to the BO and the recipient - BO - is eligible for full ITC, the value of
service by HO to BO may be deemed to be declared as Nil and may be deemed as OMV of such services.

Q.13
ABC Pvt. Ltd., an Indian company, provides a corporate guarantee of ₹15,00,00,000 to a bank on
behalf of its related company, XYZ Pvt. Ltd., also located in India. The actual consideration for the
guarantee is ₹2,00,000 per annum. XYZ Pvt. Ltd. is eligible for full Input Tax Credit (ITC). What will be the
value of the supply of services for GST purposes, and how much GST will be payable if the applicable GST
rate is 18%?
Answer:-
Legal Provision:
Ü As per Rule 28(2) of CGST Rules 2017, The value of supply of services by a supplier to a related recipient in
India, by providing a corporate guarantee to a bank or financial institution, shall be deemed to be 1% of the
guarantee amount per annum or the actual consideration, whichever is higher.
Ü If the recipient is eligible for full ITC, the value declared in the invoice shall be deemed to be the value of said
supply of services.
Discussion & Conclusion:
Ü In the given case, 1% of the guaranteed amount is ₹15,00,00,000 * 1% = ₹15,00,000, which is higher than the
actual consideration of ₹2,00,000 per annum.
Ü Therefore, the deemed value for GST purposes is ₹15,00,000.
Ü However, since XYZ Pvt. Ltd. is eligible for full ITC, the value declared in the invoice can be ₹ 2,00,000.
Ü Hence, GST will be calculated on ₹2,00,000. The GST payable at 18% is ₹2,00,000 * 18% = ₹ 36,000.

05: Rule 29: Value of Supply of goods made or received through an agent
Prestige Appliances Ltd. (Bangalore) has 10 agents located across the State of Karnataka (except
Q.14
Bangalore). The stock of chimneys is dispatched on Just-In- Time basis from Prestige Appliances Ltd. to the
locations of the agents, based on receipt of orders from various dealers, on a weekly basis.
Prestige Appliances Ltd. is also engaged in the wholesale supply of chimneys in Bangalore. An agent places
an order for dispatch of 30 chimneys on 22-Sep-20XX. Prestige had sold 30 chimneys to a retailer in
Bangalore on 18- Sep-20XX for ₹ 2,80,000.
The agent effects the sale of the 30 units to a dealer who would affect the sales on MRP basis (i.e., @

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