Branch Transfers – How to Calculate the Taxable Value?

It’s common in business parlance to transfer stock from one business unit to other units, warehouses, depots, etc., within the same or different state. Under the GST regime, GST is levied on such stock transfers. 

What is Branch transfer?

Branch transfer implies transferring materials from one location to another in the same organisation. It is also referred to as a Stock Transfer. These kinds of transfers are usually done for several reasons like:

• For manufacturers transferring their semi-finished goods from their production unit to their other unit for further processing
• Transferring goods to warehouses for further supply
• For trader transferring their goods to their other branch due to excessive demand
• From a compliance perspective, the sale is affected to allow the customers (B2B) to avail of input tax credit (ITC) after branch transfers.

Scope of taxation of branch transfers under GST

Under the GST regime, GST is levied on supply, including transfers to distinct persons. Such transfers are taxable under the cases listed below:

• Stock transfer between states (Interstate): Stock transfer of an organisation under the same PAN between two branches or units located in different states will be liable to GST.
• Stock transfer within the same state (Intrastate): The transfer is liable to GST only when the organisation has been registered more than once in one state. Such organisations would be considered as ‘distinct persons’ for GST.

Valuation of branch transfers under GST

Now, as we are through with the understanding of how stock transfers. Let us discuss calculating the value of stock transfers on which GST is levied.

Generally, GST is levied on the transaction value of the goods when the price is the only consideration received for supply and when such supply isn’t between distinct or related persons. Consequently, on stock transfer, the value of the transaction cannot be applied as it’s a supply between the same entity’s branches, which is considered a distinct person under the GST law. Hence, for branch transfers, the value of supply needs to be computed by applying the metrics below:

For a better understanding, let’s use some scenarios:

In case, due to any reason, the methods described above cannot be applied to determine the transaction value of supply; it would be then determined by applying the cost of the goods +10% or by applying the residual method. For instance, ABC ltd., a registered manufacturer in Ahemadabad (Gujrat), transferred its semi-finished goods to its other manufacturing unit located in Lucknow, UP, for further processing. The production cost of such semi-finished goods was INR 30,000.

The value of such transferred goods will be INR 33,000 (30,000*110/100).