Understanding GST Valuation Rules For Related Parties

MCQ SELF CHALLENGE # 0076 ON VALUATION OF SUPPLY UNDER GST IN CASE OF RELATED PARTIES

Dear Professional Seniors & Friends,

Warm Greeting!

Welcome to the next MCQ of tax consultant in Gurgaon based on concept-based practical professional knowledge on Valuation of Supply under GST in case of related parties in a unique manner to be self-answered by participants. The detailed answers to these MCQs shall be posted the next day for the self-assessment of the participants.

MCQ 76.1: M/s MM Fabricators and M/s SS Fabricators are owned by Mr. Jagabir. A factory contracts M/s MM Fabricators for fabrication of its machinery for a Fee of Rs 5.00.000, M/S MM Fabricators subcontracts the work to MS S5 Fabricators for Rs 4.00.000. Generally, M/s SS Fabricators charges a fixed sum of Rs 1200 per man hour to its clients. What will be the value of supply?

A) Rs 5.00.000

B) Rs 4,00,000

C) Rs 1200 Per man hour

D) None of the above

MCQ 76.2: Mr X located in Jaipur purchases 2000 drawing Boxes for Rs 2.00.000 from M/s Stationers Ltd(Wholesalers) in Delhi. Mr Xson is an employee of M/s Stationers Ltd. The price of Each Drawing Box in the Open Market is Rs 120. The Supplier additionally Charges Rs 5000 for Delivering Goods. What is the value of Taxable Supply

A. Rs 200000

B. Rs 205000

C. Rs 245000

D. Rs 2.40.000

Answer MCQ Self Challenge # 0076

This post of C is on provisions relating to the valuation of Supply under GST in case of related parties

Answer to MCQ 76.1:

C) Rs 1200 Per man hour

Answer to MCQ 76.2:

B) Rs 205000

Practical Analysis for MCQ 76.1 And 76.2-

• Explanation to Section 15 of CGST Act provides the meaning of related person for the purpose of valuation which are as follows-
  
  1. i) such persons are officers or directors of one another's businesses.

ii) such persons are legally recognized partners in business:

iii)such persons are employers and employee

iv) any person directly or indirectly owns, controls, or holds twenty-five percent, or more of the outstanding voting stock or shares of both of them:

v) one of them directly or indirectly controls the other:

vi) both of them are directly or indirectly controlled by a third person

vii) together they directly or indirectly control a third person; or

• As per Section 15(4), valuation in case of related persons & distinct persons shall not be transaction value & the same shall be derived as per Rule 28 which provides that the value shall be as follows

1: a) be the open market value of such supply

(b) if the open market value is not available, be the value of supply of goods or services of like kind and quality

(c) If the value is not determinable under clause (a) or (b), be the value as determined by the application of rule 30 or rule 31, in that order

• Based on the above analysis. Correct answer to MCQ 76 1: C) Rs 1200 Per man hour as the open market value
  
• Correct answer to MCQ 76.2 : B) Rs 205000(Transaction Value Incidental Expenses) as Mr. X and Ms. Stationers Ltd would not be treated as related persons merely because the son of the recipient is an employee of the supplier

(Disclaimer: The objective of the MCQ post is just to discuss the concept, it may happen, by change of facts, the answer may be different. Please do not treat this as professional opinion: you can definitely have your own opinion)

Sincere Regards

CA Sanjay Kumar Agrawal

Mobile: 9810116321 WhatsApp: 8799772245