Goods and Services Tax (GST) has transformed the indirect tax landscape in India, with significant implications for inter-branch transactions such as stock transfers. One of the key challenges businesses face is the treatment of stock transfers under GST, especially when such movements involve distinct entities or cross state boundaries.
In this article, we explore the concept of stock transfers under GST, their tax implications, compliance requirements, and provide a practical example to illustrate the process.
What is a Stock Transfer under GST?
A stock transfer refers to the movement of goods from one branch, warehouse, or unit of an organization to another, either within the same state or across different states. While there is no actual “sale” in such cases, GST law may still treat this as a taxable event depending on the circumstances.
Types of Stock Transfers and Their GST Implications
1. Intrastate Stock Transfers
- Within the Same GSTIN: If a company moves goods between locations in the same state under the same GST registration, such transfers are not considered a supply under Section 7 of the CGST Act. Therefore, no GST is payable.
- Between Distinct Persons: If the units involved have separate GST registrations within the same state, then they are considered distinct persons, and the transfer becomes taxable under GST.
Example: ABC Pvt. Ltd. has two branches in Bengaluru, both registered under different GSTINs. A stock transfer between them will attract CGST and SGST.
2. Interstate Stock Transfers
- Between Different States: Transfers between branches in different states are treated as interstate supplies and attract Integrated GST (IGST), even though the ownership of goods doesn’t change.
Legal Reference: Section 25(4) of the CGST Act treats each registered entity under the same PAN in different states as a “distinct person.”
Valuation of Stock Transfers
The valuation of such transfers is crucial, especially in the absence of a sale price.
- Primary Rule: Value of supply = Transaction value (price paid/payable).
- Alternative Methods:
- Open market value of goods.
- Cost-based valuation: Cost of production + 10% mark-up (Rule 30 of CGST Rules).
- Valuation based on similar goods (Rule 4).
This ensures that tax is calculated on a fair and reasonable basis.
Documentation Requirements
To remain GST-compliant, businesses must adhere to specific documentation rules for stock transfers:
- Tax Invoice or Delivery Challan:
- Must mention the description, HSN code, quantity, taxable value, and applicable GST.
- E-Way Bill:
- Required if the consignment value exceeds ₹50,000.
- Mandatory for both intrastate and interstate movement in many states.
Example: Interstate Stock Transfer Scenario
Let’s consider ABC Ltd., a company with registered branches in Jaipur (Rajasthan) and Mumbai (Maharashtra).
Scenario:
ABC Ltd. transfers goods worth ₹1,00,000 from Jaipur to Mumbai.
- Type of Transfer: Interstate (distinct persons under GST).
- GST Rate: 18%
- Applicable Tax: IGST of ₹18,000.
- Invoice Required: Yes.
- E-Way Bill Required: Yes (since value > ₹50,000).
Input Tax Credit (ITC):
The receiving branch in Mumbai can claim the ₹18,000 paid as input tax credit, which can be used to offset its output GST liability.
ITC Eligibility on Stock Transfers
The GST law allows the recipient branch (even though it’s part of the same company) to claim input tax credit on the GST paid during stock transfer. This ensures tax neutrality and avoids cascading.
Note: The recipient must account for the goods in its inventory and file returns accordingly.
Common Mistakes to Avoid
- Failing to treat separately registered branches as distinct persons.
- Not generating e-way bills for high-value consignments.
- Incorrect valuation of stock transfer (especially when market value is not used).
- Missing out on claiming eligible ITC.
Conclusion
Stock transfers under GST require careful treatment and documentation, especially when involving distinct persons or different states. Proper tax invoicing, valuation, and compliance with e-way bill provisions are essential for avoiding penalties and ensuring seamless operations.
With the right understanding, businesses can not only ensure compliance but also manage their working capital efficiently by optimizing input tax credit.
Read More: No GST ITC on Inputs for Mutual Fund Transactions: AAR
