Branch transfers—moving goods or services between different offices,
godowns, or units of the same business—are a routine operational activity.
Under earlier tax regimes, transferring stock internally without a sale usually
did not attract tax. However, under the Central Goods and Services Tax
(CGST) Act, 2017, branch transfers can be classified as a taxable supply
even when no money changes hands.
1. When Does a Branch Transfer Become a Taxable
"Supply"?
Under general GST principles, a transaction requires consideration
(payment) to qualify as a supply. However, Section 7(1)(c) of the CGST
Act introduces an exception by stating that activities specified in Schedule
I are treated as supplies even if made without consideration.
Specifically, Schedule I (Para 2) classifies the supply of goods
or services between distinct person (or related person) as a supply when
carried out in the course or furtherance of business. Therefore, transferring
goods or services between branches that qualify as distinct persons is legally
a supply subject to GST.
2. Who Qualifies as "Distinct Persons"?
To determine whether a branch transfer attracts GST, it is essential to
understand who qualifies as a distinct person under the law:
- Multiple Registrations (Section 25(4)): A
person who has obtained or is required to obtain more than one
registration—whether in the same State/Union Territory or across different
States/Union Territories—is treated as distinct person in respect of
each such registration.
- Establishments in Different States (Section 25(5)): Where a person has an establishment in one State/Union Territory and
another establishment in a different State/Union Territory, these
establishments are treated as establishments of distinct person.
- Separate Registrations in the Same State (Section 25(2)): A person with multiple places of business within a single State or
Union Territory may choose to obtain a separate registration for each
place of business.
Key Distinction: Inter-State vs. Intra-State Transfers
- Inter-State Branch Transfers:
Branches located in different States or Union Territories are treated as
establishments of distinct persons. Consequently, any transfer of goods or
services between them is a taxable supply under Schedule I, regardless of
whether consideration is paid.
- Intra-State Branch Transfers: If two
branches in the same State operate under a single GST registration, they
share one GSTIN and are not distinct persons under Section 25(4) or 25(5).
Transfers between them without consideration are not treated as a supply.
However, if the business opts for separate GST registrations for
branches within the same State under Section 25(2), those branches become
distinct persons, and transfers between them will attract GST.
3. GST Registration Requirements
- Turnover Thresholds (Section
22(1)): Suppliers are generally required to obtain
registration in every State or Union Territory from where they make
taxable supplies if their aggregate turnover in a financial year exceeds
₹20 lakh. (This threshold is ₹10 lakh for certain special categories of
States, though it can be enhanced up to ₹20 lakh upon request, and up to
₹40 lakh for suppliers engaged exclusively in the supply of goods).
- Compulsory Registration
(Section 24(i)): Regardless of turnover, Section
24(i) mandates compulsory registration for any person making inter-State
taxable supplies.
4. Valuation of Branch Transfers
For regular sales to independent customers, GST is levied on the transaction
value (the price actually paid or payable) under Section 15(1).
However, because branch transfers between distinct persons occur without a
price or between distinct entities, the standard transaction value under
Section 15(1) cannot be directly applied. In such cases, Section 15(4)
specifies that the value of the supply must be determined in the manner
prescribed by rules.
5. Invoicing and Transit Documentation
To ensure full tax compliance during a branch transfer:
- Tax Invoice (Section 31(1)): A registered person supplying taxable goods must issue a tax
invoice showing the description, quantity, value, and tax charged,
before or at the time of removal of goods when the supply involves
movement.
- Inspection of Goods in Movement
(Section 68(1)): The person in charge of a
conveyance carrying a consignment of goods exceeding a specified value
must carry prescribed documents and devices (such as an e-way bill) during
transit.
6. Flow of Input Tax Credit (ITC)
Paying GST on branch transfers does not result in an absolute tax cost
for the business. Under Section 16(1), the receiving branch—being a
registered person—is entitled to claim Input Tax Credit (ITC) for the
input tax charged on the supply, provided the goods or services are used or
intended to be used in the course or furtherance of its business. This
mechanism ensures that tax credits flow smoothly across the enterprise without
cascading.
Summary Checklist for Business Compliance
1.
Verify Registration Status: Check whether the receiving branch has a separate GSTIN or is in
another State.
2.
Determine Taxability: If transferring between distinct persons, treat the transfer as a
taxable supply.
3.
Issue Proper Documentation: Raise a tax invoice at removal and carry required transport
documentation during transit.
4.
Determine Valuation: Calculate taxable value in accordance with prescribed valuation
provisions.
5.
Avail Input Credit: Ensure the receiving branch claims Input Tax Credit to offset output
liabilities.