Under Section 15 of the CGST Act, the taxable value for GST purposes is generally the transaction value — the price actually paid or payable. But Section 15(4) carves out an exception: where the transaction is between related parties or the value is not a reliable indicator of the open market price, the government can prescribe special valuation rules. Rule 28 of the CGST Valuation Rules is that special rule — and it mandates that supplies between related persons be valued at Open Market Value (OMV), not transaction price.
Rule 28, CGST Valuation Rules — Related Party Transactions
The value of the supply of goods or services or both between distinct persons as specified in sub-section (4) and (5) of section 25 or where supplier and recipient are related, shall be the open market value of such supply. If the open market value is not available, value shall be determined in the same series as for unrelated persons.
Statutory Reference
The practical trigger: any transaction between a holding company and subsidiary, between sister subsidiaries under a common parent, between a company and its director/partner (if the director is a "related person" under GST law Section 2(83)), or between a company and its 100% associate is a related-party transaction for GST purpose. If your company supplies goods or services to your subsidiary at cost (or below cost, or at zero for shared services), the AO can challenge the valuation and compute GST on the Open Market Value — which could be substantially higher.
Related-Party Valuation Risk Scenarios
Intra-Group IT/Shared Services
Parent company provides IT infrastructure to subsidiaries at cost allocation. AO argues: OMV includes a profit margin — what would an unrelated vendor charge? Demand computed on cost + 15–20% markup.
Intercompany Loans Used as Supply Proxy
Company leases property to a related entity at below-market rent. Even if no GST arises on the loan itself, the rental income for GST is OMV — the GST AO can assess based on comparable market rents.
Stock Transfer Between GSTINs
Branch-level stock transfers within the same entity but between GSTINs (distinct persons under Section 25) are supplies under GST. If transferred at cost, OMV must be demonstrated — either at cost (if goods are sold at cost, OMV = cost is defensible) or with a valuation certificate.
The most expensive valuation disputes arise where a company convinces itself that "they won't look at intra-group transactions." They do — because GSTN cross-matching now identifies common directorships and group company filings in the same sector.
— Sami Tax GST Advisory, March 2024
Related-Party GST Valuation Policy
- Map every intra-group supply (goods, services, assets, IP licences) and document the pricing rationale vs.
- OMV.
- For shared services: maintain a cost-allocation methodology that can be presented as equivalent to arm's length pricing.
- For brand royalties or IP licences between group entities: obtain a valuation from a SEBI-registered valuer who can certify the licence fee as OMV — this is producible to the AO.
- If your group has multiple GSTINs receiving stock transfers, ensure each transfer is invoiced at a documented OMV basis (at minimum a written internal policy).
- Where your inter-company pricing is below OMV by design (e.g., for manufacturing efficiency reasons): build a legal position paper before the audit arrives, not after.
- Sami Tax assists group companies in building GST Valuation Policies as a standalone advisory — particularly for manufacturing groups with complex intra-group flows.