Stock Transfers Under GST: Law, Compliance Essentials & Practical Insights

Introduction

Stock transfers—i.e., the movement of goods between different units or locations of the same organization—are an integral part of operations for businesses with multiple outlets, warehouses, or branches. This could be a central warehouse in Gurgaon dispatching goods to a Jaipur retail outlet, or one warehouse replenishing another within the same state.

While these transfers help in optimizing inventory and ensuring smooth supply chain management, GST law has a specific perspective on how such transactions are treated. Are they classified as ‘supplies’ under GST? Does tax need to be paid even if no money changes hands? What kind of documentation is required?

Under GST, the answers depend on whether the movement is between “distinct persons” and whether the locations have separate GST registrations. In this article, we break down the GST rules governing stock transfers, the legal framework, valuation requirements, documentation norms, and practical compliance strategies.

1. What Are Stock Transfers Under GST?

Interestingly, the CGST Act, 2017 does not define the term “stock transfer.” The phrase is a carryover from the pre-GST VAT regime, where goods moved between different branches or depots of the same company (without consideration) were called “branch transfers” or “stock transfers” and often qualified for tax exemptions.

However, GST is a supply-based tax system. Whether a movement of goods is taxable depends on whether the sender and recipient are considered “distinct persons” under GST.

In business practice, a stock transfer refers to the physical movement of goods from one branch, unit, or warehouse of an organization to another, whether within the same state or across state borders. The tax treatment depends entirely on the GST registration status of the locations involved.

2. The Legal Framework – Understanding ‘Distinct Persons’

The concept of “distinct persons” is pivotal in GST.

• Section 25(4) of the CGST Act states:

“A person who has obtained or is required to obtain more than one registration, whether in one State or more than one State, shall, in respect of each such registration, be treated as a distinct person.”

In simple terms, different GST registrations under the same PAN are treated as separate taxable entities.

• Schedule I, Clause 2 of the CGST Act further clarifies:

“Supply of goods or services or both between related persons or between distinct persons… shall be treated as supply even if made without consideration.”

So, if a company has GST registrations in Telangana and Karnataka, any stock movement between the two will be treated as a taxable supply, even if no payment is involved.

3. Intra-State Transfers Within the Same GSTIN

If the goods move within the same state and under the same GST registration—for example, from a warehouse in Gurgaon to a store in Faridabad—there is no supply for GST purposes.

Key compliance points:

• No tax invoice is required—issue a delivery challan instead.
• Generate an e-way bill if the consignment value exceeds Rs 50,000 (Rule 138).
• Record the transfer in stock registers for audit trail purposes.

4. Inter-State or Inter-GSTIN Transfers – Taxable Movement

When goods move between units with different GST registrations—even if they belong to the same legal entity—the movement is treated as a taxable supply.

Example: Moving goods from Gurgaon (Haryana GSTIN) to Jaipur (Rajasthan GSTIN).

Compliance requirements:

• Issue a tax invoice with applicable IGST.
• Generate an e-way bill based on the invoice value.
• Report the transaction in GSTR-1 and GSTR-3B.

5. Valuation of Stock Transfers – Rule 28 of CGST Rules

Valuation is often the trickiest part. GST must be paid on the value of supply as per Section 15 of the CGST Act, read with Rule 28 of the CGST Rules.

Rule 28 valuation hierarchy:

1. Open Market Value (OMV) – Price at which goods are sold to unrelated parties in similar circumstances.
2. Value of Like Kind and Quality – If OMV is unavailable, use the value of similar goods sold.
3. Rule 30 / Rule 31 Methods – Cost-based or residual valuation methods.

Special provisions:

• If the goods are meant for further supply as such, the supplier may value them at 90% of the recipient’s sale price to unrelated customers.
• If the recipient is eligible for full ITC, the invoice-declared value is deemed to be the OMV (second proviso to Rule 28).

Example:
A mobile phone brand sells at:

• Rs 28,000 in Gurgaon
• Rs 30,000 in Jaipur

If Gurgaon GSTIN transfers stock to Jaipur GSTIN, valuation options are:

6. Multiple Registrations in the Same State

Some companies opt for more than one GST registration within the same state—for operational or location-specific reasons. Each GSTIN is still a distinct person.

This means stock transfers between such registrations are taxable, and all valuation, invoicing, and e-way bill rules apply.

7. Input Tax Credit (ITC) at Recipient Branch

The receiving branch can claim ITC on the GST charged in the transfer invoice, provided conditions under Section 16 of the CGST Act are satisfied (e.g., goods received, tax paid, invoice available, returns filed).

8. Common Errors & Compliance Tips

Mistakes to avoid:

• Treating taxable inter-GSTIN transfers as non-taxable.
• Failing to raise a tax invoice or e-way bill.
• Ignoring valuation rules and using arbitrary values.
• Missing reporting in GST returns.

Best practices:

• Maintain clear documentation—separate challans and invoices.
• Reconcile physical stock transfers with GST returns regularly.
• Keep valuation consistent and justified with proper records.
• Train branch staff on e-way bill compliance.

9. Compliance Best Practices

• Maintain separate documentation for taxable & non-taxable transfers.
• Reconcile stock movement with GST returns periodically.
• Conduct internal audits for valuation accuracy.

Conclusion

While “stock transfer” may have been a routine procedural concept in the VAT era, GST redefines it in the context of supplies between distinct persons. Businesses with multiple locations or registrations must distinguish between intra-GSTIN movements (non-taxable) and inter-GSTIN movements (taxable).

Understanding Sections 7, 15, and 25 of the CGST Act along with Rules 28, 55, and 138 is key to ensuring compliance. Accurate valuation, proper invoicing, and timely e-way bill generation not only keep you compliant but also safeguard the input tax credit chain.

Proactive compliance ensures smooth inventory flow and minimizes the risk of disputes or penalties

Advocate Satish Pandey (Allahabad High Court)

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