Rule 28 Valuation: The 90% Rule and the "Any Value" Proviso

Rule 28 Valuation explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

Rule 28 sets out a careful four-step hierarchy for valuing supplies between branches — and then two provisos allow most FMCG companies to skip it entirely. The second proviso is the single most useful valuation provision in the sector, and it fails in exactly one situation.

Rule 28(1) values supplies between distinct persons under section 25(4) and (5) or between related persons at (a) open market value; (b) failing that, the value of goods or services of like kind and quality; (c) failing both, rule 30 or rule 31, in that order. The first proviso allows, at the supplier's option, 90% of the price charged by the recipient to an unrelated customer where the goods are for further supply as such. The second proviso provides that where the recipient is eligible for full input tax credit, "the value declared in the invoice shall be deemed to be the open market value."

The hierarchy, and what each step means

Step 1 — Open market value. The Explanation to rule 35 defines it as "the full value in money payable by an unrelated person where the supplier and recipient are not related and price is the sole consideration."

In FMCG, OMV is usually findable, from the price charged to "independent distributors, wholesalers, modern trade chains, e-commerce channels" or from "price lists applicable to unrelated buyers". The Guide's illustration: a Maharashtra factory transfers shampoo to a Delhi depot while selling the same shampoo to unrelated distributors at ₹100 per unit — OMV is ₹100.

Step 2 — Like kind and quality. Used for a newly launched product with no external sales yet: "the company may use the price of comparable cosmetic products having similar characteristics, quality, ingredients and market positioning."

Step 3 — Rule 30, the cost method. "Value = 110 per cent of cost of production / manufacture / acquisition." A toothpaste costing ₹50 to make is valued at ₹55.

Step 4 — Rule 31, residual. "reasonable means consistent with GST valuation principles", "generally used only in exceptional circumstances."

The first proviso: 90% of the onward price

Where goods are supplied to a distinct or related person, the recipient intends to further supply them "as such", and the recipient sells to an unrelated customer, the supplier may value the transfer at 90% of the recipient's onward price.

The Guide's illustration: a factory transfers toothpaste to a depot; the depot sells the same goods to a distributor at ₹100; the factory may value the transfer at ₹100 × 90% = ₹90.

When it is available:

• the depot sells without further processing;
• the goods are supplied "as such";
• the subsequent sale is to an unrelated customer.

When it is not:

• the goods are repacked;
• the goods are relabelled;
• the goods are manufactured further;
• the goods are not sold "as such".

Relabelling is the one that catches FMCG companies out. A depot that applies a State-specific MRP sticker or a promotional flash has arguably not supplied the goods "as such", and the proviso becomes unavailable.

Note also that the proviso is optional — "at the option of the supplier" — so it is a floor available to the taxpayer, not a valuation the department can insist upon.

The second proviso: whatever the invoice says

"where the recipient is eligible for full input tax credit, the value declared in the invoice shall be deemed to be the open market value of the goods or services."

The Guide's illustration is deliberately extreme. A Delhi factory transfers goods to a Mumbai depot of the same PAN. Invoice value ₹50. OMV ₹100. The Mumbai depot is eligible for full ITC. "Hence, in terms of Second Proviso, ₹50 itself shall be deemed to be OMV. No requirement to adopt ₹100."

The logic is revenue neutrality. Whatever the transferor charges, the transferee credits — so the value chosen affects only the timing and the location of the credit, not the ultimate tax. The provision removes an argument that produces no revenue.

Which proviso to use, in the Guide's own matrix:

The one situation where the second proviso breaks

"If the receiving branch or unit is not eligible for full ITC, the Second Proviso breaks down." The Guide names three cases:

• the receiving unit engages in exempt supplies — "certain unbranded or raw agricultural food products";
• it is subject to common credit reversals under rule 42 or 43;
• it uses the goods for blocked credit items under section 17(5) — "e.g., promotional free sampling".

And then the whole hierarchy revives: "the company must strictly back up its valuation using actual OMV, goods of like kind and quality, or resort to the 110 per cent cost of production rule (Rule 30). Accurate cost-accounting data becomes highly critical here to survive Departmental audits."

The third case is the underappreciated one. A depot that receives stock partly for free-sample distribution has a section 17(5)(h) block on that portion, so it is not eligible for full ITC — and the branch that was comfortably invoicing at cost suddenly needs an OMV defence.

Read this alongside the rule 42 exposure it creates. A unit with any exempt turnover is doubly affected: it reverses common credit, and it loses the second proviso on everything transferred in.

Who is a "related person"

The Explanation to section 15 deems persons related where:

• they are officers or directors of one another's businesses;
• they are legally recognised partners;
• they are employer and employee;
• one directly or indirectly controls the other;
• both are controlled by a third person;
• together they directly or indirectly control another person;
• they are members of the same family;
• any person directly or indirectly owns, controls or holds 25% or more of the outstanding voting stock or shares of both of them.

In FMCG groups this reaches widely — "supplies between parent companies, subsidiaries, group companies and controlled entities". Note the last limb in particular: a common 25% shareholder makes two otherwise unconnected companies related, and rule 28 then governs supplies between them.

What section 15 adds to the value regardless

Section 15(2) requires the value to include:

• taxes, duties and fees under any law other than GST, if charged separately;
• any amount the supplier is liable to pay but the recipient has incurred;
• incidental expenses, including commission and packing charged by the supplier;
• interest, late fees or penalties for delayed payment of consideration;
• subsidies directly linked to the price, excluding Central and State Government subsidies.

The subsidy limb has a clean dividing line. Government subsidies are excluded even if price-linked; "subsidies from third parties (e.g., trade associations, private bodies) that are directly linked to price form part of the taxable value."

And the incidental-expenses limb catches recoveries FMCG companies bill separately — "freight/transportation costs, special promotional repacking charges, or secondary handling fees" recovered from distributors are bundled into the taxable value. Freight and insurance as part of the supply →

Key takeaways

• Rule 28 applies to supplies between distinct persons (s.25(4) and (5)) and related persons, other than through an agent.
• The hierarchy is OMV → like kind and quality → rule 30 (110% of cost) → rule 31.
• The first proviso permits 90% of the recipient's onward price, but only where goods are supplied "as such" — repacking or relabelling defeats it.
• The second proviso deems the invoice value to be OMV wherever the recipient is eligible for full ITC.
• The second proviso fails where the receiving unit makes exempt supplies, faces rule 42/43 reversal, or uses the goods for blocked credits such as free samples.
• "Related person" under the Explanation to section 15 includes any pair with a common 25% shareholder.
• Section 15(2) adds incidental expenses, non-GST taxes, delayed-payment interest and non-Government price-linked subsidies to the value.

Read next

• Schedule I Entry 2: Stock Transfers in the FMCG Supply Chain
• Rule 31D: Retail Sale Price Valuation for Pan Masala and Tobacco
• ISD Mandatory From 1 April 2025, Against Cross Charge

Disclaimer: Positions stated as on 5 September 2026, based on section 15 and section 25 of the CGST Act, 2017 and rules 27 to 35 of the CGST Rules, 2017, as reproduced in the ICAI GST Sectoral Guide on Fast-Moving Consumer Goods (July 2026, updated with Finance Act, 2026 amendments).