Rule 31D under GST: MRP-Based Valuation Explained (Effective 1 February 2026)

The GST valuation framework has witnessed a significant shift with the insertion of Rule 31D of the CGST Rules, 2017, notified vide Notification No. 20/2025 – Central Tax dated 31 December 2025, effective from 1 February 2026.

This rule introduces MRP based valuation for specified goods, overriding the conventional transaction value mechanism and addressing long-standing concerns around undervaluation and tax leakage.

1. Legal Background and Objective

Under GST, the general principle is that tax is levied on the transaction value as per Section 15 of the CGST Act, 2017. However, certain goods particularly pan masala, tobacco products, cigarettes and similar items were frequently found to be undervalued at the supply stage, leading to:

• • Suppression of output tax,
  • Excess and unjustified input tax credit (ITC) claims,
  • Revenue leakage to the exchequer.

To curb these practices, Rule 31D has been introduced with an overriding effect to ensure GST is discharged on a more reliable and transparent value base.

2. Overriding Nature of Rule 31D

Rule 31D begins with a non-obstante clause (“Notwithstanding anything contained…”), thereby overriding:

• • Section 15 of the CGST Act, 2017
  • Rules 27 to 31C of the CGST Rules, 2017

Accordingly, for specified goods, GST valuation will no longer depend on the invoice value, even if the transaction price is lower.

3. Valuation Mechanism under Rule 31D

For goods notified under Rule 31D, the value of supply shall be determined as:

Retail Sale Price (MRP/RSP) printed on the package,
(Less): the GST included in such price

GST Extraction Formula:

GST Amount=Retail Sale Price × GST Rate​/100 + GST Rate

4. Key Explanation Clauses under Rule 31D

Rule 31D contains detailed explanations to remove ambiguity:

• • Applicable Tax includes CGST, SGST, UTGST or IGST, as the case may be,
  • Retail Sale Price (RSP) means the maximum price at which goods may be sold and includes all taxes, cess, surcharge and duties,
  • Multiple MRPs on the same package: The highest MRP shall be adopted,
  • Subsequent increase in MRP: The revised higher MRP becomes the valuation base, even if increased after supply,
  • Area-wise MRPs: Valuation will be based on the MRP applicable to that specific area only.

5. Specified Goods Covered

Rule 31D applies to notified high-risk goods, including:

• • Pan masala,
  • Tobacco,
  • Cigarettes,
  • Cheroots and similar tobacco products.

6. Amendment to Rule 86B – Cash Payment Relief

General Rule

Under Rule 86B, certain registered persons are required to discharge at least 1% of output GST liability in cash, even if sufficient ITC is available.

Relaxation Introduced

For traders (non-manufacturers) dealing in goods covered under Rule 31D:

• • The 1% mandatory cash payment requirement will not apply
  • Condition: The supplier must have paid GST on MRP (RSP) basis

Since GST is already discharged on the maximum retail price at the first stage, the risk of undervaluation and ITC misuse addressed by Rule 86B does not arise.

7. Illustrative Case Study

Facts
A manufacturer supplies packaged cigars (HSN 2402) with a printed MRP of ₹1,280, but invoices the distributor at ₹900. The applicable GST rate is 28%.

Tax Treatment
Since cigars are covered under Rule 31D:

• • GST must be charged on MRP (₹1,280), not invoice value of ₹900
  • GST payable = (1,280 × 28) / 128 = ₹280
  • Taxable value (excluding GST) = ₹1,000

GST of ₹280 is payable despite the lower transaction price.

Rule 86B Impact
The distributor is not required to pay 1% GST in cash, as the supplier has already discharged GST on MRP basis.

8. Practical Impact at a Glance

Manufacturers:
MRP fixation becomes critical, as GST is payable on MRP irrespective of discounts. Systems and pricing controls may need updates.

Traders:
Relief from Rule 86B’s 1% cash payment, subject to confirmation that the supplier has discharged GST on MRP basis.

Auditors & Professionals:
Focus shifts to verification of MRP declarations, correct GST extraction, and proper documentation for Rule 86B relaxation.

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