Section 15 of the CGST Act, 2017 discusses the value of taxable supply, i.e., amount on which GST is leviable. According to which, the value of a supply of goods or services or both shall be the transaction value.
Where transaction value is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply.
As the supply between related persons1 or between distinct persons2 is prima facie not fulfilling the requirements of section 15 to admit the transaction value for quantification of GST. In such cases, the value of supply will have to be determined according to Rule 28.
1Persons shall be deemed to be “related persons” if––

(i) such persons are officers or directors of one another’s businesses;
(ii) such persons are legally recognised partners in business;
(iii) such persons are employer and employee;
(iv) any person directly or indirectly owns, controls or holds twenty-five per cent. or more of the outstanding voting stock or shares of both of them;
(v) one of them directly or indirectly controls the other;
(vi) both of them are directly or indirectly controlled by a third person;
(vii) together they directly or indirectly control a third person; or
(viii) they are members of the same family;

2A person who has obtained or is required to obtain more than one registration (with same PAN), shall be treated as distinct persons for the purpose of this Act.
Rule 28 of the CGST Rules, 2017:
The value of the supply of goods or services or both between distinct persons or where the supplier and recipient are related, shall be-

(i) Open market value which is the full value in money payable by an unrelated person as its sole consideration at the same time as the supply under inquiry. For example, a trader in computers gifts one of the laptops worth Rs. 50,000 to his relative during Diwali. Since the open market value of this is available, it needs to be taken for the purpose of charging GST.

(ii) If the open market value is not available, the Value of supply of ‘like kind and quality’. For example, a Holding company provides a capital equipment whose open market value is not available to its subsidiary company which is not registered under GST. A similar capital equipment in terms of characteristics, quality, reputation etc. is available in the market at Rs. 10,00,000. This value of Rs.10,00,000 will be adopted for the purpose of valuation.

(iii) Value determined by rule 30 or rule 31. Rule 30 prescribes valuation of supplies based on costs @ flat margin of 10%, i.e., Cost+10%, whereas rule 31 advocates any reasonable valuation by the supplier where it is not possible to value the supply based on the techniques available in the Act or Rules.

However, some exceptions have also been provided in the Rule:

(i) In case where the goods are intended for further supply as such by the recipient, the value shall, at the option of the supplier, be an amount equivalent to 90% of the price charged for the supply of goods of like kind and quality by the recipient to his customer not being a related person.

(ii) Also, where the recipient, is entitled to full input tax credit, the value declared in the invoice is deemed to be Open Market Value. In other words, in a case of supply to related parties or distinct persons – the supplier is entitled to unquestioned admittance of ‘any price’ that may be charged. This provision appears to accommodate internal preferences of the parties where the tax paid is revenue neutral. For example, A is the father of B, both having a GST registered proprietary concerns of say metals. If metal is supplied by A to B, then the value of supply is to be determined according to the open market value of metals. However, if B is eligible for claiming full ITC on such metals, any price charged (even nominal- far lower than its actual price) by A will deemed to be the open market value. However, caution is advised in taking recourse of this proviso and charging a price lower than cost, it is always advisable to charge a price at least equal to the cost of product.