It is necessary to determine the value of goods or services on which GST is levied.  There may be charges other than exact value of goods or services, which may be included or excluded in determination of the value of such goods or services for the purpose of GST.

The value of the goods or services is determined according to Section 15 of CGST Act and Section 27 to 35 of CGST Rules under Chapter IV.

As per Section 15 (1) of CGST Act, the value of goods or services is determined under two categories:

  • Supplier and Recipient are related – Value is determined as per the Rule 28 of CGST Rules
  • Supplier and Recipient are not related – Value is determined based on the transaction value which is the price actually paid or payable for the said supply of goods or services or both, when the price is the sole consideration for supply – Rule 27 to 35 (except Rule 28) of CGST Rules

Value of goods or services includes the following – Sec 15(2):

  • Any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than CGST Act, SGST Act, UGST Act and the Goods and Services Tax (Compensation to States) Act, if charged separately by the supplier
  • Any amount that the supplier is liable to pay in relation to supply but which has been incurred by the recipient and not included in the price actually paid or payable for the goods or services or both
  • Incidental expenses, including commission and packing, charged by the supplier to the recipient and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services
  • Interest, late fee, penalty for delayed payment of any consideration of any supply paid by the recipient to the supplier
  • Subsidies directly linked to the price excluding subsidies provided by the Central Government and State Governments – subsidy to be included in the value

Value of Discount – Sec 15(3)

GST is not levied on discounts when given before or at the time of supply and the same is indicated separately in the Invoice.

If the discounts are given after the supply, the same should have been included as a term in the agreement either before or at the time of supply and should be linked to relevant invoices.  Input Tax Credit as is attributable to the discount on the basis of document issued by the supplier to be reversed by the recipient.

Meaning of ‘Related Persons’

The following persons are deemed to be ‘related persons’ for the purpose of this Act:

  • Officers or directors of one another’s businesses
  • Legally recognised partners in business
  • Employer and employee
  • Any person who directly or indirectly owns, controls or holds 25% or more of the outstanding voting stock or shares of both of them
  • One of them directly or indirectly controls the other
  • Both of them are directly or indirectly controlled by a third person
  • Both of them, together, controls a third person directly or indirectly
  • Member of the same family
  • Legal persons
  • Persons who are associated in the business of one another in that one is the sole agent or sole distributor or sole concessionaire, however described, of the other

Value of goods or services where the consideration is not wholly in money – Rule 27

Where the consideration for supply of goods or services is partially paid in money and partially in exchange of goods or services, the value of supply shall be:

  • Open market value
  • If the open market value is not available, the value of supply is the sum total of consideration paid in money and further amount in money as is equivalent to the consideration not in money, if such amount is known at the time of supply
  • If the value is not determinable applying the above rules, the value shall be the value of like kind and quality of such goods or services
  • If the value is not determinable applying the above rules, the value shall be the sum total of consideration in money and further amount in money as is equivalent to consideration not in money by applying the rules 30 and 31 in that order

Example: Sale price of a car: Rs.200000, Open market value of the car: Rs.500000, Value of that kind of car: Rs.450000, Value of old car: Rs.150000, Cost of acquisition: Rs.350000

  • If the open market value is available – Value is Rs.500000 (open market value)
  • If the open market value is not available – Value is Rs.350000 (200000+150000) (sale price + value of old car)
  • If the value is not determinable as above two methods – Value is Rs.450000 (value of kind of car)
  • If the value is not determinable as above three methods – Value is Rs.385000 (350000*110%) (Cost of acquisition x 110%) (See Rule 30)

Value of goods or services between distinct or related persons other than through an agent – Rule 28

Where the supply is between distinct or related persons other than through an agent, the value of supply shall be:

  • Open market value
  • If the open market value is not available, the value shall be the value of like kind and quality of such goods or services
  • If the value is not determinable applying the above rules, value shall be determined as per the rules 30 and 31 in that order

If the goods are intended for further supply as such by the recipient, the value of such goods, at the option of the supplier, shall be 90% of the price charged for the supply of goods of like kind and quality by the recipient to his customers, not being a related person.

If the recipient is eligible to take full ITC, the value declared in the invoice shall be deemed to be the open market value of the goods or services.

Example: Open market value of the car: Rs.500000, Value of that kind of car: Rs.450000, Value of kind of car sold by the recipient to his customer: Rs.550000, Cost of Production: Rs.400000

  • If the open market value is available – Value is Rs.500000 (open market value)
  • If the open market value is not available – Value is Rs.450000 (value of kind of car)
  • If the value is not determinable as above two methods – Value is Rs.440000 (400000*110%) (Cost of production x 110%) (See Rule 30)
  • If the goods are supplied as such by the recipient to his customer – Value is Rs.495000 (90% of sale price of Rs.550000)

Value of supply of goods made or received through an agent – Rule 29

Where the supplies between principal and his agent, the value of supply shall be:

  • Open market value or at the option of the supplier, 90% of sale price charged by the recipient to his customers, other than related person, for the supply of like kind and quality goods
  • If the value is not determinable as above, value shall be determined as per the rules 30 and 31 in that order

Example: Open market value: Rs.100000, Value of kind of goods sold by the recipient to his customer: Rs.110000, Cost of purchase: Rs.85000

  • Value of goods can be either Rs.100000 or at the option of the supplier, value can be Rs.99000 (90% of Rs.110000)
  • If the value is not determinable as above – Value is Rs.93500 (110% of cost of purchase of Rs.85000)

Rule – 30

Where the value of supply of goods or services or both is not determinable as per above rules, the value shall be 110% of cost of production/acquisition of such goods or the cost of provision of such services.

Rule – 31

Where the value of supply of goods or services or both is not determinable as per rules 27 to 30, the value shall be determined using reasonable means consistent with the principles and general provisions of Section 15 of CGST Act and provision of this chapter.  In case of supply of services, the supplier may opt for this rule, ignoring Rule 30.

Value of supply of services provided by pure agent – Rule 33

Any expenditure incurred by a supplier as a pure agent of the recipient of the supply shall be excluded from the value of supply of services, if the following conditions are satisfied:

  • Such expenditure should be authorised by the recipient
  • Such expenditure should be indicated separately in the Invoice by the pure agent
  • Supplies procured by the pure agent should be in addition to the services he supplies on his own account

Pure Agent:

To be eligible to be pure agent, the following conditions should be satisfied:

  • Need contractual agreement with recipient of supply to act as pure agent and incur expenditure on behalf of the recipient
  • Holds no title to the goods or services so procured as pure agent
  • Pure agent should not use the goods or services so procured for his own interest

Rate of exchange of currency, other than Indian rupees – Rule 34

  • For goods – as per Customs Act, notified from time to time
  • For services – as per GAAP

Value of supply inclusive of GST – Rule 35

Where the value of supply is inclusive of GST, the tax amount is determined as per below calculation:

Tax Amount = (Value inclusive of tax X tax rate) / (100 + sum of taxes)

Example: MRP is Rs.110/- (i.e. value inclusive of tax), IGST rate is 18%

(110 x 18) / (100 + 18) = Rs.17 (tax amount)

Note: Valuation Rules 31A & 32 are not discussed in this article.

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