A. Siva, Superintendent of Central Tax, Tuticorin


The “cobra effect” is a term in economics which refers to a situation when an attempted solution to a problem makes the problem worse. Such effect happens in GST laws too when clarification for interpretation is also mis-understood. In this article, I wish to discuss one such effect when the Government issued a circular to clarify the ambiguity prevailed in determination of value of supply viz. whether FOB value or Invoice value has to be adopted as value of supply in case of Export of goods under GST regime.

Trade Practice:

At the outset, it is of paramount importance to understand the practice being followed by the Trade before getting in to legal aspects. Export/ Import sales are done in international market as per INCOTERMS which lay down internationally accepted forms of transactions such as FOB, C&F, CIF etc.

FOB- Free on Board i.e. value of goods at the time of Board.

CIF- Cost, Insurance & Freight i.e. value of goods at the time of delivery to recipient’s port – which includes the cost of transportation and insurance.

Different exporters adopt different transactions as per the agreements entered into between the exporters and their customers, and raise invoice for the amount of agreed transaction. In case of CIF contracts, the exporters incur the expenses of freight and insurance, and raise a single invoice on their customers (single consideration). The responsibility to pay the freight and insurance rests with the exporter. In turn the recipient of goods pays the amount mentioned in the invoice raised by the exporter. As far as the recipient is concerned, he is least bothered about the cost of freight and insurance, instead he pays a single consideration to his supplier (exporter).

Law governing determination of Export value:

During pre GST regime, there exist two separate statutes, viz., Central Excise Act, 1944 and the Finance Act, 1994 (for service tax matters), for determination of value of goods and that of services respectively. However, GST being a tax levied on combination of both viz. Goods and / or Services, valuation under GST law stands accordingly.

There is a specific section provided in GST law to determine the value of supply. Section 15 of CGST Act, 2017 which is made applicable to IGST Act too vide section 20 of IGST Act,2017 , provides valuation under GST. The relevant extracts are re-produced below.

“15(1) value of a supply of goods or services or both shall be the transaction value, which 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.

(2) The value of supply shall include–––

(a) any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than this Act, the State Goods and Services Tax Act, the Union Territory Goods and Services Tax Act and the Goods and Services Tax (Compensation to States) Act, if charged separately by the supplier;

(b) any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods or services or both;

(c) incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply 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;

(d) interest or late fee or penalty for delayed payment of any consideration for any supply; and

(e) subsidies directly linked to the price excluding subsidies provided by the Central Government and State Governments.”

From reading of the above provisions, it makes amply clear that value of supply of goods or services is the transaction value. And what is transaction value is clearly penned down in the statue itself. It can be deduced, from the above, that in case of export of goods under CIF contracts, the actual price paid by the recipient to the supplier (exporter) for the said supply is the transaction value which is in turn considered as the value of supply. In CIF contracts the recipient pays the price mentioned in the invoice- including freight and insurance- to his exporter supplier for the supply of goods.

Since exports and imports are considered as inter-state supplies in terms of section 7 of IGST Act 2017, the valuation thereto has to be strictly arrived under the provisions of GST law only.

Clarifications issued by the Department:

There were different apprehensions among the traders with regard to under which law valuation for export of goods has to be done viz. whether under GST Act or under Customs Act. Understanding this, the CBIC issued a circular No.37/11/2018-GST dated 15.03.2018 which clarifies that valuation has to be strictly followed under GST Act only. The relevant extracts of the circular are as follows.

“9. Discrepancy between values of GST invoice and shipping bill/bill of export: It has been brought to the notice of the Board that in certain cases, where the refund of unutilized input tax credit on account of export of goods is claimed and the value declared in the tax invoice is different from the export value declared in the corresponding shipping bill under the Customs Act, refund claims are not being processed. The matter has been examined and it is clarified that the zero rated supply of goods is effected under the provisions of the GST laws. An exporter, at the time of supply of goods declares that the goods are for export and the same is done under an invoice issued under rule 46 of the CGST Rules. The value recorded in the GST invoice should normally be the transaction value as determined under section 15 of the CGST Act read with the rules made thereunder. The same transaction value should normally be recorded in the corresponding shipping bill / bill of export.

9.1 During the processing of the refund claim, the value of the goods declared in the GST invoice and the value in the corresponding shipping bill / bill of export should be examined and the lower of the two values should be sanctioned as refund.

The above circular reiterates that zero-rated supplies (export of goods or services) are effected under GST laws and thereby value of supply shall be the invoice value (transaction value). The above circular is often misunderstood as the “value in the corresponding shipping bill” refers to “FOB value”. The above conundrum is better understood if one pays close attention to nature of contracts and shipping bills.

In shipping bill, there are two values need to be declared by the exporter i.e 1. FOB and 2. Invoice Value. The exporter needs to declare the value of goods at the time of export in FOB column and the actual transaction value (the amount which is actually going to be received from his customer) in “Invoice Value” column. In some instances, exporter raises invoices in advance and exports the goods at a later period. In such cases, value declared in invoice and the invoice value mentioned in the shipping bill may vary due to change in exchange rate. In such cases, for the purpose of refund, lower of the value i.e. value mentioned in the GST invoice and invoice value mentioned in the shipping bill shall be taken in to account. In any case, FOB value shall not be taken as value of supply in respect of CIF contracts. The content of the circular is tabulated below to understand the value of exported goods under CIF contracts.

Value as per GST Invoice Invoice value recorded in Shipping Bill FOB value recorded in Shipping Bill Export value as clarified in the Circular Reason
100 90 80 90 B is lower than A
90 100 80 90 A is lower than B
100 100 90 100 A or B as both are same

FAQ issued by the Delhi Customs:

After roll out of GST law w.e.f. 1st July 2017, the department has come out with many FAQs as a ready reference to help the trade to comply with GST laws. Though FAQs are not legally binding on anyone, normally it can be considered as an inference to interpret/understand the law. The Delhi Customs has issued FAQ on IGST refund on goods exported out of India. In answer to Question No. 16 of the said FAQ, the following reference has been made.

“After the implementation of GST, it was explained in the advisories that the details an exporter is required to enter in the “invoice” column while filing the SB pertains to the invoice issued by him compliant to GST Invoice Rules. The invoice number shall be matched with GSTN to validate exports and IGST payment. It was conveyed and reiterated that there should not be any difference between commercial invoice and GST invoice after implementation of GST since as per the GST law, IGST is to be paid on the actual transaction value of the supply between the exporter and the consignee, which should be the same as the one declared in the commercial invoice.”


To sum it up, as far as GST law is concerned, valuation of a supply, both DTA sales (supply within India) and Export of goods, is governed under section 15 of the CGST Act, 2017 only. In other words, there is no separate legal provision for valuation with regard to export of goods. As per clause (c) of section 15(2) of CGST Act, 2017 incidental expenses before delivery of goods shall form part of value of such supply. In cases of CIF contracts, under INCOTERMS, freight and insurance are incidental expenses in respect of supply of goods -before delivery. Therefore, export of goods under CIF contracts, value of supply is the transaction value which represents the value mentioned in the invoice, which includes freight & insurance, raised by exporter to his customer.

Further, the intention of the Board is to clarify that the export value shall be the lower of the two values, viz., invoice value mentioned in GST invoice and the invoice value mentioned in Shipping Bills.

Happy Learning!!!

(DISCLAIMER: The views expressed in this article are of author’s personal views only)

Author Bio

Name: A SIVA
Qualification: Other
Company: Central Board of Indirect Taxes and Customs
Location: TUTICORIN, Tamil Nadu, IN
Member Since: 07 Jul 2017 | Total Posts: 1

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January 2021