Page Contents
- Meaning and Scope of Supply
- I. Introduction
- III Supply – Model GST Law
- IV. Types of Supply
- V. Treatment of certain transactions as supply of goods or as supply of services
- Time of Supply
- I.Introduction
- II.General principles for goods
- III. Time of supply of goods
- Valuation of Supply
- I. Introduction
- II. Value of a taxable supply
- III. Discounts
- IV. GST Valuation Rules (i) General provisions
- Education Series on Goods & Service Tax
Meaning and Scope of Supply
I. Introduction
Article 366(12A) of the proposed 122nd Constitutional Amendment Bill, 2014 defines the Goods and Services tax (GST) as a tax on supply of goods or services or both, except supply of alcoholic liquor for human consumption. While Article 246A provide simultaneous powers to both the Central and State governments to levy the goods and services tax on intra-state supply, the Parliament alone shall have exclusive power to make laws with respect to levy of goods and services tax on inter-state supply. Article 269A empowers the Parliament to formulate the principles for determining the place of supply and when a supply of goods/services takes place in the course of inter-state trade or commerce. The term ‘supply’ is, however, not defined in the Constitution.
2. The concept of ‘supply’ is the key stone of the proposed GST architecture. GST is a multi-stage tax levied on supply of goods and / or services, collected at each stage of the production and distribution, in proportion to the value added by each taxable person in the chain of supply. In the GST regime, the entire value of supply of goods and / or services is proposed to be taxed in an integrated manner, unlike the existing indirect taxes, which are charged independently either on the manufacture or sale of goods, or on the provisions of services. This paper explains the meaning and scope of supply, the various types of supply, the time when the GST is chargeable (time of supply), and the valuation of supply as provided in the Model GST Law.
II. Supply – Meaning
3.1. In general, supply for GST purposes covers all forms of supply where goods and/or services are supplied in return for a consideration. Any transaction involving supply of goods and/or services without consideration is not a supply unless it is deemed to be a supply under law. Drawing upon the international experience, the following criteria have been identified to distinguish a transaction as supply on which GST is levied;
(i) supply of goods and / or services
(ii) supply is for a consideration
(iii) supply is made in the course or furtherance of business
(iv) supply is made in the taxable territory
(v) supply is a taxable supply, and
(vi) supply is by a taxable person.
3.2. Under certain circumstances, there can be a supply under GST even when one or more of the above criteria are not satisfied. For instance, in free of charge supply, there could be no consideration or a supply may not be in the course or furtherance of business. Such transactions could be deemed by law to be a supply for GST purposes. There may also be instances where a transaction is kept out of GST despite the existence of the above criteria e.g. services rendered by an employee to his employer in the course of employment, transfer of business as a going concern.
(i). Supply of goods and/or services;
4.1. As GST is levied on supply of goods and/or services, classification of a transaction as a supply of goods or supply of services becomes essential. A single transaction may consist of different elements of supplies that may be taxed at different rates – a portion that is taxed at standard rate and another at lower rate, or the time and place of supply provisions may apply differently for different elements of such supply. Therefore, it becomes necessary to understand what constitutes a supply of goods or supply of services.
4.2. Supply of goods is not defined in the Model GST Law. Generally, supply of goods mean the transfer of the right to dispose of the goods as owner. Ordinarily, this would mean the transfer of both title and possession ofthe goods. Transfer of goods may be effected in any of the following manner:
- Transfer of title as well as possession – In a simple sale, title as well as possession is transferred such as over the counter sale of a drug or a readymade garment;
- Transfer of possession but not title -sale on approval basis or hire purchase;
- Possession of goods is transferred but title is retained – when goods are let out on hire or lease, the transaction will be treated as supply of service.
Transfer of title to the goods may be effected with immediate effect or at a future date. Instances of immediate transfer of title include, a contract of sale, exchange or barter etc. Instances of future sale include hire purchase contract, an agreement for the sale of goods where the seller retains ownership until the goods are fully paid for, or sometimes until everything owed by the customer has been paid, conditional sale, supply on approval basis etc.
4.3. Supply of service is not specifically defined in the Model GST Law.
Internationally, supply of services is defined as any supply that is not a supply of goods. A supply of service is said to be made when a person does something, or agrees to do something for a consideration. A supply of service is also said to be made when a person agrees to refrain from doing something or gives up a right for consideration which also includes grant, assignment or surrender of any right. In some situations, supply involving goods may be treated as the service. Lease/hire of goods/immovable property,
transfer/sale of undivided share in title of goods, temporary application of business assets for non-business use are treated as supply of services.
(ii). Supply for a consideration;
5.1. One of the essential conditions for the supply of goods and/or services to fall within the ambit of GST is that a supply is made for a consideration. For GST purposes, consideration does not refer only to money. It covers anything which might be possibly done, given or made in exchange for something else. For example, it might be something exchanged in a barter arrangement, such as in a part exchange, or where a service is performed in return for another service or it may simply be a condition imposed upon the making of the supply. A consideration may be monetary, non-monetary or a combination of both but it must be capable of being expressed in monetary terms. There must be a direct link between the supply and the consideration. In order to qualify as consideration for a supply, there must be at least two parties. A direct link is established between the supply made and the consideration given. A consideration need not always flow from the recipient of the supply. It could be made by a third person. Consideration refers to ‘reciprocal performance’ capable of being expressed in monetary terms.
5.2. The Model GST Law defines consideration in relation to the supply of goods and/or services to any person to include (a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods and/or services, whether by the said person or by any other person; (b) the monetary value of any act or forbearance, whether or not voluntary, in respect of, in response to, or for the inducement of, the supply of goods and/or services, whether by the said person or by any other person. However, a deposit whether refundable or not, given in respect of the supply of goods and/or services shall not be considered as payment made for the supply unless the supplier applies the deposit as consideration for the supply.
5.3. Certain transactions made without considerations (free supply of goods and services) are deemed to be supply for GST purposes. For example, the permanent transfer /disposal of business assets, temporary application of business assets to a private or non-business needs, services put to a private or non-business use, self-supply of goods or services, assets retained after de-registration and a supply made by the same PAN based entity across different States without consideration (stock/branch transfer) shall be deemed to be taxable supplies, though no consideration may be involved.
(iii) Supply made in the course or furtherance of business;
6.1. A transaction made in the course or furtherance of business, alone will be treated as a supply under GST. As the objective of GST is to tax the value addition, it would not be appropriate to tax, for instance, the sale of a car by an individual who is not in the business of supplying cars. Such transaction may otherwise be treated as a supply if the concept of business is not brought in. There is no exhaustive definition or test for determining whether an activity is in the course or furtherance of business. Internationally, the business test has emerged through judicial decisions. Generally, whether an activity carried by a taxable person constitutes a business or not is determined by considering the whole of the activities carried on by him. If these activities are predominately concerned with the making of taxable supplies to customers for a consideration, it has to be held that the taxable person is in the business of making taxable supplies, and the taxable supplies which he makes are supplies made in the course of carrying on that business, especially if the supplies are of a kind which are made commercially by those who seek to profit from them.
6.2. However, there is no presumption that activities carried on by a taxable person cannot be business if the profit motive is absent. GST is not a tax on profit or income but on taxable supplies by taxable persons. Whether an activity is in the course of business or not is dependent on the business test. This test ensures that occasional supplies, even if made for consideration, will not be subjected to GST. For example, when a household makes a one-time sale of some paintings, if it is not in the business of selling paintings, the sale will not be a supply for GST purposes. However, a painter who sells his paintings on regular basis, even infrequently, will be liable to pay GST since he is in the business of selling paintings. The ‘business test’ requires examination of the following;
1. Is the activity, a serious undertaking earnestly pursued?
2. Is the activity is pursued with reasonable or recognisable continuity?
3. Is the activity conducted in a regular manner based on sound and recognised business principles?
4. Is the activity predominantly concerned with the making of taxable supply for consideration/profit motive?
6.3. Section 2(17) of the Model GST Law defines ‘business’ to include (a) any trade, commerce, manufacture, profession, vocation or any other similar activity, whether or not it is for a pecuniary benefit; (b) any transaction in connection with or incidental or ancillary to (a) above; (c) any transaction in the nature of (a) above, whether or not there is volume, frequency, continuity or regularity of such transaction; (d) supply or acquisition of goods including capital assets and services in connection with commencement or closure of business; (e) provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members, as the case may be; (f) admission, for a consideration, of persons to any premises; and (g) services supplied by a person as the holder of an office which has been accepted by him in the course or furtherance of his trade, profession or vocation;
Certain supplies listed under Schedule I of the Model GST Law which are made not in the course or furtherance of business are deemed as taxable supply.
(iv) Supply made in the taxable territory;
7. GST being a destination based consumption tax, the GST law must define the jurisdictional limit of the tax under which a transaction is proposed to be taxed. Under this principle, imports are taxed and exports are zero rated. Importation of services are taxed under the reverse charge mechanism at the hands of the recipient of the supplier. To zero rate exports, the exports are treated as taxable supply made within the country to enable an exporter to claim the input tax credit. Place of supply determines whether a supply is made within or outside the country/within or outside the state. The scope of supplies in India, whether intra or inter-State supplies are determined by the place of supply provisions. As place of supply for importof goods will not be India, GST on imports is proposed to be levied through a specific provision in the Customs Act.
(v) Supply – a taxable supply;
8. Taxable supply means supply of goods and/or services that are subjected to GST. Supplies which are exempt or subjected to NIL rate of tax will not be treated as taxable supply. In the GST regime, exemptions may be provided to the specified goods or services or to a specified category of persons / entities making supply and such supplies may be treated as out of scope of GST supply. For the purpose of GST, zero rated supplies will not be treated as exempted supplies.
(vi) Supply – by a taxable person;
9. For GST purposes, supply is reckoned only in the context of a taxable person. A taxable person is defined in the Model GST Law to mean a person who carries on any business at any place in India/State who is registered or required to be registered under Schedule III. Such taxable person includes a public authority, a department of central or state government subject to specified exclusions. Person whose aggregate turnover during a year is below the prescribed threshold or persons making only exempted supplies may not be considered as a taxable person; however persons making interstate supplies, persons liable to pay tax under reverse charge are required to obtain registration irrespective of their turnover.
III Supply – Model GST Law
10. The Model GST Law defines ‘supply’ to include, (a) all forms of supply of goods and / or services such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business, (b) importation of service, whether or not for a consideration and whether or not in the course or furtherance of business, and (c) a supply specified in Schedule I, made or agreed to be made without a consideration. Schedule II of the Model GST Law classify specified transactions as supply of goods or supply of services. Where a person acting as an agent for consideration, either supplies or receives any goods and/or services on behalf of any principal, the transaction between such principal and the agent shall be deemed to be a supply. Supply of any branded service by an aggregator under a brand name or trade name is deemed to be a supply of service by the aggregator. The Model GST Law also empowers the Central or State government to specify the transactions that are to be treated as (i) a supply of goods and not as a supply of services; or (ii) a supply of services and not as a supply of goods; or (iii) neither a supply of goods nor a supply of services.
IV. Types of Supply
(i). Taxable supply
11.1 Taxable supply refers to a supply of goods and/or services which is chargeable to tax under the GST Act. Supplies which are exempt or subject to NIL rate of tax will not be treated as taxable supplies. However, exempt supplies shall be included for the purpose of computing the aggregate turnover to determine the threshold / composition limits.
(ii). Exempt supply
11.2. Exempt supply means supply of any goods and/or services which are not taxable under the GST Act and includes such supply of goods/or services which are specified in the Schedule to the Act or which may be exempt from payment of tax under Sec. 10 of the Model GST Law.Under Section 10 of the Model GST Law, a supply may be exempt generally either absolutely or subject to such conditions as may be specified in a notification issued by the appropriate government. Further, where an exemption in respect of any goods and/or services from the whole of the tax leviable thereon has been granted absolutely, the taxable person providing such goods and/or services shall not be eligible pay tax on such goods and/or services.
(iii). Zero-rated supply
11.3. Zero rated supply is a supply of any goods and/or services on which no tax is payable but credit of the input tax related to that supply is admissible. Exports shall be treated as zero-rated supply. Zero rated supplies will be treated as taxable supply.
(iv). Composite / Mixed supply
11.4. Section 2(27) of the Model GST Law defines composite supply to mean a supply consisting of two or more goods, two or more services or a combination of goods and services provided in the course or furtherance of business, whether or not the same can be segregated. Many transactions that fall within the scope of GST may consist of more than one element. These elements may be a mix of goods, or services, or both. Sometimes these elements, if supplied separately, may have different GST liabilities depending upon the rates, applicability of time of supply and place of supply provisions. To avoid disputes about whether the supplier is making a single supply with one liability, or multiple supplies with different liabilities, it has to be determined whether the supply is one of goods, or of services, or it is a supply constituted of both goods and services (composite supplies).
11.5. To determine whether a particular supply consists of various elements to be treated as a single supply or as multiple supplies, one has to first identify the essential features of the transaction which involves, ascertaining what the recipient has received. If a component of the supply is to be treated separately from the overall supply of which it is a part, it should be distinct and independent and should amount to more than merely a component of the overall supply. For instance, when a car is given for servicing, as a part of the service, engine oil may be replaced. The supply of the oil cannot be considered as distinct or independent in the context of the overall service required by the recipient. It is also necessary to ascertain whether each supply shall be properly regarded as a principle supply or some of them are merely ancillary to principle supply.
11.6. The Model GST Law contains specific provisions [sub-Section (3) Section 3] empowering the Central or a State government to specify, by notification, on the recommendations of the GST Council, whether a transaction involving composite supply will be treated as a supply of goods and not a supply of service or a supply of service and not a supply of goods.
(v). Continuous supply of goods/services
12.1. Continuous supply of goods means a supply of goods which is provided or agreed to be provided, continuously or on recurrent basis, under a contract, for which the supplier invoices the recipient on a regular or periodic basis. Continuous supply of services means a supply of service notified by the Central or a State government, provided or agreed to be provided, continuously or on recurrent basis under a contract, for a period of exceeding three months, with periodic payment obligations.
12.2. Identifying a supply as a continuous supply of goods/services is required in view of the time of supply of provisions. Section 12 of the Model GST Law provides that in the case of continuous supply of goods, involving successive statement of accounts or successive payments, the time of supply shall be the date of expiry of the period to which such successive statements of accounts or successive payments relate. Where there are no successive statements of accounts, the date of issue of invoice or the date of receipt of payment, whichever is earlier, shall be the time of supply.
12.3. Section 13 of Model GST Law provides that in case of continuous supply of services, the time of supply to be (a) where the due date of payment is ascertainable from the contract, the date on which the payment is liable to be made by the recipient of service, whether or not any invoice has been issued or any payment has been received by the supplier of service;(b) where the due date of payment is not ascertainable from the contract, each such time when the supplier of service receives the payment, or issues an invoice, whichever is earlier;(c) where the payment is linked to the completion of an event, the time of completion of that event.
(vi). Inward/Outward supply
13.1 An inward supply [Section 2(61)] refers to receipt of goods and/or services whether by purchase, acquisition or any other means by a person registered under the Act. Section 26 of the Model GST Law mandates every registered taxable person other than an input service distributor, a person paying tax under composite scheme or a tax deductor at source to file details of inward supplies as a part of monthly / quarterly return.
13.2. An outward supply [Section 2(73)] refers to supply of goods and/or services, whether by sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made by such person in the course or furtherance of business except in case of such supplies where the tax is payable on reverse charge basis. Section 25 of the Model GST Law mandates every registered taxable person other than an input service distributor, a person paying tax under composite scheme or a tax deductor at source to file details of outward supplies as a part of monthly / quarterly return.
(vii). Inter/Intra State supply
14.1. The location of the supplier and the place of supply determines whether a supply is treated as an Intra State supply or an Inter State supply. Determination of the nature of supply is essential to ascertain which type of GST is payable (i.e. CGST/SGST or IGST). Inter State supply of goods means (subject to Section 5 of the draft IGST Act), supply of goods where the location of the supplier and place of supply are in different States. Inter State supply of service means (subject to Section 6 of the draft IGST Act), supply of services where the location of the supplier and place of supply are in different States.
14.2. Intra State supply of goods means (subject to Section 5 of the draft IGST Act), supply of goods where the location of the supplier and place of supply are in the same State. Intra State supply of service means (subject to Section 6 of the draft IGST Act), where the location of supplier and the place of supply are in the same State.
(viii). Deemed supply
15. Schedule I of the Model GST Law lists specific transactions made without consideration as deemed supply for GST purposes. They include (i) permanent transfer / disposal of business assets (ii) temporary application of business assets to a private or non-business use (iii) services put to a private or non-business use (iv) assets retained after deregistration and (v) supply of goods / or services by a taxable person to another taxable or non-taxable person in the course or furtherance of business.
V. Treatment of certain transactions as supply of goods or as supply of services
16.1. Schedule II of the Model GST Law lists certain specified transactions as a supply of goods or as a supply of services. Under the Schedule, transfer of title in goods with immediate effect or with effect from a future date under an agreement is considered as supply of goods. Transfer of goods or of rights in goods without the transfer of title is treated as supply of services. Any lean, tenancy, easement, license to occupy land, or lease or letting out a building for business or commerce, treatment or process applied to another person’s goods (job work) is treated as supply of services.
16.2. Where goods forming part of the assets of the business are transferred or disposed of by a person who no longer carries on the business (ceases to be a taxable person), such transfer/disposal is a supply of goods. When the goods held or used for the purposes of the business are put to any private or personal use other than for the purpose of business, whether or not for consideration, the usage or making available of such goods for non-business use is a supply of services. The Schedule II also provides that, where any goods forming part of the business assets of a taxable person are sold by any other person who has the power to do so to recover any debt owed by the taxable person, the goods shall be deemed to be the supplies by the taxable person in the course of furtherance of his business.
16.3. Where any person ceases to be a taxable person, any goods forming part of the assets of any business carried on by him shall be deemed to be supplied by him in the course or furtherance of his business immediately before he ceases to be a taxable person, unless (a) the business is transferred as a going concern to another person; or (b) the business is carried on by a personal representative who is deemed to be a taxable person.
16.4. The Schedule II further provides that (a) renting of immovable property, (b) construction of building/civil structure, (c) temporary transfer or permitting use or enjoyment of intellectual property right, (d) development, design, programming and certain other activities relating to information technology software, (e) agreeing to or refrain from an act or to tolerate an act, (f) works contract, (g) transfer of the right to use any goods, (h) catering services, as a supply of services.
Time of Supply
I.Introduction
The liability to pay the goods and services tax arises only when a supply has been made. The time of supply fixes the point when the liability has to be discharged. The time of supply is the time when a supply of goods and / or services is treated as being made under the GST law. It is important to determine the time of supply because a taxable person should charge GST at the time when the supply is made / deemed to have been made. A supplier becomes liable to account for GST once a tax point has occurred and must include it in the return covering the period in which it falls. The time of supply differs for supply of goods and supply of services. This is because goods are tangible and involve physical movement / removal or transport whereas services are intangible that involve performance, for making supply.
2. There are general provisions for determining the time of supply. However in certain cases and in particular situations, specific time of supply provisionsare to be applied. It is important to note that where a specific time of supply provision applies, it will override the general provisions.
II.General principles for goods
3.1. The general principles followed internationally for determining the time of supply of goods are
Removal of Goods;
(a) if the goods are to be removed, the time of removal; (b) if the goods are not to be removed, the time when they are made available to the person to whom the goods are supplied. Removal is said to occur when the goods are sent for delivery by the supplier or somebody acting on behalf of the supplier, to a recipient of the supply. (Basic tax point)
Issue of invoice;
Goods are either accompanied by the invoice or the invoice may be sent before or after delivery of the goods. The GST law may provide for time limit within which an invoice has to be issued from the date of supply. (Actual tax point)
Receipt of payment;
A payment for supply is made either before or after delivery or before or after issue of the invoice. (Actual tax point)
3.2. Normally, the date of removal and the date of invoice could be the same. However, there can be situations where the invoice is issued or payment is received before the basic tax point occurs. Internationally, the time of supply is normally reckoned with the basic tax point or the actual tax point whichever is earlier. Following this principle, the Model GST Law provides to determine the time of supply of goods as the earliest of the events listed above.
III. Time of supply of goods
(i) General rule
4.1. The Model GST Law provides that the time of supply of goods shall be the earliest of the following dates:
(a) (i) the date on which the goods are removed by the supplier for supply to the recipient, in a case where the goods are required to be removed or
(ii) the date on which the goods are made available to the recipient, in a case where the goods are not required to be removed, or
(b) the date on which the supplier issues the invoice with respect to the supply, or
(c) the date on which the supplier receives the payment with respect to the supply, or
(d) the date on which the recipient shows the receipt of the goods in his books of account.
4.2. Where goods are made available to the recipient refers to cases where the goods (i) are physically not capable of being moved; or (ii) are supplied in assembled or installed form; or (iii) are supplied by the supplier to his agent or his principal. The expression ‘made available to the recipient’ mean when the goods are placed at the disposal of the recipient. For the purposes of clauses (b) and (c) above, the supply shall be deemed to have been made to the extent it is covered by the invoice or, as the case may be, the payment.For the purpose of clause (c) above, “the date on which the supplier receives the payment” shall be the date on which the payment is entered in his books of accounts or the date on which the payment is credited to his bank account, whichever is earlier.
(ii) Continuous supply of goods
5.1. In case of continuous supply of goods, where successive statements of accounts or successive payments are involved, the time of supply shall be the date of expiry of the period to which such successive statements of accounts or successive payments relate. If there are no successive statements of account, the date of issue of the invoice (or any other document) or the date of receipt of payment, whichever is earlier, shall be the time of supply. The Model GST Law empowers the Central or State government to notify specified supply of goods as continuous supply of goods.
(iii) Reverse charge
5.2. In case of supplies in respect of which tax is payable on reverse charge basis, the time of supply shall be the earliest of the following dates;
(a) the date of the receipt of goods, or
(b) the date on which the payment is made, or
(c) the date of receipt of invoice, or
(d) the date of debit in the books of accounts.
(iv) Supply on approval basis
5.3. If the goods (being sent or taken on approval or sale or return or similar terms) are removed before it is known whether a supply will take place, the time of supply shall be at the time when it becomes known that the supply has taken place or six months from the date of removal, whichever is earlier.
(v) Residual provision
5.4. In case it is not possible to determine the time of supply as above, the time of supply shall (a) in a case where a periodical return has to be filed, the date on which such return is to be filed and in any other case, the date on which the CGST/SGST is paid.
IV. Time of supply of services (i) General rule
6.1. The general principle for determining the time of supply of service is the time when the services performed (i.e. completed) which is the basic tax point for the services. Issue of the invoice and the payment of service are the actual tax point. Time of supply of services shall be the earliest of the above.
6.2. The Model GST Law provides that the time of supply of services shall be;
(a) the date of issue of invoice or the date of receipt of payment, whichever is earlier, if the invoice is issued within the prescribed period, or
(b) the date of completion of the provision of service or the date of receipt of payment, whichever is earlier, if the invoice is not issued within the prescribed period, or
(c) the date on which the recipient shows the receipt of services in his books of account, in a case where the provisions of clause (a) or (b) do not apply.
For the purposes of clauses (a) and (b) above , the supply shall be deemed to have been made to the extent it is covered by the invoice or, as the case may be, the payment.For the purpose of clause (a) and (b) above, “the date of receipt of payment” shall be the date on which the payment is entered in the books of accounts of the supplier or the date on which the payment is credited to his bank account, whichever is earlier.
(ii) Continuous supply of services
6.3. In case of continuous supply of services, the time of supply shall be ‑
(a) where the due date of payment is ascertainable from the contract, the date on which the payment is liable to be made by the recipient of service, whether or not any invoice has been issued or any payment has been received by the supplier of service;
(b) where the due date of payment is not ascertainable from the contract, each such time when the supplier of service receives the payment, or issues an invoice, whichever is earlier;
(c) where the payment is linked to the completion of an event, the time of completion of that event;
The Model GST Law empowers the Central or State government to notify specified supply of services as continuous supply of services.
(iii) Reverse charge
6.4. In case of supplies in respect of which tax is paid or liable to be paid on reverse charge basis, the time of supply shall be the earliest of the following dates, namely‑
(a) the date of receipt of services, or
(b) the date on which the payment is made, or
(c) the date of receipt of invoice, or
(d) the date of debit in the books of accounts.
(iv) Residual provisions
6.5. In a case where the supply of services ceases under a contract before the completion of the supply, such services shall be deemed to have been provided at the time when the supply ceases. Where it is not possible to determine the time of supply of services under any of the above mentioned provisions, the time of supply shall be (a) in a case where a periodical return has to be filed, the date on which such return is to be filedorin any other case, the date on which the CGST/SGST is paid.
V. Change in rate of tax (services)
7. The time of supply, in cases where there is a change in the effective rate of tax in respect of services, shall be determined in the following manner.
(a) in case the taxable service has been provided before the change in effective rate of tax:
(i) where the invoice for the same has been issued and the payment is also received after the change in effective rate of tax, the time of supply shall be the date of receipt of payment or the date of issue of invoice, whichever is earlier; or
(ii) where the invoice has been issued prior to change in effective rate of tax but the payment is received after the change in effective rate of tax, the time of supply shall be the date of issue of invoice; or
(iii) where the payment is received before the change in effective rate of tax, but the invoice for the same has been issued after the change in effective rate of tax, the time of supply shall be the date of receipt of payment;
(b) in case the taxable service has been provided after the change in effective rate of tax ‑
(i) where the payment is received after the change in effective rate of tax but the invoice has been issued prior to the change in effective rate of tax, the time of supply shall be the date of receipt of payment; or
(ii) where the invoice has been issued and the payment is received before the change in effective rate of tax, the time of supply shall be the date of receipt of payment or date of issue of invoice, whichever is earlier; or
(iii) wherethe invoice has been issued after the change in effective rate of tax but the payment is received before the change in effective rate of tax, the time of supply shall be the date of issue of invoice.
VI. Imports and Exports
8.1. As imports of goods is not treated as domestic supply, the treatment for levy of GST on imports will be distinct from GST on domestic supplies. The time of supply in such cases will be the relevant date for levy of Customs duty. Date of filing of Bill of Entry /Declaration for clearance of goods for home consumption shall be the time of supply in normal cases. In case of prior entry, the date of entry inwards or arrival of the aircraft under which the goods have been imported, shall be the time of supply.
8.2. The time of supply for export of goods/services shall be governed by the general provisions relating to the determination of time of supply of goods/services in India.
Valuation of Supply
I. Introduction
The value of the supply is the value on which the GST is chargeable. Determination of value of the supply is not only required to charge the goods and services tax, but also for arriving at the value of supply to compute the turnover prescribed for obtaining registration under GST. The Model GST Law proposes to adopt the concept of ‘transaction value’ for determining the taxable value of supply on which
the goods and services tax shall be levied. Currently, the concept of transaction value is followed both under Central Excise and Customs legislations for levying central excise and customs duties by the Central government.
II. Value of a taxable supply
2. The value of a supply of goods and/or services shall be the transaction value, that is the price actually paid or payable for the said supply of goods and/or services where the supplier and recipient of the supply are not related and the price is the sole consideration for the supply. Section 15 of the Model GST Law provides that the transaction value for the purpose of valuing a taxable supply shall include;
> any amount that the supplier is liable to pay in relation to such supply which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods and/or services.
> the value, apportioned as appropriate, of such goods and/or services as are supply directly or indirectly by the recipient of the supply free of charge or at reduced cost for use in connection with the supply of goods and / or services being valued, to the extent such value has not been included in the price actually paid or payable
> royalties and licence fees related to the supply of goods and / or services that the recipient of supplies must pay either directly or indirectly, a condition of the said supply, to the extent that such royalties and fees are not included in the price actually paid or payable
> any taxes, duties, fees and charges levied under any statute other than the SGST Act or the CGST Act or the IGST Act
> incidental expenses such as commission and packing, including any amount charged for anything done by the supplier in respect of the supply of the goods and/or services at the time of, or before the delivery of goods /supply of services. > subsidies provided in any form or manner, linked to the supply
> any reimbursable expenditure or cost incurred by or on behalf of the supplier and charged in relation to the supply of goods and / or services
> any discount or incentives that may be allowed after the supply has been effected. However, post-supply discount which is established as per the agreement and known at before the time of supply linked to relevant invoices shall not be included in the transaction value.
III. Discounts
1. The Model GST Law provides that the transaction value defined under subsection (1) of section 16 shall not include any discount allowed before or at the time of supply provided such discount is allowed in the course of normal trade practice and has been duly recorded in the invoice issued in respect of the supply.
IV. GST Valuation Rules (i) General provisions
4.1. The Model GST Law provides that where the value of supply of goods and/or services cannot be determined under sub-section (1) of Section 16, the same shall be determined in such manner as may be prescribed in the rules, in the following situations where;
(i) the consideration paid or payable, is not money, wholly or partly
(ii) the supplier and the recipient of the supply are related
(iii) there is reason to doubt the truth or accuracy of the transaction value declared by the supplier
(iv) business transactions are undertaken by a pure agent, money changer, insurer or travel agent and distributor or selling agent of lottery
(v) such other supplier as may be notified by the Central or a State government on the recommendations of the Council.
4.2. Section 2(28) of the Model GST Law defines consideration in relation to supply of goods and /or services to include la) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods and/or services, whether by the said person or by any other person; (b) the monetary value of any act or forbearance, whether or not voluntary, in respect of, in response to, or for the inducement of, the supply of goods and/or services, whether by the said person or by any other person. However, a deposit, whether refundable or not, given in respect of the supply of goods and/or services shall not be considered as payment made for the supply unless the supplier applies the deposit as consideration for the supply’.
4.3. Rule 3 of the GST Valuation (Determination of Value of Supply of Goods and Services) Rules, 2016 (hereinafter refer to as the GST Valuation Rules) provides for determining the transaction value in monetary terms.
4.4. Where the supply consists of both taxable and non-taxable supply, the taxable supply shall be deemed to be for such part of the monetary consideration as is attributable thereto.
4.5. Transaction value shall be accepted even where the supplier and the recipient of supply are related, provided that the relationship has not influenced the price.
4.6. Transaction value shall be applicable where the goods are transferred from (a) one place of business to another place of the same business, and (b) the principal to an agent or from an agent to the principal.
4.7. The value of supplies specified in para 4.1 above shall be determined by proceeding sequentially through rule 4 to 6 of the GST Valuation Rules.
(ii) Value of supply by comparison (Rule 4)
5.1. Where the value of supply cannot be determined under rule 3 of the GST Valuation Rules, the value has to be determined on the basis the transaction value of goods and/or services of like kind and quality supplied at or about the same time to other recipients, adjusted after taking into consideration the relevant factors such as difference in the (i) dates of supply, (ii) commercial/quantity levels, (iii) composition, quality/design between the goods / services valued and the goods / services with which they are compared and (iv) freight and insurance charges depending upon the place of supply.
5.2. Goods of like kind and quantity is defined to mean goods which are identical or similar in physical characteristics, quality and reputation, and perform the same functions, commercial interchangeable with the goods being valued, supplied by the same person or by a different person. Services of like kind and quality are defined to mean the services which are identical or similar in nature, quality and reputation as the services being valued and supplies by the same person or by a different person.
(iii) Value of supply by computed value method (Rule 5)
6. Where the value of the supply cannot be determined by comparison method, the same shall be based on a computed value which shall include (a) the cost of production, manufacture or processing of the goods or the cost of the provision of services, (b) charges if any for the design or brand, and (c) an amount towards profit and general expenses equal to that usually reflected in supply of goods and / or services of the same class or kind as the goods and/or services being valued which are made by other suppliers.
(iv) Residual method (Rule 6)
7. Where of value of the goods and services cannot be determined under rule 5, the value shall be determined using reasonable means consistent with the principles and general provisions of these rules.
(v) Rejection of declared value
8.1 Where the proper officer has reason to doubt the truth and the accuracy of the value declared in relation to supply of goods and / or services, he may ask the supplier to furnish further information including documents or other evidence and after receiving such information or where no such information is forthcoming, it shall be deemed that the transaction value of such goods and or services cannot be determined under rule 3 of the GST Valuation Rules.
8.2 The reasons to doubt the truth and accuracy of the value of the supply may include;
> the significantly higher value at which goods and / or services of like kind or quality supplied at or about the same time in comparable quantity, in a comparable commercial transaction
> significantly lower or higher value of the supply of goods and / or services compared to the market value of goods and or services of like kind and quality at the time of supply
> mis-declaration of goods and or services such as description, quality, quantity, year of manufacture etc.
8.3. The proper officer has to follow the principles of natural justice including granting of hearing, recording of reasons in writing before proceeding to determine the value in accordance with the provisions of rule 4 or rule 5 or rule 6, proceeding sequentially.
(vi) Valuation in certain cases Pure Agent
9.1 Clause (b) to sub-section (2) of section 15 provides that any reimbursable expenditure or cost incurred by or on behalf of the supplier and charged in relation to the supply of goods and or services shall be included in the transaction value, as defined under sub-section (1) of section 15. Rule 8 of the GST Valuation Rules carves out an exception to the provisions contained in sub-section (2) of section 15 in respect of the expenditure or cost that a service provider is incurs, as a pure agent of the recipient, so as to exclude the same from the transaction value, if such supplier fulfils all the following conditions, listed below;
> the service provider acts as a pure agent of the recipient of service when he makes payment to third party for the goods and/or services procured
> the recipient of service receives and uses the goods and/or services so procured by the service provider in his capacity as pure agent of the recipient of service > the recipient of service is liable to make payment to the third party
> the recipient of service authorises the service provider to make payment on his behalf
> the recipient of service knows that the goods and/or services for which payment has been made by the service provider shall be provided by the third party
> the payment made by the service provider on behalf of the recipient of service has been separately indicated in the invoice issued by the service provider to the recipient of service
> the service provider recovers from the recipient of service only such amount as has been paid by him to the third party, and
> the goods and/or services procured by the service provider from the third party as a pure agent of the recipient of service are in addition to the services he provides on his own account.
9.2 A ‘pure agent’ means a person who(a) enters into a contractual agreement with the recipient of service to act as his pure agent to incur expenditure or costs in the course of providing taxable service (b) neither intends to hold nor holds any title to the goods and/or services so procured or provided as pure agent of the recipient of service (c) does not use such goods and/or services so procured, and (d) receives only the actual amount incurred to procure such goods and/or services.
Money Changer
10.1. The value of taxable service provided for the services in so far as it pertains to purchase or sale of foreign currency, including money changing, shall be determined by the service provider in the following manner:-
For a currency, when exchanged from, or to, Indian Rupees (INR), the value shall be equal to the difference in the buying rate or the selling rate, as the case may be, and the Reserve Bank of India (RBI) reference rate for that currency at that time, multiplied by the total units of currency. Where, the RBI reference rate for a currency is not available, the value shall be 1% of the gross amount of Indian Rupees provided or received, by the person changing the money:
10.2. Where neither of the currencies exchanged is Indian Rupee, the value shall be equal to 1% of the lesser of the two amounts the person changing the money would have received by converting any of the two currencies into Indian Rupee on that day at the reference rate provided by RBI.
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