GST is a tax payable on ad-valorem basis i.e percentage of value of the supply of goods or services. Section 15 of the CGST Act and Determination of Value of Supply, CGST Rules, 2017 contain provisions related to valuation of supply of goods or services made in different circumstances and to different persons:

1. Value of supply of goods or services where the consideration is not wholly in money

            Where the supply of goods or services is for a consideration not wholly in money, the value of the supply shall,

  • be the open market value of such supply;

(I) if open market value is not available, be the sum total of consideration in money and any such further amount in money as is equivalent to the consideration not in money if such amount is known at the time of supply;

(II) if the value of supply is not determinable under clause (a) or clause (b), be the value of supply of goods or services or both of like kind and quality;

(III) if value is not determinable under clause (a) or clause (b) or clause (c), be the sum total of consideration in money.

            For Example:

(i) Where a new phone is supplied for Rs. 20000 along with the exchange of an old phone and if the price of the new phone without exchange is Rs. 24000, the open market value of the new phone is Rs. 24000.

(ii) Where a laptop is supplied for Rs. 40000 along with a barter of printer that is manufactured by the recipient and the value of the printer known at the time of supply is Rs. 4000 but the open market value of the laptop is not known, the value of the supply of laptop is Rs. 44000.

2. Value of supply of goods or services or both between distinct or related persons, other than through an agent

The value of the supply of goods or services or both between distinct persons as specified in sub-section (4) and (5) of section 25 or where the supplier and recipient are related, other than where the supply is made through an agent, shall,-

  • be the open market value of such supply;
  • if open market value is not available, be the value of supply of goods or services of like kind and quality;
  • if value is not determinable under clause (a) or (b), be the value as determined by application of rule 4 or rule 5, in that order:

Provided where the recipient is eligible for full input tax credit, the value declared in the invoice shall be deemed to be the open market value of goods or services.

3. Value of supply of goods made or received through an agent

The value of supply of goods between the principal and his agent shall,-

  • be the open market value of the goods being supplied, or
  • at the option of the supplier, be 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, where the goods are intended for further supply by the said recipient;

For Example:

(i) Where a principal supplies groundnut to his agent and the agent is supplying groundnuts of like kind and quality in subsequent supplies at a price of Rs. 5000 per quintal on the day of supply. Another independent supplier is supplying groundnuts of like kind and quality to the said agent at the price of Rs. 4550 per quintal. The value of the supply made by the principal shall be Rs. 4550 per quintal or where he exercises the option the value shall be 90% of the Rs. 5000 i.e. is Rs. 4500 per quintal.

4. Value of supply of goods or services or both based on cost

Where the value of a supply of goods or services or both is not determinable by any of the preceding rules, the value shall be one hundred and ten percent of the cost of production or manufacture or cost of acquisition of such goods or cost of provision of such services.

5. Residual method for determination of value of supply of goods or services or both

Where the value of supply of goods or services or both cannot be determined under rules 1 to 4, the same shall be determined using reasonable means consistent with the principles and general provisions of section 15 and these rules. Provided that in case of supply of services, the supplier may opt for this rule, disregarding rule 4. This is a general residual rule, to be used as a last resort. This is again open ended and refers to principles and general provisions as per law and other rules.

6. Determination of value in respect of certain supplies

The value in respect of supplies specified below shall be determined in the manner provided hereinafter.

  • Rule-32(2) Purchase/ Sale of Foreign Currency – The value of supply of services in relation to purchase or sale of foreign currency, including money changing, shall be determined by the supplier of service in the following manner:-

(i) 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.

(ii) At the option of supplier of services, the value in relation to supply of foreign currency, including money changing, shall be deemed to be

(i) 1 % of the gross amount of currency exchanged for an amount up to one lakh rupees, subject to a minimum amount of two hundred and fifty rupees;

(ii) one thousand rupees(1,000) and half of a per cent (0.5%) of the gross amount of currency exchanged for an amount exceeding one lakh rupees and up to ten lakh rupees; and

(iii) five thousand rupees (5,000) and one tenth of a per cent (0.10%) of the gross amount of currency exchanged for an amount exceeding ten lakh rupees, subject to maximum amount of sixty thousand rupees.

  • Rule-32(3) Air Travel Agent – The value of supply of services in relation to booking of tickets for travel by air provided by an air travel agent shall be deemed to be an amount calculated at the rate of 5% of the basic fare in the case of domestic bookings, and at the rate of 10% of the basic fare in the case of international bookings of passage for travel by air.
  • Rule-32 (4) Life Insurance Business- The value of supply of services in relation to life insurance business shall be:

(a) the gross premium charged from a policy holder reduced by the amount allocated for investment, or savings on behalf of the policy holder, if such amount is intimated to the policy holder at the time of supply of service;

(b) in case of single premium annuity policies other than (a), 10% of single premium charged from the policy holder; or

(c) in all other cases, 25% of the premium charged from the policy holder in the first year and 12.5% of the premium charged from policy holder in subsequent years:

  • Rule- 32(5) Buying and Selling of Second Hand Goods- Where a taxable supply is provided by a person dealing in buying and selling of second hand goods i.e. used goods as such or after such minor processing which does not change the nature of the goods and where no input tax credit has been availed on purchase of such goods, Value of Taxable Supply = S.P – C.P.

If the selling price is less than Purchase/ Cost price, then Value of Taxable supply = Zero

  • Rule-32(6) Redeemable Vouchers/ Coupons: The value of a token, or a voucher, or a coupon, or a stamp (other than postage stamp) which is redeemable against a supply of goods or services or both shall be equal to the money value of the goods or services or both redeemable against such token, voucher, coupon, or stamp.
  • Rule-32(7) service provided by one Distinct person to another distinct person: The value of taxable services provided by such class of service providers as may be notified by the Government between distinct persons as referred to in section 25, other than those where input tax credit is not available shall be deemed to be NIL.

7. Value of supply of services in case of pure agent

Notwithstanding anything contained in these rules, the expenditure or costs incurred by the supplier as a pure agent of the recipient of supply of services shall be excluded from the value of supply, if all the following conditions are satisfied, namely:-

  • the supplier acts as a pure agent of the recipient of the supply, when he makes payment to the third party for the services procured;
  • the recipient of supply uses the services so procured by the supplier service provider in his capacity as pure agent of the recipient of supply;
  • the recipient of supply is liable to make payment to the third party;
  • the recipient of supply authorizes the supplier to make payment on his behalf;
  • the recipient of supply knows that the services for which payment has been made by the supplier shall be provided by the third party;
  • the payment made by the supplier on behalf of the recipient of supply has been separately indicated in the invoice issued by the supplier to the recipient of service;
  • the supplier recovers from the recipient of supply only such amount as has been paid by him to the third party; and
  • the services procured by the supplier from the third party as a pure agent of the recipient of supply are in addition to the supply he provides on his own account.

8. Rate of exchange of currency, other than Indian rupees, for determination of value

The rate of exchange for determination of value of taxable goods or services or both shall be the applicable reference rate for that currency as determined by the Reserve Bank of India on the date when point of taxation arises.

DISCLAIMER: THE ARTICLE IS BASED ON THE RELEVANT PROVISIONS AND AS PER THE INFORMATION EXISTING AT THE TIME OF THE PREPARATION.IN NO EVENT I SHALL BE LIABLE FOR ANY DIRECT AND INDIRECT RESULT FROM THIS ARTICLE. THIS IS ONLY A KNOWLEDGE SHARING INITIATIVE.

THE AUTHOR CAN BE REACHED AT VINAYAK.CHARU@GMAIL.COM

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