The provision and rules under this subject has been explained with lot of Example. The articles comprise total 35 examples.   

[Section 15 of CST Act and Valuation Rules (Rule 27 to 35)]

1. Valuation of Goods and/or Service [SECTION 15 (1)]

“Transaction Value” is the basis for Valuation for supply of goods and/or services under the GST Regime. For the levy of tax i.e. GST first we have to determine the transaction value. ‘Transaction Value’ is the price actually paid or payable for supply of goods and/or services.

This is subject to dual condition as mentioned below:

  • Supplier and recipient of the supply are not related; and
  • Price is the sole consideration for the supply

Transaction Value cannot be based on MRP

Under Section 4A of the Central Excise Act, the central Government has the power to notify the goods which shall be valued on the basis of MRP less Abatement permitted. However, GST Act there is no provision for determination of value on the MRP basis. Thus, in all cases liability of GST will be determined based on the transaction value.

Analysis of the term “Price actually paid or payable for supply of goods and/or services”

Section 15(1) clearly speaks that transaction value shall be the price actually paid or payable for the supply of goods and services .It shows that there should be some nexus between supply of goods/services and the amount received by the supplier of goods and services. The contract will indicate the amount payable by the recipient for the supply of goods and services.

Example-1:

An Audit firm based in Delhi undertake an audit assignment of his client based in Gurgaon. The Contract mentioned about the audit fees of Rs 100000 and arrangement of taxi by the Clint who is which may be worth Rs 5000.

Thus here the price payable by the Clint who is towards audit is Rs. 105000 (not only audit fees but also the expenditure incurred in connection with the taxi R.s 5000)

Example-2:

Take the example of custom house agent. In the course of clearance of the goods Mr X an CHA incurred an amount of Rs 50,000 as custom duty. Such type of expenses is paid by the agent, in order to avoid the delay in clearance, which are subsequently reimbursed by the importer. Such type of expenses can not be form part of transaction value as these are the reimbursement as an agent but such reimbursement is not for the service rendered. Therefore, Rs 50000 will not form part of transaction value.

2. Inclusions in the Transaction Value [Section 15(2)]

The transaction value shall include the following:

a. Taxes under other statute

Any taxes, duties, cesses, fees and charges levied under any statute other than GST Act/IGST Act, if charged separately by the supplier to the recipient.

Example-3:

As per rent contract of Rs 1,00,000, tenant is required to pay local tax Rs 10,000 directly to the local body or to owner of the premise. Such local tax may form part of consideration for the supply of renting service and GST would be charged on Rs 1,10,000. 

Example-4:

Levy of entertainment tax by local authority is not subsumed in the GST .Therefore right to levy is still available with local authority and consequently it appears that any entertainment tax charged by the local authority will form part of transaction value.

b. Any amount for which supplier is liable to pay

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 and/or s

Example-5:

Mr X, purchaser, has placed an order to supply a product “Packed in Carton” from Mr Y (supplier). As per the contract Mr Y is required to deliver the goods in the premises of Mr X. Thereafter Mr Y hires a transporter for transportation of goods. The lorry receipt of which indicate that freight is payable by receiver of goods (Mr X). In this case Mr Y was required to make the payment to the transporter as it is the obligation of Mr Y to deliver the goods to the premises of Mr X. Here in lieu of Mr Y, payment is being made by Mr X .Therefore, such payment will form part of transaction value of goods for supply of goods from Mr Y to Mr X .

Thus, in a contract, the obligation undertaken by the supplier for making supply of goods needs to be determined. All the expenses in respect of such obligation must be incurred by the supplier. But here the supplier was under obligation for which receiver has made the payment and therefore the payment in connection with the supply i.e. Transportation will form part of transaction value. 

Example-6:

A Chartered Accountant conduct an audit at client premises out of the state and hotel payment is made by the client. Here the payment made to hotel by the client will be included in the transaction value.

c. Incidental expenses 1. Incidental expenses, such as commission and packing, charged by the supplier to the recipient of a supply, including

2. Any amount charged for anything done by the supplier in respect of the supply of goods and /or services at the time of, or before delivery of the goods or, as the case may be, supply of the services;

Example-7: Packing

Mr X goes to Haldiram outlet and buys dryfruit worth Rs. 2000 . Mr X ask for the special packing for which Rs 500 is charged for packing. Here the transaction value will be Rs 2500. 

Example-8: Commission

A company appoints an agent to procure order of goods from buyer. Agent procures an order @ Rs.100. Now Seller Company ask the buyer to pay only to supplier @Rs. 98 only and pay Rs 2 directly to the agent. Here GST will be charged on full Rs.100 as the Rs. 2 is the commission for this transaction. 

Example-9: Anything done Before sale

A company advertises for sale of installed plant and machinery to sale the same on “as is where basis is”. In this case cost of dismantling the plant will also be included in the transaction value as the dismantling activity has nexus before sale of goods.

d. Interest or late fees Interest/late fee/penalty for delay in payment of consideration for supply will form part of value.

Example-10:

Mr. X has supplied goods to Mr. Y on credit of 30 days. The contract provides that interest will be charged at the rate of 18% for delay in making payment of supply. Interest is calculated say Rs 5000. It is specifically provides that such interest will form part of consideration and GST will be payable.

Here interest of Rs 5000 will form part of transaction value.

Comments: This provision is likely to have litigation as in most of the cases supplier is unable to recover the interest although it is mentioned in the contract.

e. Subsidies

Subsidies directly linked to the price.

(Except subsidies provided by the central and state Governments).

Explanation: The amount of subsidy shall be included in the value of supply of the supplier who receives the subsidy.

Example-11:

Subsidy Linked to the price

Mr XYZ supplies biscuits to Government School for Rs 10 Lacs. The support provided by the State Govt in the form of subsidy is Rs 1 lac and subsidy provided by the trade association is Rs. 50000. Here the transaction value will be Rs 10,50,000. The subsidy provided by the Government will not be included in transaction value. 

Example-12:

Subsidy not Linked to the price

Tisco General Office Recreation Club v. State of Bihar (2002) 126 STC 547 (SC), appellant, a dealer, was running a canteen for employees of the company. The prices were below cost price. However, TISCO, without any statutory obligation, as a staff welfare measure, was making good the excess of expenditure over income. The subsidy was not relatable to any item of food. It was held that the lump sum subsidy made ex gratia cannot form part of sale price and not to be included in transaction value. 

Example-13:

Subsidy provided by CG or SG(not linked to price)

Government gives subsidy on supply of cooking gas cylinder to poor families. Nowadays such subsidy is transferred to the bank account of poor family directly and the company making supply of cylinder sells the goods at a fixed price and not at the subsidised rate. The amount of subsidy is directly credited to the bank account and the same is not received by the said company. Therefore such subsidy will not be considered as part of transaction value because this is not linked to the price and also the same is provided by Government.

Example-14:

Subsidy provided by CG or SG (linked to the price)

Sale of urea by the manufacturer at the recommended price by the Government (i.e. at cheaper price) to make urea at a cheaper price. The supplier is paid the subsidy directly by the Government. Here the subsidy is not to be included in the transaction value. Though it is related to the price but the same is provided by the Government therefore subsidy will not be included in the transaction value.

3. Exclusions from Transaction Value [Section 15(3)]

The value of the supply shall not include any discount that is given:

(a) Discount given before or at the time of the supply provided such discount has been duly recorded in the invoice issued in respect of such supply; and

(b) Discount given after the supply has been effected but:

(i) such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoice; and

(ii) Input tax credit has been reversed by the recipient of the supply as is attributable to the discount issued by the supplies.

The Discount which can be excluded from the transaction value can be summarised as below:

Example-15:Discount shown in invoice

In many cases company offers trade discount to dealers depending upon the volume of supply. Such discount is reflected on the face of invoice therefore transaction value will be the price after discount.

Say, for instance, price of a car is Rs. 5 Lacs and a discount of 5% is given being the year end sale. Here the transaction value will be Rs. 4.75 Lacs i.e. after discount which will not be included in transaction value..

Example-16:Discount not shown in invoice

Mr. A purchases an Air Conditioner from Mr. B for Rs. 20000 on credit on July 1, 2017. On August 1, 2017, Mr. A gives discount of Rs. 5000 to Mr.B and Mr.B makes payment of Rs. 15000. Here if the discount is not known before or at the time of supply, then transaction value will be Rs. 20000. But if discount is based on terms of contract or terms of payment then transaction value will be Rs 15000 only.

Section 15(4) provides that where the value of supply of goods or services cannot be determined under section 15(1), the same shall be determined in the manner as may be prescribed.

Section 15(5) states that, notwithstanding anything contained in section 15(1) or section 15(4), the value of such suppliers as may be notified by Government in this behalf on the recommendation of the GST council, shall be determined in such manner as may be prescribed.

4. Definition of important terms used in this chapter

Related person

As given in the explanation to the Section 15 of f GST Act, “persons shall be deemed to be “related persons’’ if only :-

a) they are officers or directors of one another’s businesses;

b) they are legally recognized partners in business;

c) they are employer and employee;

d) 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;

e) one of them directly or indirectly controls the other;

f) both of them are directly or indirectly controlled by a third person;

g) together they directly or indirectly control a third person or they are members of the same family;

Explanation I– The term “person” also includes legal persons.

Explanation II – Persons who are associated in the business of one another in that one is the sole agent or sole distributor or sole concessionaire, howsoever described, of the other, shall be deemed to be related.

Thus, if transaction is with the related person then the supplier has to substantiate that the value of supply is not influenced because of relationship. How the value of supply of services will be substantiated will be very difficult and cumbersome task.

Consideration

The value on which GST is to be charged primarily depends upon the consideration received for taxable supply of goods and/or services, which is defined under section 2(31) of the CGST/SGST Act, as under.

Consideration” in relation to the supply of goods or services includes:

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 or services, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a state Government.

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 or services, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government.

In simple words, Consideration may have following features:

  • It can be monetary or non-monetary.
  • It can be given to/by third person.
  • It should be lawful.
  • Forbearance/abstinence can be consideration.
  • Compromise or composition is consideration.
  • It should be certain.

Deposit can not be considered as Consideration

Deposit, whether refundable or not, given in respect of the supply of goods or services shall not be considered as payment made for the supply unless the supplier applies the deposit as consideration for the supply.

Fines and penalty can not be considered as Consideration

The amount received as fines or penalty for violation of statutory provision will not be considered as consideration. This has been clarified in Para No. 2.3.1 to 2.3.3 of CBEC Education Guide.

Meaning of “price is the sole consideration for supply”

Section 15(1) further provides that price should be the sole consideration for supply. If any additional consideration, whether monetary or non-monetary terms is received, the value of such consideration shall be added to the consideration to arrive at the transaction value. Interpretative Notes provide that payment made directly or indirectly by the recipient to the supplier will constitute the price actually paid or payable.

Example-17: Indirect payment

Settlement by buyer whether in whole or in part of debt owned by the seller. This can be elaborated with an example. Mr. X makes a supply of Rs. 2 lakhs to Mr. Y and contract provide that Mr. Y will pay Rs. 50,000 to Mr. X and Rs. 1,50,000 to Mr. Z to settle debt of Mr. X. In this case the price of Rs. 50,000 is not the sole consideration for sale. The amount of Rs. 1,50,000 payable by Mr. Y to Mr. Z is also part of consideration for supply of goods. Therefore GST will be paid on entire amount of Rs. 2 lakhs not only on Rs. 50,000.

5. How invoice, Credit note will be issued in respect of Charges and Discount in the GST Regime – Explained with Example

Example-18:

M/S Carwala Ltd. sells a car worth Rs 4,00,000 to “B Automobiles”.

  • They incur packing charges of Rs 5,000 on the car
  • They provide a discount of 1% on the price, as part of Diwali scheme
  • M/S Carwala Ltd agrees to provide a further discount of 0.5% if “B Automobiles” makes payment by 31st of the month by NEFT . “B Automobiles” makes the payment by 31st of the month by NEFT.

The invoice issued to “B Automobiles”, under GST, will look like this:

Transaction Value and Valuation Rules Under GST with Lot of Examples Image 1

*Assuming GST of 18% on car

In the invoice:

  • Packing charge of Rs 5,000 is included in the transaction value. Packing charges or any incidental expenses charged before or at the time of supply of goods or services must be included in the transaction value.
  • Discount of 1% is deducted from the transaction value. Discount given before or at the time of supply, and which is recorded in the invoice, can be deducted from the transaction value.
  • Discount of 0.5% is not deducted in the invoice. As discount of 0.5% is given after the supply, it will not be shown in the invoice. However, since the discount was known at the time of supply, and can be linked to this specific invoice, the discount amount can be reduced from the transaction value.
  • Here M/S Carwala will issue a credit note to “B Automobiles” for Rs 2,360 (0.5% of Rs 4,00,000 = Rs 2,000+ GST@ 18% on Rs 2,000 = Rs 360), and the same must be linked to the relevant tax invoice. ITC should be revered by the recipient.
  • Discount given after supply but agreed upon before or at the time of supply and can be specifically linked to relevant invoices, can be deducted from the transaction value.

Example-19: Discount given after supply which was not known at the time of supply

“M/S Carwala Ltd” sells a car to “B Automobiles” for Rs 4,00,000. As per the standing agreement, a credit period of 30 days is allowed for payment. However, due to a severe cash crunch, M/S Carwala Ltd. offers to “B Automobiles” to make the payment within 2 days on which he will give discount of 2%. “B Automobiles” makes the payment within 2 days. In this scenario, since the discount was not known at the time of supply, it cannot be claimed as a deduction from the transaction value. Meaning thereby, the GST will be charged on full Rs 4 Lacs.

6. Valuation Rules

The value of supply of goods or services or both which cannot be valued as per section 15 (1), shall be determined as per rules [Section 15(4)]. Such valuation may be required in the following situation:

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

II. the supplier and recipient of the supply are related

Government has notified 10 Nos. of rule for valuation in different situations:

1. Rule 27- 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,

a) be the open market value of such supply;

b) if open market value is not available as (a) above , 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;

c) 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;

d) if value is not determinable under clause (a) or clause (b) or clause (c), be the sum total of consideration in money and such further amount in money that is equivalent to consideration not in money as determined by application of rule 30 or rule 31 in that order.

Value in case of exchange or barter

Example-20: 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 will be Rs 24000.

(Example of exchange )

Example-21: 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 will be Rs.44000.

(example of barter )

2. Rule 28: 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 section 25(4) and 25(5) or where the supplier and recipient are related, other than where the supply is made through an agent, shall,-

(a) be the open market value of such supply;

(b) if open market value is not available, be the value of supply of goods or services of like kind and quality;

(c) if value is not determinable under clause (a) or (b), be the value as determined by application of rule 30 or rule 31, in that order:

Provided that where 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:

Provided further that 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:

The above provisions have been included to safeguard the transactions done during the normal course of business between related persons, in good faith. 

Example-22: Taking our aforementioned example of related person under GST Law, let’s say that TATA Steel supplies goods worth Rs. 2,50,000 (which is the OMV of the goods) to TATA Motors for Rs. 2,00,000; and TATA Motors claims the full amount of GST charged in the invoice which is Rs. 36,000 (@18% of Rs. 2,00,000) as input tax credit, then this invoice value will hold true for valuation purpose. Eventually, when TATA Motors sell their products to their end consumers they will only get input credit of what was paid earlier as tax i.e. Rs. 36,000 (and not the tax that should have been paid if the goods were sold at OMV).

Therefore 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.

Section 25(4) and 25(5) of CGST Act covers those cases where same person has taken separate registration in different state or even in the same state.

3. Rule 29: Value of supply of goods made or received through an agent

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

(a) 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;

Example-23: 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.

b) Where the value of a supply is not determinable under clause (a), the same shall be determined by application of rule 30 or rule 31in that order.

4. Rule 30: 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 110% of the cost of production or manufacture or cost of acquisition of such goods or cost of provision of such services.

Example-24: Suppose Peacock Limited is manufacturing office chairs and the cost of manufacturing is Rs. 4,000 per chair. Similar chair in open market is valued at Rs. 4,500. These chairs are supplied to a furniture showroom at the rate Rs. 3,000 and balance in non-monetary consideration. Now since the open market value is available, Rs. 4,500 will be considered for valuation of supply. However in case if Open Market Value is not available, the value of supply as per cost method will be followed which as per the rule will be 110% of the cost of manufacturing i.e. Rs. 4,000*110% = Rs. 4,400.

Thus GST will be charged on Rs. 4,400 in this case.

5. Rule 31: 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 27 to 30, 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 30.

In spite of these rules, if a registered person supplying goods or services under GST is still not able to determine the value, he may choose to follow the Residual Method of Valuation.

As per the residual method, where the value of supply of goods or services or both cannot be determined under the cost method ( i.e. Rule 30), the same shall be determined using reasonable means consistent with the principles and general provisions of the GST.

Value of service can be on the basis of rule 31 instead of on cost plus 10% basis as per rule 30. Therefore for the supply of service the supplier may opt for this rule, disregarding rule 30 (Proviso to Rule 31)

A simple interpretation of this rule suggests that supplier can use any method to determine the value of supply under GST, provided such method is justifiable in the case of inquiry. The registered taxable person should not exploit this method to displace the GST liability as the penal provisions are strict under the new indirect tax regime.

Example-25: For example when cost of production is not being able to determine then number of man hours required to complete a job can be taken as a basis under the residual method for the valuation of supply of goods or services.

6. Rule 31A: Value of supply in case of lottery, betting, gambling and horse racing.

As per the newly inserted rule, the value in respect of supplies specified below shall be determined in the manner provided hereinafter: [ Para inserted vide Notification No 3/2018 dated 23.01.2018]

(a) The value of supply of lottery run by State Governments shall be deemed to be 100/112 of the face value of ticket or of the price as notified in the Official Gazette by the organising State, whichever is higher.

(b) The value of supply of lottery authorised by State Governments shall be deemed to be 100/128 of the face value of ticket or of the price as notified in the Official Gazette by the organising State, whichever is higher.

Note: Lottery run by SG: A lottery not allowed to be sold in any state other than the originating state.

Lottery authorised by SG: A lottery which is authorised to be sold in states other than the originating state also.

Value of supply of actionable claim in the form of chance to win in betting, gambling or horse racing in a race club shall be 100% of the face value of the bet or the amount paid into the totalisator. 

7. Rule 32: Determination of value in respect of certain supplies 

1) Notwithstanding anything contained in the provisions of this Chapter, the value in respect of supplies specified below shall, at the option of the supplier, be determined in the manner provided hereinafter[32(1)].

2) Value of service towards exchange of foreign currency[Rule32(2)]

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:-

(a) 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, for that currency at that time, multiplied by the total units of currency:

Formula for value of supply : {(Buying or selling Rate –(RRR)}x No of Units of currency

Example-26: Sold 10000 units of USD ,

Conversion rate USD 1=INR 60 ,

RBI Reference rate i.e. RRR: USD 1=INR 59

Value of Supply : INR ( 60-59 )x10000=INR 10000

In case 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:

Formula for value of supply: 1% x Gross amount of INR  

Example-27: Purchased 5000 units of KRW @ KRW1=INR 0.60  

RBI Reference rate i.e. RRR: Not available

Value of Supply : {1%x(.60×5000)}=INR 30

In case 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.

Formula for value of supply : Forex Sold x RRR       = INR

Forex Purchased x RRR = INR

Whichever is lower INR x1% 

Example-28: Exchanged 10000 JPY for 80 EUR

RRR: {JPY1= INR= 0.50, EUR1=INR80  

Value of Supply: INR (10000x.50=INR 5000

INR (80×80= INR 6400

Lower of the two =INR 5000×1%=INR 50

Provided also that a person supplying the services may exercise option to ascertain value in terms of clause (b) for a financial year and such option shall not be withdrawn during the remaining part of that financial year.

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

a. 1% of the gross amount of currency exchanged for an amount up to Rs.1,00,000, subject to a minimum amount of Rs. 250;

b. 1000 and ½% of the gross amount of currency exchanged for an amount exceeding Rs. 1,00,000 and up to Rs. 10,00,000 ; and

c. 5000 and Rs. 500 and 1/10% of the gross amount of currency exchanged for an amount exceeding Rs. 10,00,000, subject to maximum amount Rs. 60,000 

Summarised Formula:

Gross Amount of INR Value of supply
Up to Rs 100000 Higher of [Rs. 250 or 1% of Gross Amount]
Rs 100000 – Rs 1000000 Rs 1000 + 0.5% of Gross amount
Above Rs 1000000 Lower of  [ (Rs 5500 + 0.1% of gross amount ) or Rs 60000 ]

Example -29:

M/S XYZ, Forex Dealer entered into the following transaction in a particular tax period.

Calculate the value of supply for him.

10 Conversions of USD to Eur = Rs. 20 Lacs per transaction

20 Conversions of JPY to USD = Rs. 5 Lacs per transaction

05 Conversions of INR to USD = Rs. 20,000 per transaction

 Value of supply will be calculated as below :

(5500+ 0.1% x Rs.20,00,000)x10 =Rs 75,000

(1000+ 0.5% x Rs.5,00,000)x20  =Rs 70,000

(250×5)   =Rs 1250 (Here Rs 250 minimum will be charged ,as 1% of Rs 20000 is Rs 200 only )

3) Value of service of booking of air travel ticket[( Rule 32(3)]

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

10% of the basic fare in the case of international bookings

Explanation- For the purposes of this sub-rule, the expression “basic fare” means that part of the air fare on which commission is normally paid to the air travel agent by the airline.

4) The value of supply of services in relation to life insurance business[( Rule 6(4)]

(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), ten per cent. of single premium charged from the policy holder; or

(c) in all other cases, twenty five percent of the premium charged from the policy holder in the first year and twelve and a half percent of the premium charged from policy holder in subsequent years:

GST in case if policy is towards risk cover only: Nothing contained in this sub-rule shall apply where the entire premium paid by the policy holder is only towards the risk cover in life insurance. This means that entire policy is towards risk coverage and no amount is towards investment .Therefore entire premium will be subject to GST.

(5) Valuation in respect of buying and selling of second hand goods[( Rule 32(5)]: When 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 the value of supply shall be the difference between the selling price and purchase price and where the value of such supply is negative it shall be ignored:

Provided that the purchase value of goods repossessed from a defaulting borrower, who is not registered, for the purpose of recovery of a loan or debt shall be deemed to be the purchase price of such goods by the defaulting borrower reduced by five percentage points for every quarter or part thereof, between the date of purchase and the date of disposal by the person making such repossession.

Example-30: Mr X ( an unregistered person) taken a loan of Rs 500000 from MR Y for purchase of a car  of Rs 500000. Mr X has defaulted the loan and for which Mr Y took back the possession of the car. Mr Y sold this car for Rs 40000 after 10 months after taking back from Mr X . Value of supply will be computed as under :

Original price of the car =Rs 5,00,000           

Less : 40% ( i.e. 5% per qtr for 1 year and 10 months=Rs 2,00,000  

Purchase price of car for Mr.Y=Rs 3,00,000

Value of Supply by Mr Y (Sale price- purchase price)=Rs 1,00,000

(6) The value of a token, or a voucher, or a coupon, or a stamp(other than postage stamp) [( Rule 6(6)]: The value of voucher etc. 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.

(7) The value of taxable services shall be deemed to be nil[Rule 6(7)]: Value of taxable services provided by such class of service providers as may be notified by the Government on the recommendations of the Council as referred to in paragraph 2 of Schedule I between distinct persons as referred to in section 25, where input tax credit is available, shall be deemed to be NIL.

8. Rule 33: Value of supply of services in case of pure agent

If the expenditure or costs has been incurred by a supplier as a pure agent of the recipient of supply then the same shall be excluded from the value of supply, if all the following conditions are satisfied, namely:-

1. The supplier acts as a pure agent of the recipient of the supply, when he makes payment to the third party on authorization by such recipient;

2. The payment made by the pure agent on behalf of the recipient of supply has been separately indicated in the invoice issued by the pure agent to the recipient of service; and

3. The supplies procured by the pure agent from the third party as a pure agent of the recipient of supply are in addition to the services he supplies on his own account.

Explanation- For the purposes of this rule, “pure agent” means a person who –

(a) enters into a contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs in the course of supply of goods or services or both;

(b) neither intends to hold nor holds any title to the goods or services or both so procured or supplied as pure agent of the recipient of supply;

(c) does not use for his own interest such goods or services so procured; and

(d) receives only the actual amount incurred to procure such goods or services in addition to the amount received for supply he provides on his own account.

…..

Example-31: Corporate services firm”A” is engaged to handle the legal work pertaining to the incorporation of Company B. Other than its service fees, A also recovers from B, registration fee and approval fee for the name of the company paid to Registrar of the Companies. The fees charged by the Registrar of the companies registration and approval of the name are compulsorily levied on B.

”A” is merely acting as a pure agent in the payment of those fees. Therefore, A’s recovery of such expenses is a disbursement and not part of the value of supply made by A to B. Therefore no GST will be applicable on these two charges incurred as pure agent.

Example-32: Some more example of pure agent

Suppose a Customs Broker issues an invoice for reimbursement of a few expenses and for consideration towards agency service rendered to an importer. The amounts charged by the Customs Broker are as below:

S.No. Component charged in invoice Amount
1 Agency Income Rs. 10000/-
2 Traveling expenses ; Hotel expenses Rs. 15,000/-
3 Customs Duty Rs. 55,000/-
4 Docks Dues Rs. 5000/-

In the above situation, agency income and travelling/hotel expenses shall be added for determining the value of supply by the Customs Broker whereas Docks dues and the Customs Duty shall not be added to the value, provided the conditions of pure agent are satisfied.

9. Rule 34: 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 the reference rate for that currency as determined by the Reserve Bank of India on the date of time of supply in respect of such supply in terms of section 12 or, as the case may be, section 13 of the Act.

10. Rule 35: Value of supply inclusive of integrated tax, central tax, State tax, Union territory tax

Where the value of supply is inclusive of integrated tax or, as the case may be, central tax, State tax, Union territory tax, the tax amount shall be determined in the following manner,

Tax amount = Value inclusive of taxes X tax rate in % of IGST or as the case may be CGST, SGST or UTGST (100+ sum of tax rates, as applicable, in %)

Explanation

(a) “open market value” of a supply of goods or services or both means the full value in money, excluding the integrated tax, central tax, State tax, Union territory tax and the cess payable by a person in a transaction, where the supplier and the recipient of the supply are not related and price is the sole consideration, to obtain such supply at the same time when the supply being valued is made.

(b) “supply of goods or services or both of like kind and quality” means any other supply of goods or services or both made under similar circumstances that, in respect of the characteristics, quality, quantity, functional components, materials, and reputation of the goods or services or both first mentioned, is he same as, or closely or substantially resembles, the supply of goods or services or both.

Author is working in a PSU and can be reached at deepakjauhari@powergridindia.com

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