Transaction Value – Section 15 of CGST Act 2017

1. Value of taxable supply : 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 the recipient of the supply are not related and the price is the sole consideration for the supply. (Section 15(1) of CGST Act 2017).

2. Conditions for accepting transaction value for valuation – The conditions for accepting transaction value are – (a) supplier and recipient should not be related (b) price is sole consideration.

3. Inclusions in value of supply:- Sec 15(2) of CGST Act 2017 has been provided the list of items which shall be included in value of supply . The same has been brought out in succeeding Paragraphs .

3.1. Any taxes, duties, fees and charges levied under any statute other than the CGST /SGST /IGST Act or compensation cess are includible in value, if charged separately – section 15(2)(a) of CGST Act.

3.1.1. Value for payment of IGST, CGST and SGST will not include Kerala Flood Cess payable under clause 14 of Kerala Finance Bill, 2019.(Rule 32A of CGST Rules inserted w.e.f. 28-6-2019).

3.1.2. The Value does not include Tax Collected at Source under Income Tax Act, as TCS is not a tax on goods but an interim levy on income . For Example – Amount of invoice is 100 and TCS is Rs 2, Value will be considered for GST is 100 and not 98. ( CBI&C circular No. 76/50/2018-GST dated 31-12-2018 as amended vide corrigendum No. 20/16/04/2018-GST dated 7-3-2019.).

3.2. Amount that the supplier is liable to pay but which has been incurred by the recipient : Any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply (and not included in the price actually paid or payable for the goods or services or both) is includible in value – section 15(2)(b) of CGST Act.

3.2.1 The amount will be added only if there is contractual liability on the supplier to make those supplies and recipient has paid the amount on behalf of the supplier. It will not include free input or services provided by the recipient.

3.3 Incidental expenses, including any amount charged for anything done by the supplier in respect of the supply of goods /services at the time of, or before delivery of the goods or, as the case may be, are includible in the value – section 15(2)(c) of CGST Act.

3.3.1 The value will include expenses like weighment, loading in factory, inspection, testing before supply etc .Development charges like design and tooling are also includible in value.

3.4. Interest or late fee or penalty for delayed payment of any consideration for any supply is includible in value – section 15(2)(d) of CGST Act.

3.4.1. GST on penal interest on Equated Monthly Installment (EMI) shall be included in value If the seller himself grants EMI installments and charged penal interest for delay in payment . In that case , GST will be payable by seller, (even if charged separately ) at rate applicable to sale of goods. (clarified vide CBI&C circular No. 102/21/2019-GST dated 28-6-2019).

3.5 Subsidies directly linked to the price (excluding subsidies provided by the Central and State Governments ) are includible in ‘value’ for charge of GST.

3.5.1. Explanation.—The amount of subsidy shall be included in the value of supply of the supplier who receives the subsidy – section 15(2)(e) of CGST Act.

3.5.2. General subsidy which is not specifically connected to sale of any specific goods will not be includible.

4. The value of the supply shall not include any discount that is 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;

4.1. The value shall not include discount even after the supply has been effected, provided that :

(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 invoices; and

(ii) input tax credit as is attributable to the discount has been reversed by the recipient of the supply – section 15(3) of CGST Act

5. The value of the supply of goods /services or both which cannot be valued under section 15(1) of CGST and SGST Act, shall be determined as per rules – section 15(4) of CGST Act.

5.1. Situations when GST Rules need to be apply for valuation are as follows : —

(a) The consideration, whether paid or payable, is not money, wholly or partly

(b) The supplier and the recipient of the supply are related

6. Determination of Value of Supply 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 as follows (Rule 27 of CGST and SGST Rules, 2017):-

(a) The open market value of such Supply.

(b) If the open market value is not available under clause (1) the sum 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), the value of supply of goods / services or both of like kind and

(d) If the value is not determinable under clause (a) or clause (b) or clause (c), apply rule 30 or rule 31 in that order.

6.1 Open market value of a supply of goods/services or both means

(a) the full value in money, excluding (Tax) GST payable by a person in a transaction, (b) where the supplier and the recipient of the supply are not related

(c ) and the price is the sole consideration, to obtain such supply

(d) at the same time when the supply being valued is made;

7. Value of supply of Goods or Services or both between Distinct or Related Persons, other than through an Agent shall (Rule 28 of CGST and SGST Rules, 2017):-

(a) The open market value of such supply;

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

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

7.1 Provided that where the goods are intended for further supply as such by the recipient, the value shall, (at the option of the supplier,) an amount equivalent to ninety percent 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:

7.2 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 the goods or services.

7.3 Invoice should declare some value not Nil value, However, if value declared is Nil, input tax credit will not be available – (Assistant Commissioner, CGST & CX, In re [2018] (AAAR-WEST BENGAL) If no value is declared, rule 27 of CGST Rules will apply and GST will be payable on open market value.

8. Value of Supply of Goods made or received through an Agent : The value of supply of goods between the principal and his agent shall (Rule 29 of CGST and SGST Rules, 2017):-

(a) be the open market value of the goods being supplied, or at the option of the supplier, be ninety percent. 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.

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

8.1 Rule 29 does not cover distributor or selling agents who purchase goods from Principal and then sale on their own. It covers only C&F Agents who store and sale goods on behalf of Principal.

9. 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 – (Rule 30 of CGST and SGST Rules, 2017)

9.1 In case of services supplied by HO to its branches/divisions having distinct GSTIN, valuation should be as per rule 30 of CSGT Rules i.e. 110% of cost (In Cummins India Ltd. In re [2019] AAR-Maharashtra)

10.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 of CGST and SGST Rules, the same shall be determined using reasonable means consistent with the principles and general provisions of section 15 of CGST Act and provisions of rules 27 to 30 of CGST Rules – (Rule 31 of CGST and SGST Rules, 2017).

10.1 The valuation method based on cost has limited value as in case of stock transfer or supply to related person where he is in position to avail entire Input Tax Credit, the value as declared in invoice is acceptable. Further, for valuation of supply of services, costing method is optional – (proviso to Rule 31 of CGST Rules, 2017.)

10.2 Value of service can be on basis of rule 31 instead of on cost plus 10% basis – In case of supply of services, the supplier may opt for rule 31 ignoring rule 30 – (proviso to Rule 31 of CGST and SGST Rules, 2017.)

(Republished with amendments)