The Valuation for supply of goods or services or both is a very vital chapter under the GST. It is an important part for the Government because the Government would like that no any supply would have been made under value. It is an important for a Registered Person because valuation in regard of supply of goods or services or both should be correctly made according to provisions of the Act and Rules otherwise penal action may be initiated on account of incorrect valuation.
There is only one section i.e. section 15 under the CGST Act for the purpose of valuation. But there is a separate chapter i.e. chapter IV in name of “Determination of Value of Supply” containing rules 27 to 35 under the CGST Rules for the purpose of valuation.
On perusal of the Section and Rules we can understand following concepts of valuations in regard of supply of goods or services or both:-
1. Which value in normal course of supply is acceptable by the legislature without any interfere;
2. Which transactions shall become part of the value of supply;
3. Which circumstances allow discount not to be included to the value of supply;
4. Which persons shall be deemed to be related persons;
5. Which supplies whose value shall be determined according to prescribed rules;
6. Valuation concepts in regard of Pure Agent;
7. Explanation of Open Market Value and Supply of like kind and quality:
8. What is the formula to determine value of a supply of goods or services or both where value of such supply is not determinable by any rule;
Q1. Which value in normal course of supply is acceptable by the legislature without any interfere ?
According to section 15 (1) of the CGST Act, the value of a supply of goods or services or both shall be the transaction value. It (transaction value) is the price which is actually paid or payable. Such value is acceptable under the law subject to the Supplier and the Recipient are not related persons.
Meaning of transaction value is not provided anywhere under the GST Law but FAQ, issued by the GST Department, answer to question (What is Transaction Value ?) as “Transaction value refers to the price actually paid or payable for the supply of goods and or services where the supplier and the recipient are not related and price is the sole consideration for the supply. It includes any amount which the supplier is liable to pay but which has been incurred by the recipient of the supply.”
Thus transaction value is a price which is actually paid or payable. This value has no concern with market value as well as no concern if different values paid for a particular goods. The only conditions are that it is paid or payable by the Recipient and transaction is not done between related persons. Examples to understand the transaction value are given below:-
1. A retail shop keeper supplier of readymade garments sells one type of trouser, bearing MRP tag of Rs.3000, sells to three different customers with different prices say Rs.2000.00, Rs.2800.00 and Rs.3000.00. All three customers are not related persons with the shop keeper. Total transaction value of the said three transactions shall be Rs.7800.00 according to section 15 (1) of the CGST Act. Transaction value shall have no concern with MRP value as well as no concern with differently paid prices for a one type of goods.
2. Some times the shop keeper sell goods on SALE i.e. sells goods at discounted price. The price charged during SALE period shall also be treated as transaction value. The GST Law does not deny to sell goods on loss. The price of a goods may be less than from the cost value. For example cost price of the trouser is Rs.3000.00 but the shop keeper sold that trouser at Rs.1800.00 to the customer who was not his related person. The price Rs.1800.00 paid by the customer shall also be treated as transaction value on which the shop keeper is liable to pay tax.
Q2. Which transactions shall become part of the value ?
According to section 15 (2) of the CGST Act –
The value of supply shall include –
|Value referred in Section 15 (2)||Example|
|(a) any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than this Act, the State Goods and Services Tax Act, the Union Territory Goods and Services Tax Act and the Goods and Services Tax (Compensation to States) Act, if charged separately by the supplier;||1. The Delhi Govt. notifies to charge covid-19 fee @ 1% on every supply. The shopkeeper sells goods of Rs.10000.00 and thereon charged covid-19 fee Rs.100.00. Taxable value shall be Rs.10100.00 on which GST shall be charged.
2. Other part of this sub-clause (a) of section 15 (2) says GST tax be charged separately by the supplier. If it (GST tax) is not charged separately then it shall become part of the taxable value. For example the shop keeper issues invoice Rs.1050.00 without mentioning GST tax Rs.50.00 (including in value of Rs.1050.00) separately on the invoice. In this case the GST department shall assess taxable value as Rs.1050.00 in place of Rs.1000.00 because GST tax Rs.50.00 has not been mentioned separately on the invoice.
Rule 32A of the CGST Rules grants The Kerala Flood Cess from inclusion in the value of supply of goods or services or both.
Circular 76/2018 dated 31-12-2018 clarifies that for the purpose of determination of value of supply under GST, Tax collected at source (TCS) under the provisions of the Income Tax Act, 1961 would not be includible as it is an interim levy not having the character of tax.
|(b) any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods or services or both;||For example a person manufacture of hardware goods received order for manufacturing of screws worth Rs.100000 ( one lakh ) from a whole sale dealer in Delhi. The manufacturer sent the screws to the job worker for greasing. Cost of the greasing say Rs.10000.00 was paid by the whole sale dealer to the job worker. Since liability to pay Rs.10000 was of the manufacturer therefore the amount Rs.10000.00 be included to the value of supply of screws. Greasing process was one of the manufacturing process and liability to pay cost of such processing was of the manufacturer. Therefore, such cost would include to the value of supply even though payment on this account had already been made by the recipient.|
|(c) incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services;||For example the supplier Reymond Shop charges additionally for providing packing material to the customer. Such packing material supplied in respect of the supply of goods, therefore, cost of packing material will be included to value of supply of goods.|
|(d) interest or late fee or penalty for delayed payment of any consideration for any supply; and||For example the supplier charges late fee if payment is not received timely. Such amount of late fee if received by the Supplier shall be treated as part of the value of goods or services supplied. Tax shall be charged when it (late fee) is received by the Supplier.|
|(e) subsidies directly linked to the price excluding subsidies provided by the Central Government and State Governments.
Explanation.––For the purposes of this sub-section, the amount of subsidy shall be included in the value of supply of the supplier who receives the subsidy.
|Under this clause subsidy received from anyone except subsidy received from Central Government and State Government by the Supplier shall be included in the value of supply. For example Tata Group Charitable Trust (Non-Government Company) asks a distributor to supply taxable goods at subsidized price Rs.500.00 in Aadiwasi Area which market value is Rs.1000.00. Subsidy Rs.500 received by the Distributor shall be included in the value of supply. If the said subsidy Rs.500.00 received from the Government then such subsidy shall not be included in the value of supply.|
Q3. Which circumstances allow discount not to be included to the value of supply ?
Section 15 (3) of the CGST Act provides two type of conditions to be applied on discount. If the said conditions are fulfilled, the value of the supply shall not include any discount.
(a) Discount is given before or at the time of the supply if such discount has been duly recorded in the invoice issued in respect of such supply; and
(b) after the supply has been effected, if—
(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 on the basis of document issued by the supplier has been reversed by the recipient of the supply.
Circular 92/11/2019-GST is clarifying on the provisions of discount. This circular is clarifying on offers “Buy more, save move” and clarifying on “secondary discounts”. The crux of the clarification is that discounts given in the form schemes or offers shall be excluded to determine the value of supply provided they satisfy the parameters laid in section 15 (3) of the Act. Further clarification is that the supplier shall be entitled to avail the ITC for such inputs, input services and capital goods used in relation to the supply of goods or services or both on such discounts.
Q4. Which persons shall be deemed to be related persons?
Explanation to the Section 15 of the CGST Act provides list of Related Persons. Such list is reproduced as under:-
(a) persons shall be deemed to be “related persons” if––
(i) such persons are officers or directors of one another’s businesses;
(ii) such persons are legally recognised partners in business;
(iii) such persons are employer and employee;
(iv) 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;
(v) one of them directly or indirectly controls the other;
(vi) both of them are directly or indirectly controlled by a third person;
(vii) together they directly or indirectly control a third person; or
(viii) they are members of the same family;
(b) the term “person” also includes legal persons;
(c) 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.
Q5. Which supplies whose value shall be determined according to prescribed rules?
|Rule/ Examples||Supply||Value of Supply Shall be|
|Rule 27||Value of supply of goods or services where the consideration is not wholly in money||(a) be the open market value of such supply;
(b) If open market value not available then – Money + Money as is equivalent to the consideration not in money:
(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 the value is not determinable under clause (a) or clause (b) or clause (c), then value be determined by application of rule 30 or rule 31.
|Examples for Rule 27||(1) Where a new phone is supplied for twenty thousand rupees along with the exchange of an old phone and if the price of the new phone without exchange is twenty four thousand rupees, the open market value of the new phone is twenty four thousand rupees.
(2) Where a laptop is supplied for forty thousand rupees along with the barter of a printer that is manufactured by the recipient and the value of the printer known at the time of supply is four thousand rupees but the open market value of the laptop is not known, the value of the supply of the laptop is forty four thousand rupees.
|Rule 28||Value of supply of goods or services or both between distinct or related persons, other than through an agent.||(a) be the open market value of such supply;
(b) if the open market value is not available, be the value of supply of goods or services or both 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.
Provided that where the 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 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:
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.
|Rule 29||Value of supply of goods made or received through an agent.||(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) if the value is not determinable under clause (a), be the value as determined by the application of rule 30 or rule 31, in that order
|Example for Rule 29||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 five thousand rupees per quintal on the day of the supply. Another independent supplier is supplying groundnuts of like kind and quality to the said agent at the price of four thousand five hundred and fifty rupees per quintal. The value of the supply made by the principal shall be four thousand five hundred and fifty rupees per quintal or where he exercises the option, the value shall be 90 per cent. of five thousand rupees i.e., four thousand five hundred rupees per quintal.|
|Rule 31A||Value of supply in case of lottery, betting, gambling and horse racing||Sub clause (2) – The value of supply of lottery 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.
Explanation:- For the purposes of this sub-rule, the expression “Organising State” has the same meaning as assigned to it in clause (f) of sub-rule (1) of rule 2 of the Lotteries (Regulation) Rules, 2010.
Sub clause (3) – The 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.
|Rule 32 (2)||Value of supply of services in relation to the purchase or sale of foreign currency, including money changing||(a) for a currency, when exchanged from, or to, Indian Rupees, the value shall be equal to the difference in the buying rate or the selling rate, as the case may be, and the RBI reference rate for that currency at that time, multiplied by the total units of currency:
Provided that in case where the RBI reference rate for a currency is not available, the value shall be one per cent of the gross amount of Indian Rupees provided or received by the person changing the money:
Provided further that in case where neither of the currencies exchanged is Indian Rupees, the value shall be equal to one per cent 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 the RBI:
Provided also that a person supplying the services may exercise the option to ascertain the 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 the supplier of services, the value in relation to the supply of foreign currency, including money changing, shall be deemed to be—
(i) one per cent 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 and half of a per cent of the gross amount of currency exchanged for an amount exceeding one lakh rupees and up to ten lakh rupees; and
(iii) five thousand and five hundred rupees and one tenth of a per cent of the gross amount of currency exchanged for an amount exceeding ten lakh rupees, subject to a maximum amount of sixty thousand rupees.
|Rule 32 (3)||Value of the supply of services in relation to booking of tickets for travel by air provided by an air travel agent||Value shall be deemed to be an amount calculated at the rate of five per cent of the basic fare in the case of domestic bookings, and at the rate of ten per cent of the basic fare in the case of international bookings of passage for travel by air.
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 airlines.
|Rule 32 (4)||Value of supply of services in relation to life insurance business||Value 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 an 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 per cent of the premium charged from the policy holder in the first year and twelve and a half per cent of the premium charged from the policy holder in subsequent years:
Provided that 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.
|Rule 32 (5)||Value when taxable supply provided by a person dealing in 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 the purchase of such goods, the value of supply shall be the difference between the selling price and the purchase price and where the value of such supply is negative, it shall be ignored.|
|Example for Rule 32 (5)||A person dealing in second hand airconditioner purchases a used airconditioner for Rs.8000.00. After doing service to this airconditioner he sells it for Rs.9000.00. Value of supply shall be Rs.1000.00 being difference between the selling price and the purchase price. Suppose this airconditioner has been sold out at Rs.7500.00 then value of supply is minus 500.00 and the same shall be ignored being the negative value.|
|Proviso to Rule 32 (5)||Purchase Value of goods repossessed from a defaulting borrower, who is not registered||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 for Proviso to Rule 32 (5)||A Bajaj Finance Company repossessed a refrigerator from a defaulting borrower for the purpose of recovery of loan. The refrigerator was purchased for Rs.50000.00 on 01-10-2018. The Bajaj Company disposed of the refrigerator on 15-05-2020. Purchase value as on 15-05-2020 was Rs.32500.00 by reducing five percent for seven quarters from the original value Rs.50000.00 of the refrigerator.|
|Rule 32 (6)||Value of a token, or a voucher, or a coupon, or a stamp (other than postage stamp)||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 34 (1)||Rate of exchange for determination of value of taxable goods||Applicable rate of exchange as notified by the Board under section 14 of the Customs Act, 1962 for the date of time of supply of such goods in terms of section 12 of the Act.|
|Rule 34 (2)||Rate of exchange for determination of value of taxable services||Applicable rate of exchange determined as per the generally accepted accounting principles for the date of time of supply of such services in terms of section 13 of the Act.|
Q6. Valuation concepts in regard of Pure Agent –
Rule 33 – 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.
The expenditure or costs incurred by a supplier as a pure agent of the recipient of supply shall be excluded from the value of supply, if all the following conditions are satisfied, namely,—
(i) the supplier acts as a pure agent of the recipient of the supply, when he makes the payment to the third party on authorisation by such recipient;
(ii) 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
(iii) 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.
Example given in the rule –
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 the Registrar of Companies. The fees charged by the Registrar of Companies for the 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.
Q7. Explanation of Open Market Value and Supply of like kind and quality:-
(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 the 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 the reputation of the goods or services or both first mentioned, is the same as, or closely or substantially resembles, that supply of goods or services or both.
Q8. What is the formula to determine value of a supply of goods or services or both where value of such supply is not determinable by any rule;
Rule 30 says such supplies shall be valued on the basis of cost. The rule is reproduced as under:-
Where the value of a supply of goods or services or both is not determinable by any of the preceding rules of this Chapter, the value shall be one hundred and ten per cent of the cost of production or manufacture or the cost of acquisition of such goods or the cost of provision of such services.
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