Valuation Under GST:
It is important to know the how to arrive at the value on which tax is to be paid. The valuation of supply is important as the tax liability is depends upon it.
In day to day business, we deal with many transactions and at that time confusion arises related to valuation such as whether to include particular expense in to the value of goods or services. In GST there is proper mechanism for valuation which are as follow:
Section 15 of CGST Act, 2017:
This section prescribes the mechanism for valuation of goods & services.
As per section 15(1) of CGST Act, 2017,
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.
Transaction value can be taken as a value of supply only if two conditions are satisfied:
1. Supply is between unrelated person:
2. Price is sole consideration for such supply
Now let us understand the amount which can be included in transaction value.
Inclusion in transaction Value: (Section 15(2) of CGST Act, 2017)
Any taxes, duties, cesses, fees & charges levied in any other law for the time being in force other than CGST/SGST/IGST/UTGST Act which is charged by supplier separately in the invoice.
However, TCS (Tax Collected At Source) shall not be included in transaction value as per CBDT circular.
Normally supplier is liable to pay expenses related to supply however in case where recipient has paid such expense on behalf of supplier than such expense shall be added to the price paid or payable by the recipient for supply of goods or services.
Incidental expenses such as commission, packing charges, inspection, certification, testing, loading, designing etc. which are incurred before delivery of goods or services & related to such supply.
If there is delay in payment than interest or penalty charge for such delayed payment shall also be included.
Exclusion from transaction value: (Section 15(3) of CGST Act, 2017)
Any discount given by supplier before or at the time of supply if such discount has been duly recorded in the invoice issued by the supplier. So GST should be recorded on balance value I.e.
Gross Value – Discount Given: Taxable Value
There are certain discounts which are given if specific performance or conditions are met. Even though such discounts are known before / at the time of supply, supplier can not record the same in invoice as he does not know whether buyer will make payment within stipulated time or meet require conditions or performance.
In such cases GST initially paid on the Gross value without considering the discount as indicated in the invoice. The supplier however passes the discount to buyers subsequently by issuing credit notes. At this time buyer will reverse proportionate credit as well as suppliers output tax liability will be reduced by same amount.
Section 15(4) of CGST Act, 2017:
Where the value cannot be determined as per section 15(1) i.e.
1. If the transaction is with related person.
2. The price is not sole consideration for supply.
Than the value shall be determined as per section 15(4) which stipulates different rules for valuation which are as follow:
Rule 27 of CGST rules:
When consideration received for supply is not wholly in money i.e. Partially in money and partially in kind than value shall be determined as per this rule as below:
1. The value shall be open market value.
2. If open market value is not available than value shall be;
Consideration in money + 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.
3. (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 quality.
4. If the value cannot be determinable as per (1), (2) or (3) than value shall be determine as per rule 30 or 31.
Rule 28 of CGST Rules:
Value of supply of Goods or Services or Both between Distinct or Related Person, other than through an Agent shall be as below:
1. The open market value of such supply.
2. If the open market value is not available, the value of supply of goods or services of like kind and quality;
3. If the value is not determinable as per (1) or (2) than the value shall be as determined by applying rule 30 or rule 31 in that order.
Rule 29 of CGST Rules:
Value of supply of Goods or Services received through Agent shall be as follow:
1. 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.
2. If the value is not determinable as per (1) than the value shall be as determined by applying rule 30 or rule 31 in that order.
Here it is important to note that the if agent supplies goods or services on behalf of the supplier (Principal) than only this rule will apply. If the agent is supplying goods or services on its own than this rule will not apply.
Rule 30 of CGST Rules:
Value of supply of goods or services or both based on cost:
If the value of supply of goods or services is not determinable as per preceding rules than the value shall be one hundred and ten percent of the cost of production or manufacture or the cost of acquisition of such goods or cost of provision of services
Rule 31 of CGST Rules:
Residual methods for determining 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 the general provisions of section 15 and the provisions of this Chapter:
Provided that in the case of supply of services, the supplier may opt for this rule, ignoring rule 30.
There are various supplies under which rule 31 is applicable.
Rules 32,33,34 are applicable for certain specified supplies.
Rule 35 specify that the value of supply shall be inclusive of Integrated tax, Central tax, State tax & Union territory tax.