Valuation under GST Regime | Section 15 | CGST Act 2017

VALUATION UNDER GST REGIME (SECTION- 15)

GST is payable on ad-volerem basis i.e. the percentage of Value of Supply of goods or services. Therefore, it is important to know how to arrive value for payments of GST.The provision relating to ‘value of supply’ set out the mechanism to compute such value basis which CGST and SGST/UTGST (intra-state supply) and IGST (inter-state supply) should be paid.

Section 15 of the CGST Act provides common provisions for determining the value of goods and services. It provides the mechanism for determining the value of a supply which is made between unrelated persons and when price and only the price is the sole consideration of the supply. When value cannot be determined under section 15, the same is determined using Chapter IV: Determination of Value of Supply of CGST Rules.

SECTION: – 15 VALUE OF TAXABLE SUPPLY

SEC 15(1):- The value of goods or services or both shall be the transaction value, which is actually paid or payable for the said supply of goods or services or both –

• Where the supplier and the recipient of the supply are not related and
• The price is the sole consideration for the supply.

SEC 15(2):-INCLUSION TO TRANSACTION VALUE

a)Duties and taxes – All taxes levied under any law for time being in force other than GST Acts if charged separately.

Note-Circular No. 76/50/2018 dt 31/12/2018

For the purpose of determination of the 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)3^rd Party Payments – Any payment incurred by the recipient for which supplier is liable to pay.

Note: As per section 16(2) of the CGST Act, if payment has not made by the recipient in 180 days, the proportionate input tax credit has to be reversed. In this case, the amount will be added in the value but the recipient will not make the payment to the supplier (as the amount has incurred by the recipient only). Does the question arise whether the recipient needs to reverse ITC?

Second proviso to rule 37(1) of CGST Rules, inserted w.e.f. 13-6-2018 stating that Payment by the recipient on behalf of supplier is deemed to be paid to the supplier and reversal of proportionate credit (for nonpayment in 180 days ) is not required.

c)Incidentals Expenses – Any incidental expenses charged by supplier & any amount charged for anything done by the supplier at the time of supply or before delivery.For e.g.- Packing, labelling, designing, Excise Duty, Royalty, warranty charges etc.

d)Interest, Late Fees, Penalty – for delay payment of consideration.

e)Subsidy – Subsidy directly linked to the price excluding subsidies directly provided by  Central and State Government.

SEC 15(3):- Deduction of Discount

The value of supply shall not include any discount which is given:-

a)Any discount is given before or at the time of supply – Deductible from value.

b)Any discount is given after supply –

• Agreed at the time of supply or before supply – Deduction allowed if –
  • • • • • • • • • Linked to the Invoice

• • • • • • • • • • ITC Reversed by the recipient.

• Not Agreed at the time of supply or before supply – Not Deductible from value.

SEC 15(4):- Where the value of supply of goods or services or both cannot be determined under subsection (1), the same shall be determined in such a manner as may be prescribed.(i.e. GST RULES,2017).

SEC 15(5):- Notwithstanding anything contained in subsection (1) or subsection (4), the value of such supplies as may be notified by the Govt. on the recommendation of the council shall be determined in such manner as may be prescribed.

RULES: – DETERMINATION OF VALUE OF SUPPLY

IMPORTANT DEFINITIONS:-

1.OPEN MARKET VALUE:- Of a supply of goods or services or both means the full value in money, excluding GST payable by a person in a transaction,

• • • Where the supplier and recipient of supply are not related and
    • Price is the sole consideration,

To obtain such a supply at the same time when the supply being valued is made.

2. SUPPLY OF GOODS OR SERVICES 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 is mentioned, is the same as, or closely or substantially resembles, that supply of goods or services or both.

3. Sec 2(5) Agent:– means a person, including a factor, broker, commission agent, arhatia, del credere agent, an auctioneer or any other mercantile agent, by whatever name called, who carries on the business of supply or receipt of goods or services or both on behalf of another;

4. Sec 2(88) Principal:– means a person on whose behalf an agent carries on the business of supply or receipt of goods or services or both.

CGST RULES 2017 

RULE 27:-WHEN CONSIDERATION IS NOT WHOLLY IN MONEY

a)Open market value(OMV)

b)If (a) is not available,

VALUE = Consideration in money + FMV of consideration not in money

c) If (a) & (b) not determinable,

VALUE = Value of Like, Kind & Quality

d) If (a), (b) & (c) not determinable then apply Rule 30 & Rule 31 in that order.(Discussed latter)

RULE 28:- SUPPLY BETWEEN DISTINCT OR RELATED PERSON

a)Open market value(OMV)

b) If (a) is not available,

VALUE = Value of Like, Kind & Quality

c) If (a) & (b) not determinable, then apply Rule 30 & Rule 31 in that order. (Discussed latter).

PROVISO 1: if the further supply of goods is as such by the recipient at the option of the supplier,

VALUE= 90% OF THE PRICE CHARGED FOR LIKE, KIND & QUALITY BY THE RECIPIENT.

 PROVISO 2: If the recipient is eligible for full ITC then,

OMV= Value declared in the invoice for the supply of goods or services.

NOTE: – Invoice should declare some value i.e. it should not be mentioned as NIL otherwise ITC will not be available and valuation will be done on OMV as per Rule 27 of CGST Rules, 2017 (Assistant Commissioner, CGST & CX, Tollygunge Division, Kolkata South Commissionerate (AAAR – WEST BENGAL-2018))

RULE 29:- SUPPLY BETWEEN PRINCIPAL AND AGENT

a) Open market value(OMV)

                    OR

90% of the price of like, kind and quality by the recipient. Where such goods are intended for further supply.

b)If (a) is not available then Rule 30 or 31 in order.

NOTE: – Rule 29 does not cover selling agent or distributor who purchases goods from the principal and sells on their own. It only covers C&F agents who store and sells goods on behalf of the principal. (Basically which are covered under Schedule-I of CGST Act, 2017 entry no.3).

RULE 30& 31 are applicable in order in the following cases:-

• IF the situation is covered under Rule 27, 28, 29 and valuation cannot be determined by applying the principal mentioned in respective rules.
• If the Situation is not covered by aforesaid rules.

RULE 30:- VALUE OF SUPPLY BASED ON COST

VALUE = 110% OF

• Cost of production
• Cost of acquisition
• Cost of the provision of Services.

RULE 31:- RESIDUAL METHOD OR BEST JUDGMENT BY USING REASONABLE MEANS

• Consistent with principles & general provision of Sec 15
• Provisions of Rule 27 to Rule 30 of CGST Rules

PROVISO:-in case of the supply of services suppliers may opt for rule 31 instead for rule 30.