SECTION 15 OF THE CGST ACT CONTAINS PROVISIONS FOR VALUATION OF TAXABLE SUPPLY, WHICH states that The value of a supply of goods or services or both shall be the transaction value, which is the price 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.
From the above it can be seen that the value under section 15 can be determined only if the following two conditions are fulfilled:
a) Transaction is between unrelated person, and
b) Price is the sole consideration for supply.
Now question arises how the value will be determined in a case where transaction is between the related persons or where price is not the sole consideration.
The answer to the aforesaid question is contained in the Valuation Rules:
Rule-1: Applies where the supply of goods or service is not wholly in money or price is not the sole consideration:
As per above rule value of supply shall :
a) be the open market value of such supply;
b) If the open market value is not available then
Value= Consideration in money+Money value of consideration not in money (If the amount is known at the time of supply).
c) If the value of supply can not be determined as per caluse a or clause b then the value of supply shall be the value of supply of goods or services or both of like kind and quality.
d) If the value of supply can not be determined as per caluse a or clause b or clause c then
Value= Consideration in money + Money value of consideration not in money as determined by application of rule 4 or rule 5 in that order.
Rule-2 : Applies where the supply of goods or services or both is between distinct or related persons, other than through an agent:
Here distinct person means branch office or another unit or establishment of same person in different states or in the same state.
The value of supply shall;
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 value is not determinable under above clause, be the value determined under rule 4 or rule 5 in that order.
Rule-3: Value of Supply of goods made or received through an agent
Value shall be the open market value or at the option of supplier be the 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.
If value is not determinable under above clause, be the value determined under rule 4 or rule 5 in that order.
Rule-4: Value of Supply of Goods or Services or both based on cost
If the value can not be determined under any of the above rules than the value shall be equal to = 110%*Cost of Production or manufacture or cost of acquisition or cost of provision of such service.
Rule-5: Residual Method for Determination of value of supply of goods or services or both
If the value can not be determined under rules 1 to 4, 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 service, the supplier may opt for this rule , disregarding rule 4.
Notwithstanding anything contained in the act or in these rules, the value in respect of certain supplies shall be determined in the manner provided in Rule-6.
Provisions of Rule-6 will be discussed in the next article.