Section 15 of CGST Act determines the value of taxable supply of goods or services or both which is Transaction Value”:
> Under Sub-Section 1 of section 15 – 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
Note: The main point is that if supplier and the recipient of the supply are related and price is not the sole consideration for the supply then the said section shall not be applied to determine the value of taxable supply.
> Under Sub-Section 2 – The value of supply shall INCLUDES:
- Amounts charged by supplier to recipient in respect of any taxes, duties, cesses, fees and charges levied under any statute other than taxes paid under GST regime;
- Amount incurred by Recipient which is liable to be paid by the Supplier;
- Charges by Supplier to Recipient being:
√ Incidental expenses , including packing, commission,
√ Charges for anything done by the Supplier at the time or before the supply, in respect thereof
√ Interest or late fee or penalty for delayed payment of consideration for any supply
√ Subsidies directly linked to price – for supplier receiving the subsidy (excluding Central and State Govt. subsidies; i.e., Government subsidies will not be included in transaction value)
> Under Sub-Section 3 – Transaction Value EXCLUDES discount:
- Before/ at the time of supply
√ Single condition: Such discount is duly recorded in the invoice
> After the supply: Cumulative conditions:
√ Agreement establishing discount entered into at or before the time of supply and discount specifically linked to relevant invoices; and
√ ITC reversed by the recipient to the extent of discount
> Under Sub-Section 4 – where value cannot be determined u/s 15(1), that is when:
- Price is not the sole consideration
- Supplier-recipient is related persons. Recourse to the valuation Rules
> Under Sub-Section 5 – In case of supplies to be notified by Govt. on recommendation of GSTC – Value to be determined in such manner as may be prescribed.
Explanation.—For the purposes of this Act,––
◊ persons shall be deemed to be “related persons” if––
- such persons are officers or directors of one another’s businesses;
- such persons are legally recognized partners in business;
- such persons are employer and employee;
- any person directly or indirectly owns, controls or holds twenty-five percent. or more of the outstanding voting stock or shares of both of them;
- one of them directly or indirectly controls the other;
- both of them are directly or indirectly controlled by a third person;
- together they directly or indirectly control a third person; or
- they are members of the same family;
- the term “person” also includes legal persons;
- 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.
VALUATION RULES UNDER CGST RULES:
♦ Rule 27 – where the consideration is not wholly in money
a) open market value of such supply
b) open market value is not available
Sum total (Consideration in money + amount in money as equivalent to the consideration not in money) if such amount is known at the time of supply
d) If value is not determined under clause (a) or (b), the value of supply “Like kind and quality”
e) If value is not determined under clause (a) or (b) or (c),
sum total (consideration in money + amount in money that is equivalent to consideration not in money) as determined by application of Rule 30 or 31 in that order
Illustration 1: Where a new phone is supplied for Rs.10,000 along with the exchange of an old phone and if the price of the new phone without exchange is Rs.15,000, the open market value of the new phone is Rs 15,000.
Illustration 2: Where a laptop is supplied for Rs.45,000 along with a barter of printer that is manufactured by the recipient and the value of the printer known at the time of supply is Rs.5,000 but the open market value of the laptop is not known, the value of the supply of laptop is Rs.50,000.
♦ Rule 28 – Value of supply of goods or services or both between distinct or related persons, other than through an agent
a) open market value of such supply
b) If value is not determined under clause (a) the value of supply “Like kind and quality”
c) If value is not determined under clause (a) or (b), be the value as determined by application of rule 30 or rule 31 in that order
First proviso: If goods are intended for further supply as such by the said related or distinct person to other than related or distinct person . The value shall be at the option of the supplier, an amount equivalent to 90% of the price charged for the supply of goods of like kind and quality by the recipient to his customer.
Second Proviso: If 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 goods or services.
♦ Rule 29 – Value of supply of goods made or received through an agent
The value of supply of goods between the principal and his agent shall,-
a) The open market value of the goods supplied
At the option of the supplier (not less than 90% of the price charged for the supply of goods of kind and quality to his customer and customer not being a related person where the goods intended for further supply)
Illustration: Where 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 Rs.6,000 per quintal on the day of supply. Another independent supplier is supplying groundnuts of like kind and quality to the said agent at the price of Rs.5,450 per quintal. The value of the supply made by the principal shall be Rs.5,450 per quintal or where he exercises the option the value shall be 90% of the Rs.6000 i.e. is Rs.5,400 per quintal.
b) If value is not determinable as per above, as determined under Rule 30 or 31 in that order
♦ Rule 30 – 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 i.e. Rule 27 to 29, then value shall be:
- 110% of
√ the cost of production or manufacture or
√ cost of acquisition of such goods or
√ cost of provision of such services.
First Provisio of Rule 31: Supplier of services has the option to disregard Rule 30 and apply Residual rule i.e. Rule 31.
♦ Rule 31 – 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,
- the same shall be determined using reasonable means consistent with the principles and general provisions of section 15 and provision of this chapter.
♦ Rule 32 – Determination of value in respect of certain supplies – the value in respect of supplies specified below shall at the option of the supplier:
♦ Rule 32(2): The value of supply of services in relation to purchase or sale of foreign currency, including money changing, shall be determined by the supplier of service in the following manner:-
Option A –
◊ Currency exchanged from, or to, Indian Rupees (INR)
- RBI reference rate for currency available – Difference in buying Rate or Selling Rate X Total Unit of Currency
- RBI reference rate for currency not available – 1% of the gross amount of Indian Rupees provided or received by the person changing the money
◊ Where neither of the currencies exchanged is Indian Rupee –
- the value shall be equal to 1% 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 RBI
Option B –
- 1% of gross amount up to Rs.1 lac (Subject to minimum amount of Rs. 250), which is high
- 1,000 + 0.50% gross amount after Rs.1 lac up to Rs.10 lacs
- 5,500 + 0.10% of gross amount exceeding 10 Lacs (Subject to maximum amount of Rs. 60,000),
This option (b) once exercised cannot be withdrawn during the financial year
♦ Rule 32(3): The value of supply of services in relation to booking of tickets for air travel by an air travel agent:
- In the case of domestic bookings – 5% of basic basic fare
- In the case of international bookings – 10% of basic fare
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 airline.
♦ Rule 32(4): The value of supply of services in relation to life insurance business shall be:
a) The gross premium (suppose Rs. 1,000) charged from a policy holder reduced by the amount allocated for investment, or savings (Suppose Rs. 200) on behalf of the policy holder, if such amount is intimated to the policy holder at the time of supply of service; (Net amount is Rs. 800 on which GST shall be payable)
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, 25% of the premium charged from the policy holder in the first year and 12.50% of the premium charged from policy holder in subsequent years
The above provisions shall not apply if the entire premium paid by the policy holder is only towards the risk cover in life insurance. It means 100% premium shall be taxable.
♦ Rule 32(5): Person dealing in taxable supply of second hand goods
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 purchase of such goods
- the value of supply shall be the difference between the selling price and purchase price
- where the value of such supply is negative it shall be ignored
Provided that 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.
♦ Rule 32(6): Valuations in case of Token, Voucher or Coupon or Stamp
The value of a token, or a voucher, or a coupon, or a stamp (other than postage stamp) shall be equal to the money value of the goods or services or both redeemable against such token, voucher, coupon, or stamp.
♦ Rule 32(7): The value of taxable services provided by such class of service providers as may be notified by the Government on the recommendations of the Council as referred to in paragraph 2 of Schedule I between distinct persons as referred to in section 25, where input tax credit is available, shall be deemed to be NIL.
♦ Rule 33: Value of supply of services in case of pure agent
Notwithstanding anything contained in these rules, 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:-
- Supplier acts as a pure agent of recipient of the supply, when he makes payment to the third party on authorization by such recipient;
- 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
- 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.
Explanation . – For the purposes of this rule, “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 service 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 .
Illustration: 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 Registrar of the Companies. The fees charged by the Registrar of the companies 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.
♦ Rule 34: Rate of exchange of currency, other than Indian rupees, for determination of value
– The rate of exchange for determination of value of taxable goods or services or both
– shall be the applicable reference rate for that currency as determined by RBI
– on the date of time of supply in respect of such supply
– in terms of section 12 or, as the case may be, section 13 of the Act.
♦ Value of supply inclusive of integrated tax, central tax, State tax, Union territory
Where the value of supply is inclusive of integrated tax or, as the case may be, central tax, State tax, Union territory tax, the tax amount shall be determined in the following manner, namely,-
Illustration: Suppose value of supply including GST is Rs. 200 and rate of tax is 5%. Now amount of tax is Rs. 9.52
200 X 5
Tax Amount = ‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑ = Rs. 9.52
Explanation.- For the purposes of this Chapter,-
(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 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 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.