Section 15 : value of taxable supply [Rule 27 to Rule 35]
As GST is payable as percentage of the value of supply, it is thereby important to determine the value of taxable supply as per the GST Law. Section 15 of CGST act deals with the same along with several inclusions and deductions. However, when the same cannot be determined by section 15, Rules of Chapter IV i.e. Rules 27 to 35 of the CGST act is used for such valuation.
| Section reference | Condition | Value of supply |
|
15(1) |
Where the Supplier and the Recipient Of the Supply are
|
Transaction value i.e. the price actually paid or payable for the said supply |
Note :
♦ The term related person would include the following :-
- Such persons are officers or directors of one another’s businesses;
- Persons legally recognised as partners in business;
- Such persons are employer and employee;
- 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;
- One of them directly or indirectly controlsthe other;
- A third person directly or indirectly controls both of them;
- Together they directly or indirectly control a third person;
- They are members of the same family;
♦ The term person includes legal persons
♦ Persons who are associated in the business of one another would also deem to be related
| Section reference | Additions to value determined as per section 15(1) |
|
15(2) |
(a) Any taxes, duties, cesses, fees and charges levied under any statute except GST, if they have been separately charged
(b) Any amount which the supplier is liable to pay but the same has been incurred by the recipient. (c) Any incidental expenses, such as, commission and packing and any other amount charged by the supplier at or before such supply is rendered (d) interest or late fee or penalty for delayed paymentof a consideration (e) Any subsidies directly linked to the price excluding subsidies provided by the Government |
Note :
♦ Any incidental expenses, such as, commission and packing and any other amount charged by the supplier after such supply is rendered is not to be included. The same is to dealt separately through a separate tax invoice. In case of a debit note, the same is to be treated as a separate transaction.
♦ A subsidy not linked to price is not to be added to the value of supply.
| Section reference | Deductions to value determined as per section 15(1) |
|
15(3) |
(a) Any discount given before or at the time of supply duly identified in the Invoice.
(b) Any discount given after the time of supply only if the same was agreed upon anytime before such supply and ITC on the same has been reversed by the recipient |
Assessable value = Transaction value + Adjustment of 15(2) – Deduction of 15(3)
For clarity and better understanding, let us understand the above sections with one of the best examples we have come across-.
ABC Ltd has provided the following details regarding sale of machinery supplied by it to XYZ Ltd :
| Particulars | Amount |
| List price of goods (excluding taxes and discounts) | 70000 |
| Packing charges at the request of customer | 5000 |
| Municipal taxes levied on such sale | 2000 |
| Subsidy received from Central Government | 1000 |
| Freight and insurance from place of removal to the supplier’s premises | 750 |
A cash discount of 1% on the list price was agreed to be offered to XYZ Ltd if it agreed to make immediate payment. As XYZ makes the payment, determine the value of such supply.
Solution :
| Particulars | Section reference | Amount |
| List price of goods (excluding taxes and discounts) | 15(1) | 70000 |
| Add:Packing charges at the request of customer | 15(2)(c) | 5000 |
| Municipal taxes levied on such sale | 15(2)(a) | 2000 |
| Subsidy received from Central Government | 15(2)(e) | Nil |
| Freight and insurance to the supplier’s premises | 15(2)(c) | 750 |
| Less:Cash discount @ 1% on list price | 15(3)(a) | (700) |
| 77050/- |
- Section 15(4) of the CGST act talks about the case where the value of supply of goods or services cannot be determined under Section 15(1) – the same shall be determined as per Chapter IV of CGST Rules,2017
- In case of a supply notified under section 15(5), the value of the same shall be determined as per Chapter IV of CGST Rules,2017 [Refer Rule 32 below]
Now lets discuss the rules that are prescribed to be followed u/s 15(4) & 15(5) as referred above –
| Rule No. | Condition | Value of supply | |
|
27 |
Where the consideration is not wholly in money i.e. consideration is in the form of an act, forbearance or otherwise | Open market value | |
| If the open market value is not available | Sum of Consideration in Money and amount as is equivalent to consideration not in money[if known at time of supply] | ||
| If the open market value and equivalent monetary value is not available | Value of both like kind and quality | ||
| If the none of the above is determinable | Value determine by Rule 30 or Rule 31, as the case maybe | ||
Note:
- Open market value means the full value in money, excluding GST payable by a person in a transaction, in a case where the supplier and the recipient of the supply are not related and the price is the sole consideration, to obtain the same supply at the same time when the supply being valued is made.
Illustration :
Mr. A sold LED to Mr. B for Rs 15,000/- provided Mr. B:
Situation I: Will supply Radio worth of Rs 3,000/- Mr. A or any other person never sold any such LED before in India.
Situation II: Will supply Radio worth of Rs 3,000/- Mr. C is selling similar LED of different brand for Rs 22,000/-
Situation III: Mr. A earlier in the day sold this LED for Rs 20,000/-
| Situation I | Situation II | Situation III |
| Rs. 18,000/- (15000+3000) | Rs. 18,000/- | Rs. 20,000/- |
| Under Rule 1(b)
*Open market value is not available |
Under Rule 1(b)
|
Under Rule 1(a) – Open Market value is available |
–
| Rule No. | Condition | Value of supply | |
|
28 |
Value of Supply of Goods or Services or Both between Distinct or Related Persons, other than through an Agent | Open market value | |
| If the open market value is not available | Value of both like kind and quality | ||
| If the open market value and value of both like and quality is not available | Value determine by Rule 30 or Rule 31, as the case maybe | ||
| If such goods are intended for further supply as such by the recipient | 90% of value of both like kind and quality, that the recipient would charge from his customer (not being a related party) | ||
| If the recipient is eligible for full ITC | Value declared in tax invoice will be deemed to be the open market value | ||
Note:
♦ The above rule shall be applicable for supply made with consideration or without consideration.
♦ In accordance with the provisions of section 25(4) a person who has obtained or is required to obtain more than one registration, whether in one State or Union territory or more than one State or Union territory shall, in respect of each such registration, be treated as distinct persons for the purposes of this Act.
Illustration
Mr. Ram proprietor of Sri Krishna Manufactures supplied certain goods costing Rs. 75,000/- to it’s employees at Rs. 60,000/-. In such a case, as both the assessee and it’s employee come under the definition of related parties under the GST Act, open market value as per Rule 28 if available will be applicable. The open market value of the goods were Rs. 75,000/- which would constitute to be the value of supply in such a case.
| Rule No. | Condition | Value of supply | |
|
29 |
Value of Supply of Goods made or received through an Agent |
|
|
| If the open market value and value of both like and quality is not available | Value determine by Rule 30 or Rule 31, as the case maybe | ||
Note:
♦ The above rule shall be applicable for supply made only when selling or buying agent issues his own invoice or when the agent receives supply on behalf of the principal.
For better understanding let us consider the following :
Whirlpool Ltd, a manufacturer of washing machines, had several selling agents across the country. It supplied the washing machines on the basis of orders received from it’s agents. The agents further supplied the machines under their own name at an MRP of Rs. 70000 per unit. Whirlpool received an order of 20 machines from one of it’s agents based in Kolkata. Whirlpool also supplies the same machines to it’s retailers in Bangalore at Rs. 90000 per unit.
In the above scenario, as the agents are supplying machines in their own name and issues it’s own invoice, it would constitute to be supply. Thus, Whirlpool Ltd, has 2 options :-
Open market value=Rs. 90000*20 =Rs. 18,00,000/-
90% of value of both like kind and quality that the recipient would charge from his customer = 90% *70000*20 = Rs. 12,60,000/-
| Rule No. | Condition | Value of supply |
|
30 |
Where the value of a supply of goods or services or both is not determinable under rules 27 to 29 | Cost method i.e.
110 % of Cost of production or manufacture, or 110 % of Cost of acquisition, or 110 % of Cost of provision of such service |
Illustration:
XYZ Private Limited has 2 establishments. One in Delhi and another in West Bengal. It manufactured product ‘X’ with customizations as required for Kolkata Branch. ‘X’ being a customized product, the same was not sold to the public at large. Thus, open market value of the same is not determinable. However, cost of production for product ‘X’ would be Rs. 15000. The establishment at the Kolkata branch would sell the same after further customization as demanded by the consumers.
Thus, in the above scenario, value is determinable as per Rule 28. However, due to absence of open market value and value for like kind and quality, Valuation as per Rule no. 30 would be adopted.
Value = 110% of Cost of production i.e. 110% * 15000 = Rs. 16,500
|
31 |
Where the value of a supply of goods or services or both is not determinable under rules 27 to 30 | Residual method i.e,
Value determined using reasonable means consistent with the principles and general provisions of the GST Law However, in case of supply of service the supplier may opt for this rule, ignoring rule 30 |
|
| 31A
Value of supply in case of lottery, betting, gambling and horse racing |
Irrespective of the above mentioned rules and other provisions of the act, the value shall determined be as follows :- | ||
| Actionable claim in the form of chance to win in betting, gambling or horse racing in a race club | 100% of
|
||
For better understanding let us consider the following :
A lottery was organized by West Bengal Government. The ticket price was Rs. 500 per ticket as notified in the Gazette by the organizing State as authorized by the government.
Thus, value of supply of lottery as authorized by State Governments = 100*500/128 = Rs. 390.50/-
Valuation in special cases
| Rule No. | Condition | Value of supply | |
| 32(2)
|
Value of supply of services in relation to the purchase or sale of foreign currency, including money changing | Irrespective of the above mentioned rules and other provisions of the act, the value at the option of the supplier shall determined be as follows,:- | |
| Option 1 | |||
| When exchanged from, or to, Indian Rupees |
|
||
|
|||
| When exchanged from one foreign currency to another. | 1% of lower of :-
|
||
| Option 2 | |||
| When exchanged from, or to, Indian Rupees or from one foreign currency to another. |
Amount above 10 lacs : Rs. 5500 + 0.1% of the gross amount of currency exchanged on such excessive amount Subject to a maximum of Rs. 60000 |
||
♦ Once option 2 has been exercised for a financial year, such option shall not be withdrawn during the remaining part of that financial year.
For better understanding let us consider the following illustration:
Mr X, exchanged 100000 peso to Indian Rupees @ 1.50 per peso. Mr X has 2 options for the valuation-
Option 1 : As RBI reference rate is not available, 1% of gross amount = 1%*1.50*100000= Rs.1500/-
Option 2 : Amount above 1 lacs up to 10 lacs : Rs. 1000 + 0.5% of (150000-100000) = Rs. 1,250/-
| Rule No. | Condition | Value of supply | |
| 32(3)
|
Value of supply in case of booking of tickets for travel by air provided by an air travel agent | Domestic bookings | 5% of Basic fare |
| International bookings | 10% of Basic fare | ||
Note:
- Basic fare means that part of the air fare on which commission is normally paid to the air travel agent by the airlines.
- Other charges and taxes are not to be included in the calculation of basic fare.
| Rule No. | Condition | Value of supply | |
| 32(4)
|
Value of supply in case of life insurance business | If savings amount is separately Intimated, at the time of supply | The gross premium charged from a policy holder reduced by the amount allocated for investment, or savings |
| In case of single premium annuity policies | 10% of single premium charged | ||
| If entire premium is towards risk cover | Total premium charged | ||
| Any other case |
|
||
For better understanding let us consider the following Illustartion :
LIC has provided the following details of various policy holders for the month of March’2020.
| Particulars | Amount |
| In case of Risk cover policy ,premium collected | 50000 |
| General Insurance ,Total premium ( including 5000 for subsequent years) | 25000 |
| Premium for single premium annuity policies | 10000 |
Value of Supply as determined in the above case would be :
| Particulars | Amount |
| In case of Risk cover policy ,premium collected | 50000 |
| General Insurance ,1st year[25% of Rs. 20,000/-] | 5000 |
| General Insurance subsequent year[12.5% of Rs. 5,000/-] | 625 |
| Premium for single premium annuity policies[10% of Rs. 10,000/-] | 1000 |
| 56,625/- |
–
| Rule No. | Condition | Value of supply | |
| 32
|
Value of supply in case of a person dealing in buying and selling of second hand goods | No ITC has been taken by the Person | Selling price -Purchase price
Ignore if negative. |
| ITC has been taken | Transaction value u/s 15 | ||
| In case of selling of repossessed goods from a defaulting unregistered borrower | Purchase price as reduced by 5% for every quarter or part thereof, between the date of purchase and the date of disposal. | ||
For better understanding let us consider the following :
Mr. Honey a dealer in second hand cars purchases the cars and sells them after painting and some repair. He does not take credit of any of the purchases. He told one car at Rs. 90000 which was purchased by him at Rs. 85000.
In the above scenario, value of supply would be Rs. 90000-85000 = Rs. 5000/-. However if in the above scenario, the purchase price would have been Rs. Above 90000, value of supply would be Nil.
| Rule No. | Condition | Value of supply |
| 32
|
Value of supply in case of a value of a token, or a voucher, or a coupon, or a stamp (other than postage stamp) which is redeemable | Money value of the goods or services or both redeemable against such token, voucher etc |
Value of taxable services,where input tax credit is available provided
|
NIL |
- As per Rule 33, Irrespective of any provisions of this Chapter, the expenditure or costs incurred by a supplier as a pure agent of the recipient of supply will be excluded from the value of Supply, if all the following conditions are satisfied :-
- 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;
- 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.
Meaning of Pure Agent
(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.
For better understanding let us consider the following :
Mr. Ram (a CA) makes payment of GST, TDS and ROC on behalf of it’s clients. He later recovers the same from his client in addition to this service charges.
Accordingly, as Mr. Ram is acting as a pure agent, the same would not be added to the value of supply in the invoice made by Mr. Ram.
| Rule No. | Condition | Value of supply |
| 34
|
Rate of Exchange of Currency, other than Indian Rupees | Supply of Goods :
|
Supply of Service :
|
♦ As per Rule 35, 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 :
Tax amount = (Value inclusive of taxes X tax rate in % of such Tax) ÷ (100+ sum of tax rates, as applicable, in %)
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Very helpful article for professionals. It is very helpful because it is section by section and with rules. Keep it up. Thank you very much.