1. The term ‘Valuation’ is significant under the GST Act as it will determine the amount of tax to be paid by the supplier of the goods or/and services. Section 15 of the CGST Act 2017 talks about the valuation of the supply of goods or/and services supplied in different circumstances and to a different person. This article covers provisions under sec 15 and the different valuation rules under GST.
2. Section 15(1) of CGST Act 2017 – Value of taxable supply: 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.
2.1 Thus, the value for the purpose of GST is the price actually paid subject to the following conditions:-
(a) Supplier and recipient should not be related
(b) Price is the sole consideration
3. Sec 15(2) of CGST Act 2017- Inclusions in value of supply:- Sec 15(2) of CGST Act 2017 has been provided the list of items that shall be included in the value of supply. The details of the items to be included / not to be included in the value of supply are as follows:-
| Section 15(2)(a) | (i) Taxes, duties, fees, and charges levied under any statute other than the CGST /SGST /IGST Act or compensation cess are includible in value if charged separately.
(ii) Value for payment of IGST, CGST and SGST will not include Kerala Flood Cess payable under clause 14 of Kerala Finance Bill, 2019..(Rule 32A of CGST Rules inserted w.e.f. 28-6-2019) (iii) The Value does not include Tax Collected at Source under Income Tax Act, as TCS is not a tax on goods but an interim levy on income. For Example – The amount of invoice is 100 and TCS is Rs 2, Value will be considered for GST is 100 and not 98. ( CBI&C Circular No. 76/50/2018-GST dated 31-12-2018 as amended vide corrigendum No. 20/16/04/2018-GST dated 7-3-2018) |
| Section 15(2)(b) | (i) The amount that the supplier is liable to pay but which has been incurred by the recipient
The amount will be added only if there is a contractual liability on the supplier to make those supplies and the recipient has paid the amount on behalf of the supplier. 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 ) The question arises 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 (ii) Free input or services provided by the recipient is not to be added in Value |
| Section 15(2)(c) | Incidental expenses, including any amount charged for anything done by the supplier in respect of the supply of goods /services at the time of, or before delivery of the goods or, as the case may be included in the value.
The value will include expenses like weighment, loading in the factory, inspection, testing before supply etc . Development charges like design and tooling are also included in the value. |
| Section 15(2)(d) | Interest or late fee or penalty for delayed payment of any consideration for any supply
GST on penal interest on Equated Monthly Installment (EMI) shall be included in value If the seller himself grants EMI installments and charged penal interest for delay in payment. In that case, GST will be payable by the seller, (even if charged separately) at the rate applicable to the sale of goods. (clarified vide CBI&C circular No. 102/21/2019-GST dated 28-6-2019). |
| Section 15(2)(e) | Subsidies directly linked to the price (excluding subsidies provided by the Central and State Governments ) are includible in ‘value’ for the charge of GST.
Explanation.—The amount of subsidy shall be included in the value of supply of the supplier who receives the subsidy A general subsidy which is not specifically connected to the sale of any specific goods will not be includible. |
4. Section 15(3) of CGST Act– Discount: The value of the supply shall not include any discount that is given before or at the time of the supply, provided such discount has been duly recorded in the invoice issued in respect of such supply;
The value shall not include discount even after the supply has been effected, provided that :
(i) Such a discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices.
(ii) Input tax credit as is attributable to the discount has been reversed by the recipient of the supply.
5. Section 15(4) of CGST Act – Application of GST Rules: The value of the supply of goods /services or both which cannot be valued under section 15(1) of CGST and SGST Act, shall be determined as per rules.
Situations, when GST Rules need to be apply for valuation, are as follows : —
(a) The consideration, whether paid or payable, is not money, wholly or partly
(b) The supplier and the recipient of the supply are related
6. Section 15(5) of the CGST Act: Notwithstanding anything contained in sub-section (1) or sub-section (4), the value of such supplies as may be notified by the Government on the recommendations of the Council shall be determined in such manner as may be prescribed.
7. Rule 27 of CGST and SGST Rules, 2017- Open Market Value: Where the supply of goods or services is for a consideration not wholly in money, the value of the supply shall be as follows :
(a) The open market value of such
(b) If the open market value is not available under clause (1) the sum of consideration in money and 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.
(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
(d) If the value is not determinable under clause (a) or clause (b) or clause (c), apply rule 30 or rule 31 in that
7.1 Open market value of a supply of goods/services or both means:-
(a) the full value in money, excluding (Tax) GST payable by a person in a transaction,
(b) where the supplier and the recipient of the supply are not related
(c) and the price is the sole consideration, to obtain such supply
(d) at the same time when the supply being valued is made;
8. Rule 28 of CGST and SGST Rules, 2017- Supply between distinct person:- Value of supply of Goods or Services or both between Distinct or Related Persons, other than through an Agentshall be as follows:-
(a) The open market value of such supply;
(b) If the open market value is not available, the value of supply of goods or services of likes kind and quality;
(c) If the value is not determinable under clause (a) or (b), be the value as determined by the application of rule 30 or rule 31, in that order.
8.1 Where the goods are intended for further supply as such by the recipient, the value shall, (at the option of the supplier,) an amount equivalent to 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:
8.2 Where the recipient is eligible for the full input tax credit, the value declared in the invoice shall be deemed to be the open market value of the goods or services.
8.3 Invoice should declare some value not Nil value, However, if the value declared is Nil, the input tax credit will not be available – (Assistant Commissioner, CGST & CX, In re [2018] (AAAR-WEST BENGAL) If no value is declared, rule 27 of CGST Rules will apply and GST will be payable on open market value.
9. Rule 29 of CGST and SGST Rules, 2017 – Supply through an Agent The value of supply of goods between the principal and his agent shall determine as follows:-
(a) 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.
(b) where the value of a supply is not determinable under clause (a), the same shall be determined by the application of rule 30 or rule 31 in that order.
9.1 Rule 29 does not cover distributors or selling agents who purchase goods from the Principal and then sell on their own. It covers only C&F Agents who store and sell goods on behalf of the Principal.
10. Rule 30 of CGST and SGST Rules, 2017- Cost plus method: Where the value of a supply of goods or services or both is not determinable by any of the preceding rules, the value shall be one hundred and ten percent of the cost of production or manufacture or cost of acquisition of such goods or cost of provision of such services
10.1 In case of services supplied by HO to its branches/divisions having distinct GSTIN, valuation should be as per rule 30 of CSGT Rules i.e. 110% of the cost (In Cummins India Ltd. In re [2019] AAR-Maharashtra)
11. Rule 31 of CGST and SGST Rules, 2017 – Residual Method: Where the value of supply of goods or services or both cannot be determined under rules 27 to 30 of CGST and SGST Rules, the same shall be determined using reasonable means consistent with the principles and general provisions of section 15 of CGST Act and provisions of rules 27 to 30 of CGST Rules
11.1 Proviso to Rule 31 of CGST Rules, 2017: The valuation method based on cost has limited value as in case of stock transfer or supply to related person where he is in position to avail entire Input Tax Credit, the value as declared in the invoice is acceptable. Further, for the valuation of supply of services, costing method is optional
11.2 Proviso to Rule 31 of CGST and SGST Rules, 2017: In case of the supply of services, the supplier may opt for rule 31 ignoring rule 30 –
12. Other relevant provisions related to Valuation :
12.1 Inclusion of freight charges in Value of Goods:- Freight charges in case of F.O.R basis contract is a part of the value of goods and GST is payable on value including freight charges.
F.O.R contract basis is the basis where the supplier arranges transport and pay GST under reverse charge on outward freight. He then charges outward freight in the tax invoice.
It has been clarified in FAQ No. 29 issued by Directorate General of Taxpayer Services on 31-7-2017. that in case of F.O.R contracts it is a composite contract and GST is payable on outward freight. GST rate will be the same rate as for goods.
12.2 Post Supply Special discount: Special discounts given after supply is not to be deducted from ‘value. It was held by AAR – Maharashtra,(2018) In re UltraTech Cement Ltd that if there are no pre-fixed criteria, basis or rationale for arriving at the quantum of the post supply amounts paid to the Dealer towards “rate difference” and “special discount”, the discount amount cannot be considered and allowed as a discount for the purpose of arriving at the ‘transaction value’ in terms of Section 15 of the CGST Act. They are not complying with the requirements of section 15(3)(b)(i) of the CGST Act.
12.3 Post Supply Volume discount: In some cases, discounts are known before the supply of goods or services but may be given after supply. Discounts offered by suppliers to customers are excluded to determine the value of supply if such discount fulfills requirements of section 15(3) of the CGST Act. Staggered discount under ‘Buy more, save more scheme’ and post supply volume discounts established before or at the time of supply are not to be added in the value of supply.
12.4 Post Supply discounts without requiring the dealer to do any further act: Post supply discounts are given by manufacturer or wholesaler (supplier) to the dealer without any further obligation or action required at the dealer’s end. Such discounts will relate to the original supply of goods. It would not be included in the value of supply if the discount was known prior to supply and the conditions of section 15(3)(b) of CGST Act are satisfied
12.5 Regular Trade discount after Sale: All regular trade discounts are allowable as permissible deductions. It was held in Maya Appliances P. Ltd. v. ACCT (2018) that giving the benefit of discount at a point of time subsequent to original sale/purchase is a regular trade practice and qualifies for the deduction.
12.6 Reimbursement of expenses: The reimbursable expenses are not charges for supply and hence are not includible in value. (Intercontinental Consultants & Technocrats (P.) Ltd. v. UOI) This decision pertains to service tax and should apply in GST also.
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Part 9 of the series will cover the topic “Eligibility and conditions for taking input tax credit under section 16 of the CGST Act.
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