Valuation of supply plays an important role in GST

Valuation of supply plays an important role in GST

Through this article we have tried to cover various aspects of valuation of supply

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• Concept of Transaction Value

Under GST law, taxable value is the transaction value i.e. price actually paid or payable. In most of the cases of regular normal trade, the invoice value will be the taxable value. However this rule is applicable if

1. Price is the sole consideration &
2. the recipient are not related.

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• Compulsory inclusions in transaction value

1. any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than GST law
2. expenses incurred by the recipient on behalf of the supplier
3. incidental expenses like commission & packing incurred by the supplier
4. interest or late fees or penalty for delayed payment and direct subsidies (except government subsidies) are required to be added to the price to arrive at the taxable value

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• Exclusion of discounts

1. Pre-supply discounts like trade discount, quantity discount etc. are part of the normal trade and commerce & recorded in the invoice are allowed to be excluded while determining the taxable value.
2. Post-supply discounts are excluded when
   • Discount is established in terms of a pre supply agreement ,
   • This discount is reflected in relevant invoices and
   • Input tax credit attributable to the discounts is reversed by the recipient.

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Now we will discuss the rules which are to be followed when transaction price is not the sole consideration & /or the recipient is a related party. Taxable value when consideration is not solely in money

• In such cases the taxable value shall be
  1. The Open Market Value of such supply
  2. Total money value of the supply i.e. monetary consideration plus money value of the non-monetary consideration
  3. If value is not determinable by above mentioned clauses the value of supply of like kind and quality
  4. Value of supply shall be cost of supply plus 10% mark-up, if not determinable through above mentioned clauses
  5. If we are not able to find value of supply by these clauses, then the value shall determined by using reasonable means consistent with principles & general provisions of GST law.

• Taxable value when the recipient are related.
  1. The Open Market Value of such supply
  2. If value is not determinable by above mentioned clauses the value of supply of like kind and quality
  3. Value of supply shall be cost of supply plus 10% mark-up, if not determinable through above mentioned clauses
  4. If we are not able to find value of supply by these clauses, then the value shall determined by using reasonable means consistent with principles & general provisions of GST law.

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Some of the relevant sections and rules have been given for your reference

THE CENTRAL GOODS AND SERVICES TAX ACT, 2017

CHAPTER IV

TIME AND VALUE OF SUPPLY

15 (1) 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. (2) The value of supply shall include

(a) any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than this Act, the State Goods and Services Tax Act, the Union Territory Goods and Services Tax Act and the Goods and Services Tax (Compensation to States) Act, if charged separately by the supplier;

(b) any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods or services or both;

(c) incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services;

(d) interest or late fee or penalty for delayed payment of any consideration for any supply; and

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

Explanation.For the purposes of this sub-section, the amount of subsidy shall be included in the value of supply of the supplier who receives the subsidy. (3) The value of the supply shall not include any discount which is given

(a) before or at the time of the supply if such discount has been duly recorded in the invoice issued in respect of such supply; and

(b) after the supply has been effected, if

(i) such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices; and

(ii) input tax credit as is attributable to the discount on the basis of document issued by the supplier has been reversed by the recipient of the supply.

(4) Where the value of the supply of goods or services or both cannot be determined under sub-section (1), the same shall be determined in such manner as may be prescribed. (5) 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. Explanation.For the purposes of this Act, (a) persons shall be deemed to be related persons if

(i) such persons are officers or directors of one anothers businesses;

(ii) such persons are legally recognized partners in business;

(iii) such persons are employer and employee;

(iv) 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;

(v) one of them directly or indirectly controls the other;

(vi) both of them are directly or indirectly controlled by a third person;

(vii) together they directly or indirectly control a third person; or

(viii) they are members of the same family;

(b) the term person also includes legal persons; (c) 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

Determination of Value of Supply

1. Value of supply of goods or services where the consideration is not wholly in money

Where the supply of goods or services is for a consideration not wholly in money, the value of the supply shall,

(a) be the open market value of such supply;

(b) if open market value is not available, be the sum total 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), be the value of supply of goods or services or both of like kind and quality;

(d) if value is not determinable under clause (a) or clause (b) or clause (c), be the sum total of consideration in money and such further amount in money that is equivalent to consideration not in money as determined by application of rule 4 or rule 5 in that order.

2. Value of supply of goods or services or both between distinct or related persons, other than through an agent

The value of the supply of goods or services or both between distinct persons as specified in sub-section (4) and (5) of section 25 or where the supplier and recipient are related, other than where the supply is made through an agent, shall,-

(a) be the open market value of such supply;

(b) if open market value is not available, be the value of supply of goods or services of like kind and quality;

(c) if value is not determinable under clause (a) or (b), be the value as determined by application of rule 4 or rule 5, in that order:

Provided where 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

4. 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, 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.

5. 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 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 services, the supplier may opt for this rule, disregarding rule 4.

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