Value Of Supply Under GST

Value of supply under GST

GST is a destination-based tax levied on supply. As per the charging section of GST (Section 9 of CGST Act), the value of supply on which GST is to be levied will be determined as per Section 15. Here we will try to understand the provisions laid down for the valuation of taxable supplies under GST along with the various valuation rules applicable for the same.

But before that, let us encapsulate in brief the relevant basis for valuation in the earlier tax regime.

Earlier Tax Regime

In the earlier indirect tax regime, taxes were calculated on the value of goods and services as well. The valuation was generally done as follows:
  • VAT/ CST – Chargeable value considered was Sale Price
  • SERVICE TAX – Chargeable value considered was the value of service rendered.
Determination of Value under Service Tax where the consideration of taxable service was unascertainable was done by Service Tax Rules, 2006, as summarized below:

Sr. No.

Transaction

Valuation

1

For Foreign Exchange (where Indian currency is involved) Difference between buying/selling rate & RBI Reference Rate on the date of transaction x no. of units. If RBI Reference Rate is not available, 1% of the transaction value.

2

For Foreign Exchange (where Indian currency is not involved) Both currencies to be converted into Indian Rupees at RBI Reference Rate and 1% of the lower of the two values.

3

For Food & Drinks Service portion in hotel/ restaurant shall be 40%

4

For outdoor catering Service portion in outdoor catering shall be 60%

5

General Rule where wholly/ partly not in terms of money a. Value of similar service provided in the ordinary course of business b. Equivalent to the amount of consideration but not less than the cost of providing service
These Valuation Rules did not apply if no consideration was involved.
EXCISE DUTY – Chargeable value considered was transaction value of goods or MRP. Ad Valorem Valuation Under Excise Was Done As:
Sr. No. Type of Valuation Description
1 Tariff Value – Sec 3(2) The government has already prescribed some tariff values for notified goods. Value is this tariff value, irrespective of the actual transaction value.
2 RSP Method – Sec 4A Value is calculated by subtracting an approved abatement from the retail sale price/ MRP.
3 Transaction Value – Sec 4 Applicable when buyer & seller are not related, price is the sole consideration, and goods are to be delivered at the time & place of removal. Transaction value means price paid/ payable by the buyer to the seller for delivery of goods at the time & place of removal and includes, but not limited to, any amount charged separately for advertisement, freight, selling and distribution, insurance, guarantee, warranty, etc. but does not include excise duty, VAT, other taxes, returnable packing, discounts, etc,

Section 15: Value of Taxable Supply

  • Section 15(1) specifies that the value of a supply of goods or services or both shall be the Transaction Value (which means the price actually paid/ payable for the said supply).

Conditions:
The value will be Transaction Value when both these conditions are satisfied:
→ The supplier and recipient should not be related
→ Price should be the sole consideration
(Analysis: This means that in the case where there is no price in the transaction of supply or if supplier and recipient are related or if the price is not the sole consideration, Value will be determined as per CGST Rules.)

  • Section 15(2) states that the value of supply shall include:

→ Taxes, duties, cesses, fees, and charges (other than GST) if charged separately by the supplier. [Eg. Excise, Entertainment Tax levied by Local body, etc. will be added to the Value of supply. GST Compensation Cess will be excluded if charged separately by the supplier.]
→ Any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of such supply and the same is not included in the price actually paid/payable for goods/services/both (i.e. 3rd party payments by the recipient on behalf of the supplier in relation to the supply).
→ Incidental expenses, including commission and packing, charged by the supplier to the recipient of supply at the time of or before delivery of goods or supply of services. [Eg. Royalty, warranty charges, salesman commission, packing, labeling, pre-delivery inspection charges, etc.]

(Analysis: If incidental expenses are charged by the supplier after supply, they will not be added in Value of supply. The same will be recovered by the supplier separately by way of a Debit Note.)
→ Interest/ Late Fee/ Penalty for delayed payment of consideration for any supply
(Analysis: The time of supply of the above will be determined as per Section 12(6) or 13(6) i.e. in the month in which such interest/ late fee/ penalty is received. But the rate will be based on the original transaction. It is also important to note that such interest/ late fee/ penalty received will be deemed inclusive of GST.)
→ Subsidies directly linked to the price, excluding subsidies provided by the Central Government and State Government.

  • Section 15(3) states that the value of supply shall not include any discount which is given:

→ Before/ at the time of supply if such discount has been duly recorded in the invoice issued in respect of such supply
→ After the supply has been affected if –

  1. Such discount is established in terms of an agreement entered into at or before the time of such supply and specifically link to relevant invoices and
  2. Input tax credit as is attributable to the discount on the basis of a document issued by the supplier has been reversed by the recipient of the supply.
  • Section 15(4) specifies that where the Value of supply cannot be determined under subsection (1) (i.e. Transaction Value), the same shall be determined in such manner as may be prescribed. The same is prescribed in the CGST Rules as described below:
Rule 27: Value Of Supply Of Goods/ 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 supply shall be:

1. The open market value of such supply

2. If open market value not available,

  • 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.If Value of supply is not determinable under both,

3. Value of supply of goods or services or both of like kind and quality

4. If Value of supply is not determinable under any of the above,

Sum total of consideration in money and

Such a further amount in money that is equivalent to consideration not in money as determined by the application of Rule 30 or Rule 31, in that order.

Rule 27: Value Of Supply Of Goods/ 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 supply shall be:
1. The open market value of such supply
2. If open market value not available,
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.If Value of supply is not determinable under both,
3. Value of supply of goods or services or both of like kind and quality
4. If Value of supply is not determinable under any of the above,
Sum total of consideration in money and Such a further amount in money that is equivalent to consideration not in money as determined by the application of Rule 30 or Rule 31, in that order.
Rule 28: Value Of Supply Of Goods/ Services/ Both Between Distinct Or Related Persons, Other Than Through An Agent

Where 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 be:
The open market value of such supply
If open market value not available,
➔ Value of supply of goods or services or both of like kind and quality
If Value of supply is not determinable under any of the above,
➔ Value as determined by the application of Rule 30 or Rule 31, in that order.
Proviso: If the goods are intended for further supply as such by the recipient, the Value shall, at the option of the supplier be:
→ 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 not being a related person.
Proviso : Where the recipient is eligible for full ITC, the Value declared in the invoice shall be deemed to be the open market value of the goods or services.

Rule 29: Value Of Supply Of Goods Made Or Received Through An Agent

Value of supply of goods between the principal and his agent shall be:
1. Either of the two,
➔ The open market value of the goods being a supplier or
➔ At the option of the supplier, 90% of the price charged for the supply of goods of like kind and quality by the recipient to the customer not being a related person, where the goods are intended for further supply by the said recipient.
2. If Value of supply is not determinable under the above,
➔ The same shall be determined by the application of Rule 30 or Rule 31, in that order.

Rule 30: Value Of Supply Of Goods Or Services Or Both Based On Cost
Where the Value of supply of goods or services or both is not determinable by any of the preceding rules, the value shall be 110% of:
➔ The cost of production/ manufacture or
➔ The cost of acquisition of such goods or
➔ The cost of provision of such services.
Rule 31: Residual Method For Determination Of Value Of Supply Of Goods/ Services/ Both
Where the Value of supply of goods or services or both is cannot be determined under Rules 27 to 30, the same shall be determined using reasonable means consistent with the principles and the general provisions of Section 15 and Valuation Rules.
However, it is also provided that in case of supply of services, the supplier may opt for this rule ignoring Rule 30.

Section 15(5) states that notwithstanding anything contained in sub-section (1) or (4), the value of such supplies as may be notified by the Government on the recommendation of the Council shall be determined in such manner as may be prescribed. Such Valuation in special cases is covered in Rule 31A, Rule 32, Rule 33, Rule 34, and Rule 35.

Valuation In Special Cases

Rule 31A: Value of Supply in case of lottery, betting, gambling and horse racing

CASE VALUE
Lottery run by State Government The value shall be deemed to be higher of: → Face value of ticket or → Price as notified in the Official Gazette by the organizing State
Lottery authorized by State Government The value shall be deemed to be higher of: → Face value of ticket or → Price as notified in the Official Gazette by the organizing State
Betting, Gambling, Horse Racing Face Value of Bet or Amount paid to Totaliser
Rule 32: Determination of Value in respect of certain supplies Section 32(1) specifies that notwithstanding anything contained in the provisions of this chapter, the value in respect of supplies specified below shall, at the option of the supplier, be determined in the manner as stated. Section 32(2) – Purchase or Sale of Foreign Currency OPTION 1:

IF

VALUE

RBI Reference Rate is available Value = Difference in buying rate/ selling rate and the RBI reference rate for that currency at that time, multiplied by the total units of currency.
RBI Reference Rate is not available Value = 1% of the gross amount of Indian Rupees provided/ received by the person changing the money.
Neither of the currencies exchanged is Indian Rupees Value = 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 the RBI.
OPTION 2: At the option of the supplier of services, the value in relation to the supply of foreign currency, including money changing shall be deemed to be:
a. 1% of the gross amount of currency exchanged for an amount up to Rs. 1,00,000/- Subject to a minimum amount of Rs. 250/-

b. Rs. 1,000/-
&
0.5% of the gross amount of currency exchanged for an amount exceeding Rs. 1,00,000/-and up to Rs. 10,00,000/-

c. Rs. 5,500/-

&
0.1% of the gross amount of currency exchanged for an amount exceeding Rs. 10,00,000/-
Subject to a maximum amount of Rs. 60,000/-

Section 32(3)Value of Supply of services in relation to booking of tickets for travel by air

The value of supply of services in relation to booking of tickets for travel by air provided by an air travel agent shall be deemed to be an amount calculated at the rate of:

BookingValue for GST
Domestic Booking5% of Basic Fare
International Booking10% of Basic Fare

Section 32(4)Value of supply of services in relation to the life insurance business

Value of supply of services in relation to life insurance business shall be –
a. If saving amount separately intimatedThe gross premium charged from a policyholder reduced by the amount allocated for investment/ savings on behalf of the policyholder, if such an amount is intimated to the policyholder at the time of supply of service.
b. In the case of single premium annuity policies10% of the single premium charged from the policyholder
c. All other cases25% of the premium charged from the policyholder in the first year & 12.5% in subsequent years.
This shall not apply where the entire premium paid by the policyholder is only towards risk cover in life insurance.

Section 32(5)Buying & Selling of Second-hand Goods
→ Where a taxable supply is provided by a person dealing in buying & 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 ITC has been availed on the purchase of such goods:
→ Value of supply = Difference between the selling price and the purchase price and where the value of such supply is negative, it shall be ignored.
→ It has been 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 5% for every quarter or part thereof, between the date of purchase and the date of disposal by the person making such representation.

date of purchase and the date of disposal by the person making such representation.

Press Release on Margin Scheme dated 15/07/2017

As per the clarification issued by the press, the margin scheme can be availed by any registered person dealing in buying and selling second-hand goods (including old and used empty bottles) and who satisfies the conditions of Rule 32(5) of CGST Rules 2017.

Section 32(6) – Value of a token, voucher, coupon or a stamp

The value of a token, voucher, coupon, or a stamp (other than a postage stamp) which is redeemable against supply of goods or services or both shall be equal to the money value of the goods or services or both redeemable against such token, voucher, coupon or stamp.

 Section 32(7) – Valuation of supply made to a distinct person

The value of taxable services provided by:

→ Such class of service providers as may be notified by the Government on recommendations of the Council

→ As referred to in paragraph 2 of Schedule I of the Act between distinct persons as referred to in Section 25

→ Where ITC is available

Shall be deemed to be NIL.

Rule 33: Value of supply of services in case of pure agent

Notwithstanding anything contained above, 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:

  1. The supplier acts as a pure agent of the recipient of the supply when he makes the payment to the third party on authorization by such recipient.
  2. 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
  3. 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.

What does the term ‘pure agent’ mean here?

→ Enters into a contractual agreement with the recipient of supply to act as his pure agent to incur an expenditure of costs in the course of supply of goods or services or both

→ Neither intends to hold nor holds any title to the goods or services or both so procured or supplied as a pure agent of the recipient of a supply

→ Does not use for his own interest such goods or services so procured and

→ 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.

Rule 34: Rate of exchange of currency, other than Indian Rupees, for determination of value

Supply of Goods:

→ Applicable Rate of exchange – as notified by the Board under Section 14 of Customs Act, 1962.

→ Date of time of supply of such goods – in terms of Section 12 of the Act

→ Normal charge as per Section 12

Supply of Services:

→ Applicable Rate of exchange – as per the Generally Accepted Accounting Principles (GAAP)

→ Date of time of supply of such goods – in terms of Section 13 of the Act

→ Reverse Charge

Rule 35: Value of supply inclusive of integrated tax, Central tax, State tax, Union territory tax

Where the value of supply is inclusive of integrated tax or central tax or state tax or Union territory tax, the Tax amount shall be determined in the following manner:

Tax amount = (Value inclusive of taxes × tax rate in % of IGST/CGST/SGST/UTGST) ÷ (100 + sum of tax rates, as applicable, in %)

i.e. assume inclusive of GST and calculate accordingly.

IGST Rule 3 related to Advertisement service to the Central Government/ State Government/ statutory body/ local authority meant for the State or Union territory identified in contract or agreement when such an Advertisement is broadcasted/ run/ played in more than one State or Union Territory and a Consolidated Amount is charged for such Supply, in absence of allocation in contract/agreement, the value shall be as follows:
Rule Means of Advertisement Factors that determines proportionate value attributable

3(1)

Newspapers and Publications The amount payable for publishing an advertisement in all the editions of a newspaper or publication which are published in each State/ Union Territory

3(2)

Printed material like pamphlets, leaflets, diaries, calendars, T-shirts The amount payable for the distribution of a specific number of such material in each State/ Union Territory

3(3)

Hoardings (other than those on trains) The amount payable for the Holdings located  in each State/ Union Territory

3(4)

Hoardings, ads placed on Trains Length of the railway track for that train in each State/ Union Territory

3(5)

On the back of utility bills of oil & gas companies etc. The amount payable for the advertisements on bills pertaining to consumers having billing addresses in each State/ Union Territory

3(6)

On Railway Tickets Number of railway stations in each State/ Union Territory

3(7)

Radio Stations The amount payable to such radio station which, by virtue of its name, is part of a State or Union territory

3(8)

Television Channels Value of Service in each State/ Union Territory =  Total Amount payable for such services x Ratio of viewership of such channel is concerned State/ Union Territory

3(9)

Cinema Halls The amount payable to a cinema hall or screens in a multiplex  in each State/ Union Territory

3(10)

On the Internet (deemed to have been provided all over India) Value of Service in each State/ Union Territory =  Total Amount payable for such services x Ratio of No. of Internet Subscribers in concerned State/ Union Territory

3(11)

Through SMS Value of Service in each State/ Union Territory =  Total Amount payable for such services x Ratio of Telecom Subscribers in concerned State/ Union Territory

(With reference to Supply and Schedule I Para 3 along with Circular No. 73/47/2018 dated 5/11/2018)

Case I – Agent issuing invoice in name of principal (supplier)Agent issuing invoice in name of principal (supplier)

Agent issuing invoice in his own name

ISSUE: Clarification regarding applicability of GST on additional / penal interest. (Circular No. 102/21/2019 dated 28/06/2019) Clarification:
Transaction Interest / late fee / penalty & its valuation Additional Interest / late fee / penalty & its valuation
Loan / Advance / Deposit Interest. Exempt (not added in value) Additional Interest / late fee / penalty. Exempt (not added in value)
Late Payment of Consideration Interest / late fee / penalty. Add in value [Sec 15(2)(d)] Additional Interest. Add in value [Sec 15(2)(d)]
Thus, it can be concluded that if the initial transaction is exempt, additional interest will also be exempt. If taxable, follow accordingly.
ISSUE: Clarification regarding applicability of GST on TCS under the Income Tax Act. (Circular No. 76/50/2018 dated 31/12/2018) Clarification: Section 15(2) of the CGST Act specifies that the value of supply shall include any taxes, duties, cesses, fees, and charges levied under any law for the time being in force other than GST if charged separately by the supplier. For the purpose of determination of the value of supply under GST, TCS under the provisions of Income Tax Act, 1961 would not be includible as it is an interim levy not having the character of tax.
Some advance rulings in relation to Valuation have been summarised below:
Sr. No. Advance Ruling Order No. Brief facts & ruling

1

KAR ADRG 21/2020 dated 23/04/2020 Karnataka Authority for Advance Ruling Facts: The applicant has stated that there are three components involved in the overall supply between the supplier and the recipient. They are the supply of power packs, freight, and insurance related to the power packs and supply of installation and commissioning service. The applicant himself has stated That the installation and commissioning can be carried out by the recipient either by themselves or they can avail the services from any other supplier of service. Hence it is clear that the supply of the installation and commissioning is not a part of the supply contract of power packs and hence is an independent service. Ruling:  The supply of power packs and the freight and insurance charges would form part of the value of supply of power packs (composite supply). The supply of commissioning/installation services supplied by the applicant is independent service supplied by the applicant and is independent of the supply of power packs.

2

KAR ADRG 16/2020 dated 23/03/2020 Karnataka Authority of Advance Ruling

Facts: Goods are supplied within India and billing is to be done in foreign currency. Application of rate to convert foreign currency into Indian rupees to pay GST? Ruling: The value of goods, supplied within India and billing done in foreign currency, shall be determined under Rule 34 of CGST Rules, 2017 and rate of exchange for imported goods as notified by the Board under section 14 of the Customs Act, 1962 shall be applicable to the present case.

3

KAR ADRG 16/2020 dated  23/03/2020 Karnataka Authority of Advance Ruling

Facts: Valuation of taxable supply with respect to the inclusion of subsidy amount granted to the farmer or to the supplier on behalf of the farmer by Horticulture / Agriculture / Sericulture Department of Government of Karnataka under PMKSY scheme or any other Central / State Government approved schemes. Ruling: The amount of assistance received by the farmer or on account of the farmer from the Government Department has no bearing on the price and hence on the value of supply made by the applicant to the farmer and is not covered under section 15(2)(e) of the CGST Act, 2017.

Sharing is caring!