GST Flyers – Valuation in GST

CHAPTER XXIX

Valuation in GST

Value of Supply

Every fiscal statue makes provision for determination of value as tax is
normally payable on ad-valorem basis. In GST also, tax is payable on
ad-valorem basis i.e. percentage of value of the supply of goods or
services. Section 15 of the CGST Act and
Rule 27 to Rule 35 of
CGST Rules, 2017 ( Chapter IV – Determination of Value of Supply), contain-
provisions related to valuation of supply of goods or services made in
different circumstances and to different persons.

Transaction Value

Under GST law, taxable value is the transaction value i.e. price actually
paid or payable, provided the supplier & the recipient are not related and
price is the sole consideration. In most of the cases of regular normal
trade, invoice value will be the taxable value. However, to determine value
of certain specific transactions, Determination of Value of Supply rules
have been prescribed in CGST Rules, 2017.

Compulsory Inclusions

Any taxes, fees, charges levied under any law other than GST law, expenses
incurred by the recipient on behalf of the supplier, incidental expenses
like commission & packing incurred by the supplier, interest or late fees
or penalty for delayed payment and direct subsidies (except government
subsidies) are required to be added to the price (if not already added) to
arrive at the taxable value.

Exclusion of discounts

Discounts like trade discount, quantity discount etc. are part of the
normal trade and commerce, therefore pre-supply discounts i.e. discounts
recorded in the invoice have been allowed to be excluded while determining
the taxable value.

Discounts provided after the supply can also be excluded while determining
the taxable value provided two conditions are met, namely – (a) discount is
established in terms of a pre supply agreement between the supplier & the
recipient and such discount is linked to relevant invoices and (b) input
tax credit attributable to the discounts is reversed by the recipient.

Taxable value when consideration is not solely in money

In some cases, where consideration for a supply is not solely in money,
taxable value has to be determined as – prescribed in the rules. In such
cases following values have to be taken sequentially to determine the
taxable value: –

i. Open Market Value of such supply.

ii. Total money value of the supply i.e. monetary con-
sideration plus money value of the non-monetary consideration.

iii. Value of supply of like kind and quality.

iv. Value of supply based on cost i.e. cost of supply plus
10% mark-up.

v. Value of supply determined by using reasonable
means consistent with principles & general provi- sions of GST law. (Best
Judgement method)

Open Market Value means the full value in money excluding taxes under GST
laws, payable by a person to obtain such supply at the time when supply
being valued is made, provided such supply is between unrelated persons and
price is the sole consideration for such supply.

Supply of like kind & quality means any other supply made under similar
circumstances that is same or closely resembles in respect of
characteristics, quality, quantity, functionality, reputation to the supply
being valued.

Illustration

(1) Where a new phone is supplied for Rs. 20000/- along with the exchange
of an old phone and if the price of the new phone without exchange is
Rs.24000/-, the open market value of the new phone is Rs 24000/-.

(2) Where a laptop is supplied for Rs. 40000/- 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. 4000/- but the open market value of the
laptop is not known, the value of the supply of laptop is Rs. 44000/-.

A person who is under influence of another person is called a related
person like members of the same family or subsidiaries of a group company
etc. Under GST law various categories of related persons have been
specified and as relation may influence the price between two related
persons therefore special valuation rule has been framed to arrive at the
taxable value of transactions between related persons. In such cases
following values have to be taken sequentially to determine the taxable
value: –

i. Open Market Value

ii. Value of supply of like kind and quality

iii. Value of supply based on cost i.e. cost of supply plus
10% mark-up.

iv. Value of supply determined by using reasonable
means consistent with principles & general provi- sions of GST law. (Best
Judgement method)

However if the recipient is eligible for full input tax credit, the invoice
value will be deemed to be the open market value. It has also been provided
that where the goods being supplied 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 unrelated customer.

Value of supply of goods made or received through an agent

a) Open market value of goods being supplied, 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 his unrelated customer.

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. 5000/- 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. 4550/- per quintal. The value of the supply made by the
principal shall be Rs. 4550/- per quintal or where he exercises the option
the value shall be 90% of the Rs. 5000/- i.e. is Rs. 4500/- per quintal.

a) In case value cannot be determined under (a) then fol- lowing values
have to be taken sequentially to deter- mine the taxable value: –

i.Value of supply based on cost i.e. cost of supply plus
10% mark-up.

ii.Value of supply determined by using reasonable means
consistent with principles & general provisions of GST law. (Best Judgement
method)

Value of supply of services in case of a Pure Agent

Subject to fulfilment of certain conditions, the expenditure and costs
incurred by the supplier as a pure agent of the recipient of supply of
service has to be excluded from the value of supply.

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.

Determination of value in respect of few specific supplies

Methods to determine Taxable value of following five specific supplies have
also been prescribed under valuation Rules. These can be used by the
supplier if he so desires.

a) Purchase or sale of foreign currency including money
changing

b) Booking of tickets for air travel by an air travel agent

c)Life insurance business

d) Value of supply of Second hand goods

e) Value of redeemable vouchers/Stamps/Coupons/to-
kens

The special provisions related to determination of these supplies are as
below: –

Option-1

Case 1: Transaction where one of the currencies exchanged is Indian
Rupees

Taxable value is difference between buying rate or selling rate of currency
and RBI reference rate for that currency at the time of exchange multiplied
by total units of foreign currency. However if RBI reference rate for a
currency is not available then taxable value is 1% of the gross amount of
Indian Rupees provided/received by the person changing the money.

Case 2: Transaction where neither of the currencies exchanged is Indian
Rupees

Taxable value will be 1% of the lesser of the two amounts the person
changing the money would have received by converting (at RBI reference
rate) any of the two currencies in Indian Rupees.

Option-2

The person supplying the service may also exercise the following option to
ascertain the taxable value, however once opted then he cannot withdraw the
during the remaining part of the financial year: –

  • One percent of the gross amount of currency exchanged for an amount up
    to one lakh rupees, subject to minimum amount of two hundred and fifty
    rupees.

  • One thousand rupees and half of a percent of the gross amount of
    currency exchanged for an amount exceeding one lakh rupees and up to ten
    lakh rupees.

  • Five thousand rupees and one tenth of a percent of the gross amount of
    currency exchanged for an amount exceeding ten lakhs rupees subject to a
    maximum amount of sixty thousand rupees.

Taxable value is 5% of basic fare in case of domestic travel and 10% of
basic fare in case of international travel. Basic fare means that part of
the air fare on which commission is normally paid to the air travel agent
by the airline.

The expression ‘basic fare’ means that part of the air fare on which
commission is normally paid to the air travel agent by the airlines.

Taxable value varies with nature of insurance policy. The details are as
follows:-

  • Where policy has dual benefits of risk coverage and investment – Taxable
    value is gross premium charged less amount allocated for investments or
    savings if such allocation is intimated to the policy holder at the time
    of collection of premium.

  • Single premium annuity policy where allocation for investments and
    savings is not intimated to the policy holder – taxable value is ten
    percent of the single premium charged from the policy holder.

  • Other cases- Twenty five percent of premium charged from the policy
    holder in the first year and twelve and a half percent of premium
    charged for subsequent years.

However, where insurance policy has benefit of risk coverage only, then
taxable value is entire premium charged from the policy holder.

The taxable value of supply of second hand goods i.e. used goods as such or
after such minor processing which does not change the nature of goods shall
be the difference between the purchase price and the selling price,
provided no input tax credit has been availed on purchase of such goods.
However, if the selling price is less than purchase price, that negative
value will be ignored.

Persons who purchase second hand goods after payment of tax to supplier of
such goods will be governed by this valuation rule only when they do not
avail input tax credit on such input supply. If input tax credit is
availed, then such supply will be governed by normal GST valuation.

Value of supply of goods repossessed from a defaulting borrower.

If the defaulting borrower is not a registered person, the purchase value
will be purchase price in the hands of such borrower reduced by five
percentage points for every quarter or part thereof, between the date of
purchase and date of disposal by the person making such repossession.

However, if the defaulting borrower is registered, the repossessing lender
agency will discharge GST at the supply value without any reduction from
actual/notional purchase value.

The value of a token, or a voucher, or a coupon, or a stamp (other than
postage stamp) which is redeemable against a 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.

Value of taxable services provided by a notified class of service providers as referred to in para 2 of schedule 1 between the distinct persons

The taxable value is deemed to be Nil wherever input tax credit is
available.

Valuation of certain works contract services

(i) Construction of a complex, building, civil structure or a part thereof,
including a complex or building intended for sale to a buyer, wholly or
partly, except where the entire consideration has been received after
issuance of completion certificate, where required, by the competent
authority or after its first occupation, whichever is earlier.

In case of supply of service mentioned above, involving transfer of
property in land or undivided share of land, as the case may be, the value
of supply of service and goods portion in such supply shall be equivalent
to the total amount charged for such supply less the value of land or
undivided share of land, as the case may be, and the value of land or
undivided share of land, as the case may be, in such supply shall be deemed
to be one third of the total amount charged for such supply.

“Total amount” means the sum total of,-

(a) consideration charged for aforesaid service; and

(b) amount charged for transfer of land or undivided share
of land, as the case may be.

Valuation in the case of supply of lottery

Value of supply of lottery shall be 100/112 of the face value or the price
notified in the Official Gazette by the organising State, whichever is
higher, in case of lottery run by State Government and 100/128 of the face
value or the price notified in the Official Gazette by the organising
State, whichever is higher, in case of lottery authorised by State
Government.

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 RBI reference rate for that
currency on the date of time of supply as determined in terms of section
12 or section 13
of the CGST Act.

Value of supply inclusive of integrated tax, central tax,State tax, Union territory tax

Where the value of supply is inclusive of GST, the tax amount shall be
determined in the following manner,

Tax amount= (Value inclusive of taxes X GST tax rate in %)/(100+ sum of GST
tax rates in %)

For example –

If the value inclusive of tax is Rs. 100/- and applicable GST tax rate is
18% then

Tax amount = (100×18)/ (100+18) = 1800/118=Rs. 15.25

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