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Direct & Indirect Taxes, Tax Ready Reckoner, Tax Management, Tax Act. & Rules, Tax Planning & Tax Savings.

Value of Taxable Supply of Goods or Services under Chapter IV of CGST Rules (Rules 27 to 35)

Basis of charge of GST is given by section 9. As per section 9, GST shall be levied on the value of taxable supply of goods/services determined under section 15. Section 15 prescribes the parameters for arriving at value of taxable supply of goods/services which is normally “transaction value”. In certain situations, however, transaction value is not considered for determination of GST liability and in such cases taxable value is determined under Chapter IV of CGST Rules (i.e., Rules 27 to 35).

Value of Taxable Supply of Goods or Services under Chapter IV of CGST Rules (Rules 27 to 35)
Value of Taxable Supply of Goods or Services under Chapter IV of CGST Rules (Rules 27 to 35)

1. When Value of Supply of Goods or Services shall be the ‘Transaction Value’ [Section 15(1) of CGST Act, 2017]

Transaction value is the price actually paid/payable for supply of goods or services or both. Section 15(1)  provides that the value of a supply of goods or services or both shall be the transaction value. However,  transaction value would be acceptable only when the following two conditions are satisfied –

  1. where the supplier and the recipient of the supply are not related; and
  2. the price is sole consideration for the supply.

When these two conditions are satisfied, transaction value is taken as taxable value of supply of goods/services  for calculation of GST liability. However, when the price is influenced by factors like relationship of parties or  where certain transactions are deemed to be supply, which do not have a price, the value has to be determined  in accordance with the GST Rules.

(A)  What will be Included in the Transaction Value of Supply [Section 15(2)]

Section 15(2) provides that the following shall be included in the value  of supply –

Taxes Any taxes, duties, cesses, fees and charges levied under any statute.

However, taxes levied under CGST Act, SGST Act, UTGST Act and the Goods and Services Tax  (Compensation to the States for Loss of Revenue) Act shall not be added if these taxes are charged  separately by the supplier to the recipient.

Supplier’s obligation met by recipient 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/services).
Incidental expenses Incidental expenses, such as commission and packing, charged by the supplier to the recipient  of a supply, 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/services.
Interest Interest or late fee or penalty for delayed payment of any consideration for any supply.
Subsidy Subsidies directly linked to the price (excluding subsidies provided by the Central and State  Government). The amount of Subsidy shall be included in the value of supply of the supplier who receives the subsidy.

Illustrations:

Case 1 –

X owns a commercial flat. It is given on rent to A Ltd. (rent being Rs. 2,50,000 per month). Besides rent, X recovers  house tax of Rs. 90,000 from A Ltd. Taxable value of supply in this case will be Rs. 30,90,000 (i.e., rent: Rs. 30,00,000 + house  tax: Rs. 90,000).

Case 2 –

A theatre charges Rs. 10,000 per person for a musical programme (to be held in Chennai on January 1, 2020). Besides,  it collects 5 per cent entertainment tax imposed by Tamil Nadu Government. Taxable value of supply for levy of GST will  be Rs. 10,500 (i.e., including entertainment tax).

Case 3 –

X supplies artificial silk to Y at the rate of Rs. 500 per meter. X also collects broker’s commission (which he has paid  at the rate of 5 per cent to a broker to get input supply). Taxable value of supply of silk by X to Y will be Rs. 525 per meter  (i.e., including broker’s commission charged by X).

Example 1

K, a trader has agreed to supply certain imported goods for Ks. 15,00,000 + Basic Customs Duty (BCD) of Rs. 1.50,000 to G.

in this case, BCD shall also be included in the transaction value, if it is charged separately in the invoice raised by the supplier of goods. Hence, GST shall be charged on Rs.16,50,000 at the applicable rate of such supplies.

Example 2

R & Sons has agreed to supply a TV to G at his residence. R & Sons raises the invoice for Rs. 80,000 for the said supply. Ci paid Rs. 80,000 to the supplier at his shop. Further, Ci paid Ks. 2,000 to concerned Tempo Agency who delivered the TV at his residence, though it was payable by R & Sons as the term of supply was free delivery at his residence, in this case, Rs. 2,000 paid to Tempo Agency shall be included in the value of taxable supply. Consequently, value of taxable supply shall be Rs. 82,000 [Rs. 80,000 + Rs. 2,000] for the purpose of levy of relevant GST.

Illustration-1

K, a trader provides the following information:

Value of supply of goods if payment is made by 25.12.2019 Rs. 5,00,000
Interest for delayed payment of consideration if payment is made after 25.12.2019 but before 25.01.2020 Rs. 20,000
Determine the value of supply if payment is received by Ron 5.1.2020.

Solution :

The value of supply shall be Ks. 5,20,000 (Ks. 5,00,000 + 20,000) provided the interest is not waived by R. However, time of supply of goods shall be 25.12.2017 and the time of supply of interest shall be 5.1.2018 when the payment of interest is received.

Illustration-2

K, a trader dealing in solar Cooker charged Rs. 40,000 for supply of cooker to G. He has received following subsidies:

(a) Subsidy directly linked to the supply and received from a Charitable Trust engaged in promotion of solar cookers Rs. 16,000
(b) Subsidy from the Central Government as it also wants to promote solar products in the country Rs. 24,000

Determine the value of supply of solar cooker.

Solution:

Value of supply shall be determined as under :

Particulars Amount (Rs.)
Amount charged by the trader for supplying the solar cooker Rs. 40,000
Add: (a) Subsidy received from Charitable Trust Rs. 16,000
(b) Subsidy received from Government of India (Not to be included in terms of section 15(2)(c))
Value of supply / Transaction Value subject to GST Rs.56,000

(B)  What will Excluded in the Transaction Value of Supply ? [Section 15(3)]

Section 15(3) provides that the value of supply shall not include any  Discount which is given below –

(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 provided both the following conditions are satisfied,—

(i)           such discount is established in terms of an agreement entered into ator beibre 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.

Situation 1 –

Discount which is allowed before (or at the time of) supply – This discount will not be included in value  of taxable supply, if it is duly recorded in the invoice which is issued in respect of such supply.

Situation 2 –

Discount that is allowed after the supply has been affected – This discount will not be included in value  of taxable supply if the following two conditions are satisfied—

  1. such discount is given under an agreement entered into at (or before) the time of such supply and specifically linked to relevant invoices; and
  2. 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.

Example 1

R, a trader provides the following information in his invoice dated 9.11.2017

Particulars Amount (Rs.)
Supply of 100 pieces of shirt of different colours at the rate of Rs. 800 per piece Rs. 80,000
Discount @ 20% Rs. 16,000
Net amount payable Rs 64,000

In this case, the value of supply of goods shall be Rs. 64,000.

Example 2

R Ltd. a manufacturer of readymade garments appointed certain dealers for selling its goods. He entered into an agreement to allow 5% discount by way of credit note if a dealer purchases goods for more than Rs. 50,00,000 in a period of six months from the date of first supply.

In this case, the aforesaid discount which was not known either before or at the time of supply of relevant goods shall not be deducted from the value of supply made by R Ltd.

One dealer U exceeded the target and R Ltd. issued a credit note of 5% additional discount for all the supplies made to such dealer in the period of’ six months.

In such case, discount given by issuance of credit note to the dealer by R Ltd. is under an agreement entered into by R at the time of supply of goods and thus such discount shall not form value of supply provided input tax credit has been reversed by such dealer tO whom credit note was issued, of the supply as is attributable to the discount on the basis of credit note issued by the supplier.

(C)   Meaning of ‘Related Persons’ [Explanation to Section 15]

Persons shall be deemed to be “related persons” if—

(i)         such persons are officers or directors of one another’s businesses;

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

(iii)       such persons are employer and employee;

(iv)       any person directly or indirectly owns, controls or holds 25% 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.

1. The term “person” also includes legal persons;

2. 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.

 (D)  Value of Supply of Goods or Services where the Consideration in not wholly in Money [Rule 27 of CGST Rules, 2017]

Rule 27 gives a few parameters to determine value of supply of goods/services where consideration is not  wholly in money. These parameters are given below –

Different situations Value of supply
Situation 1 – General provisions when consideration is not wholly in money Value of supply shall be open market value of such supply (i.e., money payable by another person for the same supply)
Situation 2 – When open market value is not available Value of supply is the total of—

– Consideration is in money

– Such further amount in money (as is equivalent to the consideration not in money), if such amount is known at the time of  supply

Situation 3 – If value of supply is not determinable under Situation 1 and Situation 2 Value of supply will be the value of supply of goods or services or  both of like kind and quality
Situation 4 – If value of supply is not determinable under Situation 1, Situation 2 and Situation 3 Value of supply is the total of—

– Consideration is in money

– Such further amount in money (i.e., equivalent to the consideration not in money as determined by the application of rule 30 or 31 in that order)

 

Notes – 

1.         Meaning of “Open Market Value”

– It means the full value in money, excluding the IGST, CGST, SGST, UTGST and GST cess payable by another person in a transaction, where the supplier and the recipient of the supply are not related and the price is the sole consideration, to obtain such supply at the same time when the supply being valued is made.

2.         Meaning of “supply of goods or services or both of like kind and quality”

– It means any other supply of goods or services or both made under similar circumstances that, in respect of the characteristics, quality, quantity, functional components, materials, and the reputation of the goods or services or both first mentioned, is the same as, or closely or substantially resembles, that supply of goods or services or both.

ILLUSTRATIONS:

Case 1 –

Y Ltd., a retailer in New City Square, offers iPhone X for Rs. 89,000 (with exchange offer of any old iPhone). It also offers iPhone X without exchange for Rs. 98,000. Z purchases iPhone X under exchange offer by exchanging an old iPhone 5. Value of old iPhone 5 is not available. In this case, value of supply of iPhone X to Z will be Rs. 98,000 (this case is covered by Situation 1 above).

Case 2 –

X Ltd. manufactures laptop. Y Ltd. manufactures printer. X Ltd. sells a laptop to Y Ltd. For this supply, Y Ltd. pays Rs. 90,000 and a printer (manufactured by it). Known value of printer is Rs. 3,000. However, value of laptop is not available, Value of supply of laptop by X Ltd. to Y Ltd. will be Rs. 93,000 (this case is covered by Situation 2 above).

Case 3 –

Suppose in Case 2, X Ltd. offers same laptop to others for Rs. 95,000 (without any exchange or barter). Y Ltd.  purchases the laptop for Rs. 90,000 (+ a printer of Rs. 3,000).  In this case, value of supply of laptop by X Ltd. to Y Ltd. will be Rs. 95,000 (this case is covered by Situation 1 above).

Case 4 –

A Ltd. sells a music system to B for Rs. 60,000. B provides free tax consultancy to A Ltd. (value of such consultancy is Rs. 10,000). The same music system is normally sold by A Ltd. to unknown person for Rs. 75,000.  Value of supply of music system by A Ltd. to B is Rs. 75,000 (this case is covered by Situation 1 above).

Case 5 –

Suppose in Case 4, normal value of music system is not available.  Value of supply of music system to B will be Rs. 70,000 (i.e., monetary consideration: Rs. 60,000 + value of consideration in kind: Rs. 10,000) (this case is covered by Situation 2 above).

Case 6 –

Suppose in Case 4, normal value of music system is not available. Even value of tax consultancy is not available.  But the same model of music system is sold by another dealer in a nearby city for Rs. 80,000 + handling charges of Rs. 2,000 + GST.  Value of supply of music system by A Ltd. to B is Rs. 82,000 (this case is covered by Situation 3 above).

Case 7 –

Suppose in Case 4, normal value of music system is not available. Even value of tax consultancy is not available.  But the same model of music system is sold by another dealer in a nearby city for Rs. 80,000 + handling charges of Rs. 2,000 + GST (this dealer gives a free DVD of Rs. 500).  Value of supply of music system by A Ltd. to B is Rs. 81,500 (this case is covered by Situation 3 above).

Case 8 –

Suppose in Case 4, normal value of music system is not available. Even value of tax consultancy is not available.  The same model of music system is not available in any other store.

In this case, value of supply of music system by A Ltd. to B cannot be determined under Situation 1, Situation 2 and Situation 3. It will be determined in the Situation 4. Under this situation, value of supply will be Rs. 60,000 (being monetary consideration) + value of non-monetary consideration (as determined under rule 30, if it is not possible then one has to apply rule 31) (this case is covered by Situation 4 above).

2. When Transaction Value of Supply of Goods or Services cannot be determined [Section 15(4) of CGST Act, 2017]

Where the value of the supply of goods or services or both cannot be determined under section 15(1), the same shall be determined in such manner as may be prescribed.

In other words, if the transaction is with a related party and/or price is not the sole consideration for the supply of goods or services, then the value will be determined in the manner as prescribed i.e. it will be determined as per the rules for valuation.

(A)  Value of Supply of Goods or Services or Both between Distinct or Related Persons, other than through an Agent [Rule 28 of CGST Rules, 2017]

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

Situation Value of Supply
(a) Where the open market value of supply is available The open market value

However, 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 the goods or services.

(b) If the open market value is not available The value of supply of goods or services of like kind and quality

However, where 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.

(c) If the value is not determinable under clause (a) or (b) The value as determined by the application of rule 30 or rule 31, in that order.

(B)  Value of Supply of Goods made or received through an Agent [Rule 29 of CGST Rules, 2017]

The value of supply of goods between the principal and his agent shall as under—

Situation Value of Supply
(a) Where the open market value of supply of goods is available The open market value of the goods being supplied, or at the option of the supplier, be 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, where the goods are intended for further supply by the said recipient

Illustration

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. 5,000 per quintal on the day of the supply. Another independent supplier is supplying groundnuts of like kind and
quality to the said agent at the price of Rs. 4,550 per quintal. The value of the supply made by the principal shall be Rs. 4,550 per quintal or where he exercises the option, the value shall be 90% of Rs. 5,000 i.e., Rs. 4,500 per quintal.

(b) Where the value of a supply is not determinable under clause (a) It shall be determined by the application of rule 30 or rule 31 in that order

3.   Value of Supply in case of Lottery, Betting, Gambling and Horse Racing, [Rule 31A of CGST Rules, 2017]

(I) Notwithstanding anything contained in the provisions of this Chapter, the value in respect of supplies specified below shall be determined in the manner provided hereinafter-

(A)   Value of Supply in case of Lottery [Rule 31A(2)]

(i) Value of supply of lottery run by State Governments [Rule 31A(2)(a)]

It shall be deemed to be –

(i)           100 / 112 of the face value of ticket; or

(ii)          the price as notified in the Official Gazette by the organizing State,

Whichever is higher.

(ii) Value of Supply of Lottery authorised by State Governments [Rule 31A(2)(b)]

It shall be deemed to be –

(i)           100 / 128 of the face value of ticket; or

(ii)          the price as notified in the Official Gazette by the organising State,

Whichever is higher.

Explanation:—

(a)        lottery run by State Governments” means a lottery not allowed to be sold in any State other than the organizing State;

(b)        “lottery authorised by State Governments” means a lottery which is authorised to be sold in State(s) other than the organising State also;

Example

Suppose, the face value of the ticket is Rs 100. The value of the ticket for the purpose of levy of GST shall be –

(A)       Where the lottery is run by a State Government –

(i)           Rs 100 x 100/112 = Rs 89.29; or

(ii)          The price as notified in the Official Gazette by the organising State

Whichever is higher

(B)       Where the lottery is authorised by State Governments –

(i)           Rs 100 x 100/128 = Rs 78.13; or

(ii) The price as notified in the Official Gazette by the organising State

Whichever is higher

In other words, the face value of the ticket is inclusive of GST.

Further, for computing the value of the lottery ticket, the rate of GST shall be 12%, in case the lottery is run by a State Government and it shall be 28%, if the lottery is authoi-ised by Slate Governments.

(B) Value of Supply of Actionable Claim in the form of chance to win in Betting, Gambling or Horse Racing in a Race Club [Rule 31A(3)]-

It shall be 100% of the face value of the bet or the amount paid into the totalizator.

See also  GST Registration, Modification and Cancellation Procedure
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