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Valuation in GST: EximGuru.com




Valuation in GST

Value of Supply

Every fiscal statue makes provision for the determination of valueas tax which is normally payable on ad-valorem basis. In GSTalso, tax is payable on ad-valorem basis i.e percentage of valueof the supply of goods or services. Section 15 of the CGST Actand Determination of Value of Supply, CGST Rules, 2017 contain- provisions related to valuation of supply of goods or servicesmade in different circumstances and to different persons.

Transaction Value

Under GST law, taxable value is the transaction value i.e. priceactually paid or payable, provided the supplier & the recipientare not related and price is the sole consideration. In most ofthe cases of regular normal trade, the invoice value will be thetaxable value. However, to determine value of certain specifictransactions, Determination of Value of Supply rules have beenprescribed in CGST Rules, 2017.

Compulsory Inclusions

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

Exclusion of discounts

Discounts like trade discount, quantity discount etc. are part ofthe normal trade and commerce. Therefore, pre-supply discountsi.e. discounts recorded in the invoice have been allowed to beexcluded while determining the taxable value.
Discounts provided after the supply can also be excluded whiledetermining the taxable value, provided two conditions are met,namely:

  • (a) discount is established in terms of a pre supply agreementbetween the supplier & the recipient and such discount islinked to relevant invoices
  • (b) input tax credit attributable to the discounts is reversed by therecipient

Taxable value when consideration is not solely in money

In some cases, where consideration for a supply is not solely inmoney, taxable value has to be determined as - prescribed in therules. In such cases following values have to be taken sequentiallyto determine the taxable value:

  • i. Open Market Value of such supply
  • ii. Total money value of the supply i.e. monetary considerationplus 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 meansconsistent with principles & general provisions of GST law.(Best Judgement method)

Open Market Value

Open Market Value means the full value of money excluding taxesunder GST laws, payable by a person to obtain such supply at thetime when supply being valued is made, provided such supply isbetween unrelated persons and price is the sole consideration forsuch supply.

Supply of like kind & quality means

Supply of like kind & quality means any other supply made undersimilar circumstances, is same or closely resembles in respect ofcharacteristics, quality, quantity, functionality, reputation to thesupply being valued.

Illustration:

(1) Where a new phone is supplied for Rs. 20000/- along with theexchange of an old phone and if the price of the new phonewithout exchange is Rs.24000/-, the open market value ofthe new phone is Rs 24000/-.
(2) Where a laptop is supplied for Rs. 40000/- along with a barterof printer that is manufactured by the recipient and the valueof the printer known at the time of supply is Rs. 4000/- butthe open market value of the laptop is not known, the valueof the supply of laptop is Rs. 44000/-.

Value of supply between distinct and related persons (excludingAgents)

A person who is under influence of another person is called arelated person like members of the same family or subsidiaries ofa group company etc. Under GST law various categories of relatedpersons have been specified and as relation may influence theprice between two related persons therefore special valuationrule has been framed to arrive at the taxable value of transactionsbetween related persons. In such cases following values have tobe 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 meansconsistent with principles & general provisions of GST law.(Best Judgement method)

However if the recipient is eligible for full input tax credit, theinvoice value will be accepted as taxable value. It has also beenprovided that where the goods being supplied are intended forfurther supply as such be the recipient, the value shall , at theoption of the supplier, be an amount equivalent to 90% of theprice charged for the supply of goods of like kind and quality bythe 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 optionof the supplier, 90% of the price charged for the supply ofgoods of like kind and quality by the recipient to his unrelatedcustomer.

Illustration:

Where a principal supplies groundnut to his agent and theagent is supplying groundnuts of like kind and quality insubsequent supplies at a price of Rs. 5000/- per quintal onthe day of supply. Another independent supplier is supplyinggroundnuts of like kind and quality to the said agent at theprice of Rs. 4550/- per quintal. The value of the supply madeby the principal shall be Rs. 4550/- per quintal or where heexercises the option the value shall be 90% of the Rs. 5000/- i.e.is Rs. 4500/- per quintal.

(b) In case value cannot be determined under (a) then followingvalues have to be taken sequentially to determine the taxablevalue:
i. Value of supply based on cost i.e. cost of supply plus 10%mark-up
ii. Value of supply determined by using reasonable meansconsistent 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 andcosts incurred by the supplier as a pure agent of the recipient ofsupply of service, has to be excluded from the value of supply

Illustration:

Corporate services firm A is engaged to handle the legal workpertaining to the incorporation of Company B. Other than its servicefees, A also recovers from B, Registration fee and Approval fee forthe name of the company paid to Registrar of the Companies. Thefees charged by the Registrar of the companies registration andapproval of the name are compulsorily levied on B. A is merelyacting as a pure agent in the payment of those fees. Therefore, A’srecovery of such expenses is a disbursement and not part of thevalue of supply made by A to B.

Determination of value in respect of few specific supplies

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

(a) Purchase or sale of foreign currency including moneychanging
(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/tokens
The special provisions related to determination of these suppliesare as below:

Special provision related to determination of Value of service ofpurchase or sale of foreign currency including money changing

Option-1

Case 1: Transaction where one of the currencies exchanged isIndian Rupees

Taxable value is difference between buying rate or selling rate ofcurrency and RBI reference rate for that currency at the time ofexchange multiplied by total units of foreign currency. Howeverif RBI reference rate for a currency is not available then taxablevalue 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 exchangedis Indian Rupees

Taxable value will be 1% of the lesser of the two amounts theperson 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 followingoption to ascertain the taxable value, however, once opted thenhe cannot withdraw it during the remaining part of the financialyear:

  • One percent of the gross amount of currency exchanged foran amount upto one lakh rupees, subject to minimum amountof two hundred and fifty rupees
  • One thousand rupees and half of a percent of the grossamount of currency exchanged for an amount exceeding onelakh rupees and up to ten lakh rupees
  • Five thousand rupees and one tenth of a percent of the grossamount of currency exchanged for an amount exceeding tenlakhs rupees subject to a maximum amount of sixty thousandrupees

Special provision related to determination of value of service ofbooking of tickets for air travel by an air travel agent

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

Special provision related to determination of value of service inrelation to life insurance business

Taxable value varies with nature of insurance policy. The details areas follows:

  • Where policy has dual benefits of risk coverage and investment– Taxable value is gross premium charged less amount allocatedfor investments or savings if such allocation is intimated to thepolicy holder at the time of collection of premium.
  • Single premium annuity policy where allocation forinvestments and savings is not intimated to the policy holder– taxable value is ten percent of the single premium chargedfrom the policy holder.
  • Other cases- Twenty five percent of premium charged fromthe policy holder in the first year and twelve and a halfpercent of premium charged for subsequent years.
However, where insurance policy has benefit of risk coverageonly, then taxable value is entire premium charged from thepolicy holder.
Special provision related to determination of value of secondhand goods
The taxable value of supply of second hand goods i.e. used goodsas such or after such minor processing which does not changethe nature of goods shall be the difference between the purchaseprice and the selling price, provided no input tax credit has beenavailed on purchase of such goods. However, if the selling priceis less than purchase price, that negative value will be ignored.
Persons who purchase second hand goods after payment of taxto supplier of such goods will be governed by this valuation ruleonly when they do not avail input tax credit on such input supply.If input tax credit is availed, then such supply will be governed bynormal GST valuation.

Value of supply of goods repossessed from a defaultingborrower

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

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

Special provisions related to determination of value ofredeemable vouchers/stamps/coupons/tokens

The value of a token, or a voucher, or a coupon, or a stamp (otherthan postage stamp) which is redeemable against a supply ofgoods or services or both shall be equal to the money value ofthe goods or services or both redeemable against such token,voucher, coupon, or stamp.
Value of taxable services provided by a notified class of serviceproviders as referred to in Para 2 of Schedule 1 between the distinctpersons.
The taxable value is deemed to be Nil wherever input tax credit isavailable.
Rate of exchange of currency, other than Indian rupees, fordetermination of value.
The rate of exchange for determination of value of taxable goodsor services or both shall be the applicable RBI reference rate forthat currency on the date of time of supply as determined in termsof 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 shallbe 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 rateis 18% then,

Tax amount = (100x18)/(100+18)= 1800/118=Rs. 15.25




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