Valuation of Taxable Supply: Section-15 of CGST Act
Section-15 of CGST Act
- The value of supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for said supply of goods or services or both where supplier and recipient of supply are not related and price is the sole consideration for such supply.
- Conditions to apply the transaction value
(A) Supplier and recipient are not related.
(B)Price is the sole consideration.
- What is Transaction value – in general it is price actually paid or payable for the goods or services supplied.
Inclusion to value of supply- Transaction Value
- Any taxes, duties, cess, fees and charges levied under any law for the time being in force other than this act, if charged separately by supplier.
Example: If the product is cover under GST & excise, then the transaction value is calculated using Excise duty.
Product Value 1000
Excise duty@ 10% 100
Transaction Value 1100
- Amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient to the supply and not included in the price actually paid or payable for goods or services or both.
Example: If as per purchase order supplier has to incurred transportation cost, but instead of supplier, recipient of the goods paid the transportation cost, then the same should be included in the transaction value.
- 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 to supply of goods or services or both.
Example: If the supplier appoints any agent for the specific transaction then the commission payable to that agent is the part of transaction value
- Interest or late fees or penalty for delayed payment of any consideration for any supply.
Example: If as per purchase order payment should be made within 30 days and above that 18% interest payable. If recipient made delay payment and has paid any interest then the same is the part of transaction value
- Subsidies directly linked to price excluding subsidies provided by Central Government and State Government
Other Important provisions:
- Transaction value is not applicable when price is not the sole consideration i.e. wherever consideration is partly or fully non-monetary.
- Transaction value is not applicable if supplier and recipient are related.
- Persons shall be deemed to related if-
(A) Such persons are officer’s or director’s of one another’s business or such persons are legally recognized partner’s in business
(B) Such person are employer and employee
(C) any person directly or indirectly owns, controls or hold twenty five percent or more of outstanding stock or shares
(D) One of them directly or indirectly control the others
(E) Both of them directly or indirectly controlled by third person
(F) Together they directly or indirectly control a third person
(G) They are the members of same family
(H) Sole agent or sole distributor, howsoever described , of the other shall be deemed to be related
- Value of goods or services for which transaction value is not applicable shall be determined in such manner as may be prescribed
- Transaction value is not applicable to notified supply of goods or services- value shall be determined in such manner as prescribed.
Determination of value of supply:
(Rule 27-35 of CGST Rules, 2017)
Rule 27: Valuation when consideration is non-monetary
- The value of supply shall be the open market value.
- If the open market value is not available, be the total sum of consideration in money and any such further amount in money as is equivalent to consideration not in money, if such amount is known at time of supply
- If value of supply is not available in the above manner, be the value of supply of goods or services or both of like kind and quality.
- Value shall be determined by the application of rule 30 or rule 31 in that order.
- Open Market value means the full value of money (excluding GST & cess) where supplier & recipient of supply are not related and price is sole consideration , to obtain such supply at the same time where supply being valued is made.
- Supply of like kind & quality means any other supply made under similar circumstances is same or closely related in respect to characteristics, quality, quantity, functionality to the supply being valued.
Example: A sold bike for INR 34,000 with exchange of old bike. Open market price of new bike is INR 52,000. Here, value of supply will be INR 52,000.
- If open market value is not available and old bike can be sold in market for Rs 20,000
Here, value of supply will be : Consideration in money i.e. INR 34,000 + Amount in money as is equivalent to consideration not in money i.e. INR 20,000 = Rs 54,000
2. If open market value of new bike as well as old bike is not available:
Value of like kind bike of another company i.e. INR 51000 will be considered as value of supply.
- Rule 30: If value of supply of goods & services are not determined with the help of Rule 27 to 29, then value of such supply shall be 110% of cost of such supply.
- Rule 31: If value of supply not determined with the help of Rule 27 to 30, then value of such supply shall be determined using reasonable means consistent with the principals and provisions of this chapter.
Example: Mr. A sold bike for INR 34,000 in exchange of old bike. Open market value of old as well as new bike is not available. Product of same kind & quality is also not available in the market.
Cost of purchase of bike is INR 47,000. Here, the value of supply will be Cost of acquisition plus 10% i.e. INR 47,000 + INR 4,700 = INR 51,700.
Valuation when supply is to distinct/ related person
- Distinct persons: If a person is obtained more than one registration in one or more than one state, in respect to each such registration, be treated as distinct person.
(A) Open market value of supply
(B) If open market value is not available, then value of such goods or services of like kind & quality
(C) If value cannot be determined above, value shall be determined by the application of Rule 30 and 31
- If goods are intended for further supply as such by the recipient then the value shall at option of supplier, 90% of amount charged from the customer (unrelated party) by the recipient.
Value of supply of goods through an agent
(A) Open market value of such supply or at the option of supplier, ninety percent of price charged for the further supply of goods by recipient.
(B) If the value cannot be determined above, value shall be determined using Rule 30 and 31.
- Further supply of goods by recipient means supply to customer who is unrelated party.
Determination of value in respect of certain supplies
- Value of supply for the air travel agent:
- In case of Domestic bookings- 5% of basic fare
- In case of International bookings- 10% of basic fare
Basic fare means the part of the fare on which commission is normally paid to the air travel agent by airlines.
- Value of supply of services in relation to life insurance business:
- Policy with benefits of Risk Coverage and Investment:
Taxable Value = Gross premium – Amount allocated for investment, or savings on behalf of the policyholder, if such amount is intimated to the policyholder at the time of collection of premium;
Example: If the gross premium is INR 70,000, of which INR 65,000 is invested in funds, then the value of supply shall be INR 5,000.
2. Single premium annuity policies:
Taxable Value: 10% of single premium charged from the policyholder; where allocation for investment/ savings is not intimated to the policy holder.
3. Other cases:
Taxable Value: 25 % of the premium charged from the policyholder in the first year and 12.5% of the premium charged from policyholder in subsequent years.
In case of policies with only risk cover, the taxable value shall be the entire premium charged from the policy holder.
- Valuation of second hand goods:
The taxable value of used goods shall be difference between selling price and purchase price , provided no ITC is availed on purchase of such goods. However, if selling price is less than purchase price, negative value will be ignored.
- Valuation in case of money changing services:
The value of supply in relation to purchase or sale of foreign currency If exchanged from or to Indian Rupees:
Transaction value: Total Unit of Currency*(Buying/Selling Rate-RBI Reference Rate)
If RBI Reference rate is not available:
Transaction value: 1% of gross amount of INR provided or received by person changing the money.
In case currency exchanged is not in INR, the value shall be equal to 1% of lesser of two amounts the person changing the money would have received by converting any of two currencies into INR on that day at the reference rate provided by RBI.
- Value of voucher, token, coupon, stamp (other than postage stamp)
The value shall be monetary value of such goods or services.
Example: If a Sodexo is worth INR 1500, and customer exchange coupon for food for goods worth INR 1500, the value of supply under GST law will be INR 1500.
Value of supply of services in case of Pure Agent
- Any cost incurred by the supplier on behalf of recipient as pure agent shall not form part of supply if following conditions satisfy:
- The supplier should be act as authorized pure agent of the recipient to supply.
- Cost incurred as pure agent should be separately mentioned in invoice.
- Supplies of pure agent should be in addition to service he supplies on his own account.
Example: XYZ Ltd, a consultancy firm is engaged to register a company for A Ltd. Other than professional fees, XYZ Ltd also recovers fees paid to ROC on behalf of A Ltd. Here, recovery of fees paid to OC is merely acting as pure agent in payment of those fees. Therefore, it will not form part of value of supply.