GST- VALUATION - nirc@ of Supply - NIRC-1 آ  Valuation under GST – Reimbursement vs

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  • GST- VALUATION

  • Taxable Event – Supply (Section 7)

    Scope of Supply

    (1) For the purposes of this Act, the expression “supply” includes––

    a) all forms of supply of goods or services or both such as sale,

    transfer, barter, exchange, licence, rental, lease or disposal

    made or agreed to be made for a consideration by a person in

    the course or furtherance of business

    b) import of services for a consideration whether or not in the

    course or furtherance of business;

    c) the activities specified in Schedule I, made or agreed to be

    made without a consideration; and

    d) the activities to be treated as supply of goods or supply of

    services as referred to in Schedule II.

  • Value of Taxable Supply

    Section 15 of CGST Act, 2017

  • Value of Supply

     Value of a supply of goods or services or both shall be the

    transaction value

     Transaction value - the price actually paid or payable,

     where the supplier and the recipient of the supply are not related

    and

     the price is the sole consideration for the supply.

     In the following situations, the value of supply shall not be the

    transaction value

     Consideration is not wholly in money

     Supplier is related

     Business transaction done by Agent, Insurer, Money Changer, Air

    travel agent and distributor or selling agent of lottery

     Transaction value not ascertainable

    Value of Taxable Supply

  • (a) Persons shall be deemed to be related, if -

    ‣ such persons are officers or directors of one another’s businesses;

    ‣ such persons are legally recognised partners in business;

    ‣ such persons are employer and employee;

    ‣ any person directly or indirectly owns, controls or holds twenty-five per cent. or more of the outstanding voting stock or shares of both of

    them;

    ‣ one of them directly or indirectly controls the other;

    ‣ both of them are directly or indirectly controlled by a third person;

    ‣ together they directly or indirectly control a third person; or

    ‣ they are members of the same family;

    Section 2(49)

    Family means –

    (i) The spouse and children of the person, and

    (ii) The parents, grand parents, brothers and sisters of the person if they

    are wholly or mainly dependent on the said person.

    Related Person

  • (b) The term “person” also includes legal persons;

    (c) Persons who are associated in the business of one another in that

    one is the sole agent or sole distributor or sole concessionaire,

    however described, of the other, shall be deemed to be related

  • Recovery of Food expenses from employees – Advance Ruling (Kerala)

     M/s Caltech Polymers Pvt. Ltd. engaged in the manufacture and sale

    of footwear.

     They were providing canteen services exclusively for their

    employees.

     It was according to the provisions of the Factories Act, 1948.

     The company worked as follows:-

     The space for the canteen

     The cook was employed

     The vegetables and other items were purchased by the company

     Only the actual cost incurred for the food items is recovered from the

    employees.

  •  Question

    Whether reimbursement of food expenses from employees for the canteen

    provided by company comes under the definition of outward supplies as taxable

    under GST Act.

     Business

    “business” includes :-

    (a) Any trade, commerce, manufacture, profession, vocation, adventure, wager or

    any other similar activity, whether or not it is for a pecuniary benefit:

    (b) Any activity of transaction in connection with or incidental or ancillary to

    sub-clause (a);….

    Recovery of Food expenses from employees – Advance Ruling (Kerala)

  •  Observation and Ruling

    Since the applicant recovers the cost of food form its employees, there

    is consideration as defined in Section 2 (31) of the GST Act, 2017.

    It is hereby clarified that recovery of food expenses from the employees

    for the canteen services provided by company would come under the

    definition of 'outward supply' as defined in Section 2(83) of the Act, 2017,

    and therefore, taxable as a supply of service under GST.

     Schedule I – Activities treated as supply even made without consideration

    Supply of goods or services or both between related persons or

    between distinct persons as specified in section 25, when made in the

    course or furtherance of business:

    Provided that gifts not exceeding fifty thousand rupees in value in a

    financial year by an employer to an employee shall not be treated as

    supply of goods or services or both.

    Recovery of Food expenses from employees – Advance Ruling

  • The value of supply shall include ––

    a) any taxes, duties, cesses, fees and charges levied under any law other

    than CGST/SGST/UTGST/ GST(Compensation to States) Act.;

    b) any amount the supplier is liable to pay but incurred by the recipient and

    not included in the price actually paid or payable;

    c) incidental expenses, including commission and packing, charged by the

    supplier and

    d) any amount charged by supplier for anything done at the time of, or

    before delivery of goods or supply of services;

    e) interest or late fee or penalty for delayed payment of any consideration

    for any supply; and

    f) subsidies directly linked to the price excluding subsidies provided by the

    Central Government and State Governments.

    Explanation:- The amount of subsidy shall form part of value of supply of supplier

    who receives such subsidy

    Inclusions in the Value of Supply

  • Valuation Clarification based on Section 15(2) (b)

    Query:

    Whether moulds and dies owned by Original Equipment Manufacturers (OEM) that are

    sent free of cost (FOC) to a component manufacturer is leviable to tax

    Ans:

     Moulds and dies owned by the original equipment manufacturer (OEM) which are

    provided to a component manufacturer (the two not being related persons or distinct

    persons) on FOC basis does not constitute a supply as there is no consideration

    involved.

     It is further clarified that while calculating the value of the supply made by the

    component manufacturer, the value of moulds and dies provided by the OEM to

    the component manufacturer on FOC basis shall not be added to the value of

    such supply because the cost of moulds/dies was not to be incurred by the

    component manufacturer and thus, does not merit inclusion in the value of

    supply in terms of section 15(2)(b) of the CGST Act, 2017.

    (Circular No. 47/21/2018-GST, dated 08/06/2018)

  • Whether reimbursement of expenses chargeable to GST

    Background : Case under Service Tax Regime

    Union of India vs. Intercontinental Consultants and Technocrats Pvt. Ltd.

    Issue .- The core issue is as to whether Section 67 of the Act permits the subordinate

    legislation to be enacted in the said manner, as done by Rule 5. As noted above, prior to

    April 19, 2006, i.e., in the absence of any such Rule, the valuation was to be done as

    per the provisions of Section 67 of the Act.

    Section 67 : Valuation of taxable services for charging service tax.— (1) Subject to

    the provisions of this Chapter, service tax chargeable on any taxable service with

    reference to its value shall.—

    (i) in a case where the provision of service is for a consideration in money, be the

    gross amount charged by the service provider for such service provided or to

    be provided by him;

  • Explanation to Section 67 (amended w.e.f. 14-05-2015) :

    (a) “consideration” includes–

    (i) any amount that is payable for the taxable services provided or to be provided;

    (ii) any reimbursable expenditure or cost incurred by the service provider and

    charged, in the course of providing or agreeing to provide a taxable service,

    except in such circumstances, and subject to such conditions, as may be

    prescribed;

    (iii) any amount retained by the lottery distributor or selling agent from gross sale

    amount of lottery ticket in addition to the fee or commission, if any, or, as the case

    may be, the discount received, that is to say, the difference in the face value of

    lottery ticket and the price at which the distributor or selling agent gets such ticket.

    Whether reimbursement of expenses chargeable to GST

  • Valuation under GST – Reimbursement vs. Pure Agent

    Case Law under Service Tax Regime -

    Union of India vs. Intercontinental Consultants and Technocrats Pvt. Ltd.

     the expression ‘such’ occurring in Section 67 of the Act assumes importance. In

    other words, valuation of taxable services for charging service tax, the authorities

    are to find what is the gross amount charged