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 for providing ‘such’ taxable services.

As a fortiori, any other amount which is calculated not for providing such taxable

service cannot a part of that valuation as that amount is not calculated for providing

such ‘taxable service’. -- That according to us is the plain meaning which is to be

attached to Section 67 (unamended, i.e., prior to May 01, 2006) or after its

amendment, with effect from, May 01, 2006.

Once this interpretation is to be given to Section 67, it hardly needs to be

emphasised that Rule 5 of the Rules went much beyond the mandate of Section 67.

We, therefore, find that High Court was right in interpreting Sections 66 and 67 to

say that in the valuation of taxable service, the value of taxable service shall be the

gross amount charged by the service provider ‘for such service’ and the valuation of

tax service cannot be anything more or less than the consideration paid as quid pro

qua for rendering such a service.

Valuation under GST – Reimbursement vs. Pure Agent

Pure Agent -

33. Value of supply of services in case of pure agent.-Notwithstanding anything

contained in the provisions of this Chapter, the expenditure or costs incurred by a

supplier as a pure agent of the recipient of supply shall be excluded from the value of

supply, if all the following conditions are satisfied, namely,-

(i) the supplier acts as a pure agent of the recipient of the supply, when he makes the

payment to the third party on authorisation by such recipient;

(ii) the payment made by the pure agent on behalf of the recipient of supply has

been separately indicated in the invoice issued by the pure agent to the recipient

of service; and

(iii) the supplies procured by the pure agent from the third party as a pure agent

of the recipient of supply are in addition to the services he supplies on his own

account.

Reimbursement vs. Pure Agent

Pure Agent -

Explanation.- For the purposes of this rule, the expression ―pure agent‖ means

a person who-

(a) enters into a contractual agreement with the recipient of supply to act as his pure

agent to incur expenditure or costs in the course of supply of goods or services or

both;

(b) neither intends to hold nor holds any title to the goods or services or both so

procured or supplied as pure agent of the recipient of supply;

(c) does not use for his own interest such goods or services so procured; and

(d) receives only the actual amount incurred to procure such goods or services in

addition to the amount received for supply he provides on his own account.

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 the Registrar of Companies. The fees

charged by the Registrar of Companies for the 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.

Discount allowed to be deducted from the value of supply in the

following cases ––

a) Discount given before or at the time of the supply and duly recorded

in the invoice

b) Discount give after the supply, if–

mentioned in the agreement entered into at or before the supply and

specifically linked to relevant invoices; and

input tax credit related to discount reversed by the recipient.

Exclusions from Transaction Value

Value of Taxable Supply

Valuation Rules - Rule 27 to 35

Meaning of the important terminologies

a) “open market value” of a supply of goods or services or both

means the full value in money, excluding the integrated tax, central

tax, State tax, Union territory tax and the cess payable by a 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

b) “supply of goods or services or both of like kind and quality”

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.

Rule 27: Value of Supply of Goods or services where the consideration is not

wholly in money

a) Be the open market value of such supply;

b) If open market value is not available; the sum total of

i. Consideration in money; and

ii. Equivalent amount of money for the consideration not in money,

if available at the time of supply

c) If value is not determinable as per above (a) and (b), value of such

goods or supply of like kind or quality;

d) If value is not determinable as per above (a), (b) and (c), the sum total

of

i. Consideration in money; and

ii. Equivalent amount of money for the consideration not in money,

as determined by rule 30 or 31 in that order.

Value when Consideration not wholly in money

Rule 28: Value of Supply of Goods or services or both between distinct or

related persons, other than an agent, shall

a) be the open market value of such supply;

b) If open market value is not available; be the value of such goods or

supply of like kind or quality;

c) If value is not determinable as per above (a) or (b) above , be the value

as determined by rule 30 or 31 in that order.

Provided that 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 ninety percent 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:

Provided further that 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.

Value of Goods/ Services – transaction between related /

distinct persons other than agent

Rule 29: Value of Supply of Goods between the principal or agent, shall

a) be the open market value of the goods; or

b) At the option of the supplier – 90% of the price charged by the

recipient to his customer not being a related person, where the

goods are intended to further supply

If value is not determinable as per above (a) or (b) above , be the

value as determined by rule 30 or 31 in that order.

Value of Goods – made or received through an agent

Rule 30: Value of Supply of Goods or services or both based on cost

Where the value is not determinable by any of the preceding rules,

the value shall be 110% of the cost of production/ manufacture

/acquisition of such goods/ provision of such services.

Value of Goods/ Services – based on cost

Rule 31: Residual method for determination of Value of Supply of

Goods or services or both

Where the value is not determinable under rules 27 to 30,

the same shall be determined using reasonable means consistent

with the principles and general provisions of section 15 and these

rules:

Provided that in case of supply of services, the supplier may opt for this

rule, ignoring rule 30.

Value of Goods/ Services – Residual Method

Value of supply in case of lottery,

betting, gambling, & horse race

Rule 31A:

• The value of supply of lottery run by State Government shall be deemed to

be 100/112 of higher of followings:-

(a) Face value of ticket; or

(b) Price as notified in the Official Gazette by organizing state.

• The value of supply of lottery authorized by the State Government shall be

deemed to be 100/128 of higher of followings:-

(a) Face value of ticket; or

(b) Price as notified in the Official Gazette by organizing state.

• The value of supply of actionable claim in the form of chance to win in

betting, gambling or horse racing in a race club shall be 100% of the face

value of the bet or the amount paid into the totalizator.

Valuation of Specific Supplies

Rule 32 : The value of supply of services in relation to the purchase or sale of foreign

currency, including money changing, shall be determined by the supplier of services

in the following manner –

Purchase or sale of foreign currency, including money changing

Situation Value

Currency exchanged from or to Indian rupee

Purchase of forex (RBI Rate minus buying rate) X units of forex currency Sale of forex (Selling rate minus RBI Rate)X units of forex

Where RBI reference rate is not available

1% of Indian currency exchanged for forex

Where neither of currency exchanged is Indian currency

One percent of lower of followings:- • RBI Rate X units of forex sold • RBI Rate X units of Forex purchased

Rule 32(2) : Purchase or sale of foreign currency, including money changing

Alternate option: At the option of the supplier of services, the value in relation

to the supply of foreign currency, including money changing, shall be deemed

to be-

Gross value of currency exchanged per transaction

Value

Upto Rupees one lakh 1 % of currency exchanged (subject to minimum Rs. two Hundred and fifty rupees)

Exceeds Rupees one lakh but up to Rupees ten lakh

1000 rupees and 0.5% of currency exchanged in excess of 100000 to 1000000 rupees

Exceeds rupees ten lakh 5500 and one tenth of a percent of currency exchanged for an amount excedding 10,00,000 rupees (subject to maximum rupees sixty thousand)

Rule 32(3)

In case of services in relation to booking of tickets for travel by air

provided by Air Travel Agent, the value shall be

Domestic Travel booking – 5% of the basic fare

International Travel booking – 10 % of the basic fare

Explanation:-

For the purposes of this sub-rule, 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.

Valuation of Specific supplies – Air Travel Agent

Rule 32(4) : In case of life insurance services, the value shall be

Gross premium charged less the amount allocated for investment

or savings, if such amount is intimated to the policy holder.

In case of single premium annuity policies other than the above –

10 % of the single premium

In all other cases –

25% of the premium charged in the first year

12.5% of the premium charged in the subsequent years

Provided that nothing contained in this sub-rule shall apply where the

entire premium paid towards risk cover in life- insurance (Term plan)

Valuation of Specific supplies – Life Insurance Business

Rule 32(5) :

where taxable supply is provided by a person

dealing in buying and selling of second hand goods, (used goods as such

or minor processing which does not change the nature)

No input tax credit has been availed on purchases of such goods

value shall be –

the difference between the selling price and purchase price and

If the value is negative, it shall be ignored

Provided that the purchase value of goods repossessed from a defaulting borrower,

who is not registered, for the purpose of recovery of a loan or debt shall be deemed to

be the purchase price of such goods by the defaulting borrower reduced by five

percentage points for every quarter or part thereof, between the date of purchase and

the date of disposal by the person making such repossession.

Valuation of Specific supplies – Buying/ selling of second hand goods

Rule 32(6) : 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.

Rule 32(7) : The value of taxable services provided by such class of

service providers as may be notified by the Government on the

recommendations of the Council, as referred to in paragraph 2 of

Schedule I between distinct persons as referred to in section 25, where

input tax credit is available, shall be deemed to be NIL.

Valuation of Specific supplies – Token/ Voucher/ Coupon etc. and Misc.

Pure Agent

Rule 33:Value of supply of services in case of pure agent.

If all the following conditions are satisfied the expenditure or costs incurred

by a supplier as a pure agent of the recipient of supply shall be excluded from

the value of supply:-

i. the supplier acts as a pure agent of the recipient of the supply, when he

makes the payment to the third party on authorisation by such recipient;

ii. the payment made by the pure agent on behalf of the recipient of supply has

been separately indicated in the invoice issued by the pure agent to the

recipient of service; and

iii. the supplies procured by the pure agent from the third party as a pure agent

of the recipient of supply are in addition to the services he supplies on his

own account.

iv. Enters into a contractual agreement with the recipient of supply to act as his

pure agent to incur expenditure or costs in the course of supply of goods or

services or both;

v. Neither intends to hold nor holds any title to the goods or services or both so

procured or supplied as pure agent of the recipient of supply;

vi. Does not use for his own interest such goods or services so procured; and

vii. Receives only the actual amount incurred to procure such goods or services in

addition to the amount received for supply he provides on his own account.

Pure Agent

ROE of currency,

other than Indian rupees

Rule 34: Rate of Exchange of currency, other than Indian rupees, for

determination of Value

• The rate of exchange for determination of value of taxable goods

shall be the applicable rate of exchange as notified by the Board

under section 14 of the Customs Act, 1962 for the date of time of

supply of such goods in terms of section 12 of the Act.

• The rate of exchange for determination of value of taxable services

shall be the applicable rate of exchange determined as per the

generally accepted accounting principles for the date of time of

supply of such services in terms of section 13 of the Act.

Value of supply in case of inclusive of taxes

Rule 35 : Value of supply inclusive of integrated tax, central tax, State tax,

Union territory tax

Where the value of supply is inclusive of integrated tax or, as the case

may be, central tax, State tax, Union territory tax, the tax amount shall

be determined in the following manner, namely,-

• Tax amount = (Value inclusive of taxes X tax rate in % of IGST or,

as the case may be, CGST, SGST or UTGST) ÷ (100+ sum of tax

rates, as applicable, in %)

Note 2 of Entry – 11/2017- CGST (R)

In case of supply of service specified in column (3), in item (i); sub-item (b),

sub-item (c), sub-item (d), sub-item (da) and sub-item (db) of item (iv); sub-

item (b), sub-item (c), sub-item (d) and sub-item (da) of item (v); and sub-item

(c) of item (vi), against serial number 3 of the Table above, involving transfer

of land or undivided share of land, as the case may be, the value of such supply

shall be equivalent to the total amount charged for such supply less the value of

transfer of land or undivided share of land, as the case may be, and the value of

such transfer 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.

Explanation. –For the purposes of this paragraph, “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 including by way of lease or sublease.

Advance Ruling – Value of Land

Shri Sanjeev Sharma (AAR- New Delhi, dated 28/03/2018)

Issues

a) Whether GST will be applicable on the sale of undivided and

impartible share of land represented by Agreement to sell the land?

b) Whether GST shall be applicable on sale of superstructure (which is

under construction)?

c) If yes:-

i. What will be the value on which tax is payable?

ii. What would be the applicable rate for charging GST?

Advance Ruling – Value of Land

Advance Ruling in GST (New Delhi)

The value of land, or the undivided share of land, as the case may be,

would be deemed to be one-third of the total amount, which is

excluded from the value for the purposes of payment of GST

Even if agreement between the applicant and the buyer is entered

after part of the construction is already completed, whole of the

consideration would be added for payment of GST.

The applicable rate of GST on the said two-third of total amount is

9% (CGST) and 9% SGST under S. No. 3(i) of Notification No.

11/2017- Central Tax (Rate) dated 28.06.2017 and parallel SGST

notification.

Advance Ruling – Value of Land

Trade Notice No. IV/16/122017-CCO(TVM), dated 19.09.2017

This one third deemed deduction on account of transfer of Land or

Undivided Share of land is irrespective of the actual value of the land

transferred.

Real Estate projects based on Joint Venture Agreements entered into by a

Developer and a Land Owner, if otherwise legal and proper as per the

governing laws, are also eligible for the deemed deduction for value of land.

However the said deemed deduction is not available for units transferred to

the Land Owner by the Developer.

Advance Ruling – Value of Land

Background – Service Tax Law

In the case of Suresh Kumar Bansal [2016 (43) S.T.R. 3 (Del.)]

In this case, the Hon’ble High Court held that in the case of sale of

complex, which is a composite contract, the levy of service tax would

be restricted to the service element of the contract, after excluding the

value of goods as well as the value of land from such contracts.

It was also held that statutory framework must provide for machinery

provisions to ascertain the value of such service element which are

charged to Service Tax.

It was thus held that the abatement to the extent of 75% or 70% by a

notification or a circular cannot substitute the lack of statutory

machinery provisions to ascertain the value of services involved in a

composite contract.

Advance Ruling – Value of Land

Background – Service Tax Law

Section 67 & Rule 2A – Section 67 of the FA, 1994 provided- service

tax chargeable on any taxable service with reference to its value shall in

a case where the provision of service is for a consideration not

ascertainable, be the amount as may be determined in the prescribed

manner.

Rule 2A of the Service Tax (Determination of value) Rules, 2006

provided mechanism to ascertain the value of services and goods in a

composite works contract.

Notification 26/2012 issued under Section 93(1) of the FA 1994 – The

provision to exclude the value of land was sought to be provided by

exemption Notification No. 26/2012 – ST dated 20.06.2012

Advance Ruling – Value of Land

Thank You

Rohini Aggarawal

Email: rohini@cia-llp.com