GST Value of Supplyestv.in/icai/bos/pdf/Value of Supply.pdf• 9. (1) Subject to the provisions of sub-section (2), there shall be levied a tax called the central goods and services

GST – Value of Supply

Board of Studies

February 19, 2017

Discussion by:

CA Gaurav Gupta

FCA, LLB, DISA

Author

– GST – Law & Practise

- Service Tax – Law & Practise

• 9. (1) Subject to the provisions of sub-section (2), there shall be levied a tax called the

central goods and services tax

– on all intra-State supplies of goods or services or both, except on the supply of

alcoholic liquor for human consumption,

– on the value determined under section 15 and

– at such rates, not exceeding twenty per cent., as may be notified by the

Government on the recommendations of the Council and

– collected in such manner as may be prescribed and

– shall be paid by the taxable person

Levy

Practical Aspects of GST Gaurav Gupta 2CA Gaurav Gupta 2

Valuation of Supply

Value of Supply


Value

No reference to Valuation Rules

Sole consideration in Money between non

related parties

Valuation Rules

Money not sole consideration

Related Party

In case of money changer, pure agent,

air travel agent, insurer, lottery agent

Related Party


Re

late

d p

ers

on

Officers / Directors of one another’s business

Partners

Control

Direct or indirect Control over other’s business

They are controlled by a third person – more than

25% voting power

They together control a third party

Both of them controlled by a third party

Members of Same family

sole agent / distributor

Employer - Employee


Value includes

Value

Other Taxes /

Recipient paid

Interest / incidental expenses

Subsidies Taxable Value

Value includes


any amount that supplier was liable to pay but was incurred by the recipient of the supply

Interest, or late fee or penalty for delayed payment

subsidies received in any form or manner except by Central /

State Government

Any taxes, duties, fees and charges levied under any statute other than GST if

charged separately

incidental expenses, such as, commission and packing, or

any other amount charged by the supplier at the time of, or before delivery of goods or

supply of services

• Any award for settlement of dispute of a supply shall also be a part of value

• Only subsidies received included – if subsidy received by Customer, not to be included.

• Post sales AMCs shall not form part of Value, if separate amount is charged

• Incidental Expenses does not include incidental supplies. Such expenses are incurred

as expense by the Supplier

• Free of Cost Supplies by recipient?


Value includes

• Discounts not included in Value:

– before or at the time of the supply if such discount has been duly recorded in the

invoice issued in respect of such supply

‣ Trade Discount

‣ Special Discount given at time of Supply on invoice

– after the supply has been effected, if—

• such discount is established in terms of an agreement entered into at or before

the time of such supply and specifically linked to relevant invoices; and

• 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.

‣ Volume Discounts

‣ Target discounts

Discounts


Determination of Value

Between unrelated Parties

• Where the supply of goods or services is for a consideration not wholly in money, the

value of the supply shall,

– be the open market value of such supply;

– if open market value is not available, be the sum total of consideration in money

and any such further amount in money as is equivalent to the consideration not in

money if such amount is known at the time of supply;

– if the value of supply is not determinable under clause (a) or clause (b), be the

value of supply of goods or services or both of like kind and quality;

– if value is not determinable under clause (a) or clause (b) or clause (c), be the sum

total of consideration in money and such further amount in money that is equivalent

to consideration not in money as determined by application of rule 4 or rule 5 in that

order.

Value of Supply


Between unrelated Parties

Value of Supply


Open Market Value

Money + Money value of

other consideration

Value of like and Quality

Money + Value determined for other portion as per Rule 4 (Cost+10%)

Rule 5 –reasonable

means

“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

• price is the sole consideration, to obtain such supply

• at the same time when the supply being valued is made.

“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

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.

Value of Supply


Between related Parties

• The value of the supply of goods or services or both between distinct persons as

specified in sub-section (4) and (5) of section 25 or where the supplier and recipient are

related, other than where the supply is made through an agent, shall,-

– be the open market value of such supply;

– if open market value is not available, be the value of supply of goods or services of

like kind and quality;

– if value is not determinable under clause (a) or (b), be the value as determined by

application of rule 4 or rule 5, in that order

– Exception : 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 goods or services.

Value of Supply


Between related Parties

Value of Supply


Open Market Value

Value of like and Quality

Money + Value determined for other portion as

per Rule 4 (Cost+10%)

Rule 5 –reasonable

means

Agent

• The value of supply of goods between the principal and his agent shall,

– be the open market value of the goods being supplied, or at the option of the

supplier, be 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, where the

goods are intended for further supply by the said recipient;

– where the value of a supply is not determinable under clause (a), the same shall be

determined by application of rule 4 or rule 5 in that order

Rule 4

• Where the value of a supply of goods or services or both is not determinable by any of

the preceding rules, the value shall be one hundred and ten percent of the cost of

production or manufacture or cost of acquisition of such goods or cost of provision of

such service

Value of Supply


Special Cases

• Valuation of Pure Agent

• Money Changer

• Air Travel Agent

• Second Hand Goods

• Lottery agent

• Life insurance business

Value of Supply


Value of Supply


Supplier Services Effective Value

Money Changer Services in relation to purchase or sale of

foreign currency for an amount upto rupees

100,000

1% of the gross amount of

currency exchanged subject

to a minimum amount of two

hundred and fifty rupees

Services in relation to purchase or sale of

foreign currency for an amount exceeding

Rs. 100,000 but upto rupees 1000,000

Rs. 1000 + 0.5% of the

gross amount of currency

exchanged

Services in relation to purchase or sale of

foreign currency for an amount exceeding

Rs. 1000,000

Rs. 5000 + 0.1% of the

gross amount of currency

exchanged subject to

maimum Rs 60,000

Value of Supply


Supplier Services Effective Value

Insurance First year of Policy 25% of the premium charged

from the policy holder

Subsequent years 12.5% of the premium

charged from the policy

holder

Air Travel

Agent

Domestic Travel 5% of basic fare

Foreign Travel 10% of basic fare

Second Hand Goods

• value of supply shall be the difference between the selling price and purchase price and

where the value of such supply is negative it shall be ignored.

Vouchers

• 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.

Notified Supply of Services

• The value of taxable services provided by notified class of service providers for supplies

made between distinct persons as referred to in section 25, other than those where

input tax credit is not available under sub-section (5) of section 17, shall be deemed to

be NIL.

Value of Supply


Pure Agent – Reimbursements to be excluded

• the supplier acts as a pure agent of the recipient of the supply, when he makes payment

to the third party for the services procured as the contract for supply made by third party

is between third party and the recipient of supply

• the recipient of supply uses the services so procured by the supplier service provider in

his capacity as pure agent of the recipient of supply

• the recipient of supply is liable to make payment to the third party

• the recipient of supply authorises the supplier to make payment on his behalf

• the recipient of supply knows that the services for which payment has been made by the

supplier shall be provided by the third party

• the payment made by the supplier on behalf of the recipient of supply has been

separately indicated in the invoice issued by the supplier to the recipient of service

• the supplier recovers from the recipient of supply only such amount as has been paid by

him to the third party;

• the services procured by the supplier from the third party as a pure agent of the recipient

of supply are in addition to the supply he provides on his own account.

Value of Supply


Pure Agent – Defintion

• 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;

• neither intends to hold nor holds any title to the goods or services or both so procured or

provided as pure agent of the recipient of supply;

• does not use for his own interest such goods or services so procured; and

• receives only the actual amount incurred to procure such goods or services.

Rate of exchange of currency, other than Indian rupees, for determination of value

• The rate of exchange for determination of value of taxable goods or services or both

shall be the applicable reference rate for that currency as determined by the Reserve

Bank of India on the date when point of taxation arises in respect of such supply in terms

of section 12 or, as the case may be, section 13 of the Act

Value of Supply


Disclaimer

This presentation has been prepared for internal use of ICAI and its members. The contents of this document are

solely for informational purpose. It does not constitute professional advice or a formal recommendation. The

presentation is made with utmost professional caution but in no manner guarantees the content for use by any

person. It is suggested to go through original statute / notification / circular / pronouncements before relying on the

matter given. The presentation is meant for general guidance and no responsibility for loss arising to any person

acting or refraining from acting as a result of any material contained in this presentation will be accepted by us.

Professional advice recommended to be sought before any action or refrainment.

Thank you

CA Gaurav Gupta

Partner

MGS & Co.

LD- 65, Pitampura, Delhi – 110034

119, DLF City Court, Gurgaon

+91 11 32962487

+91 11 4781 8819

+91 98110 13940

[email protected]

Documents

GST Value of Supplyestv.in/icai/bos/pdf/Value of Supply.pdf• 9. (1) Subject to the provisions of sub-section (2), there shall be levied a tax called the central goods and services