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Valuation of Goods/Services under GST

Valuation at Transaction Value

If the recipient and supplier of Goods/Services are not related then the price actually paid or payable is taken as value of good/services. The transaction value shall be accepted even where the supplier and recipient of supply are related, provided that the relationship has not influenced the price. Meaning of Related Persons

Where goods are transferred from one place of business to another place of the same business or from the principal to an agent or from an agent to the principal whether or not situated in the same State, the value of such supply shall be the transaction value.

Inclusions

The value of goods/services also include the following:-

  1. any taxes, duties, cesses or fee charged separately by the supplier other than GST itself.
  2. other incidental expenses such as commission or packing charged separately by the supplier.
  3. amount charged for anything done by the supplier at the time of, or before delivery of the goods/services. For eg gift packing or special packing
  4. interest, late fee or penalty charged for delayed payment
  5. subsidies directly linked to the price excluding subsidies provided by the Central and State governments

Exclusions

The value of the supply shall not include any discount that is given:

(a) before or at the time of the supply provided such discount has been mentioned in the invoice

(b) after the supply has been effected, provided that:

(i) 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
(ii) input tax credit has been reversed by the recipient of the supply as is attributable to the discount on the basis of document issued by the supplier.

A summary of the effect of discount on transaction value is given below-

Type of discount Effect on transaction value
If the discount is given before or at the time of supply, and is recorded in the invoice Can be claimed as deduction from transaction value
If the discount is given after supply, but agreed upon before or at the time of supply, and can be specifically linked to relevant invoices Can be claimed as deduction from transaction value
If the discount is given after supply, and not known at the time of supply Cannot be claimed as deduction from transaction value

Valuation where consideration in not wholly in money

The valuation will be done in such a case at

  • Open market value
  • If open market value is not available then at total of consideration in money and other consideration’s equivalent money value
  • If value can not be determined with above two methods then value of like kind and quality goods or services  will be taken as value
  • If value can not be determined with above three methods then

Examples:-

  1. Where a new phone is supplied for Rs.20000 along with the exchange of an old phone and if the price of the new phone without exchange is Rs.24000, the open market value of the new phone is Rs 24000.
  2. Where a laptop is supplied for Rs.40000 along with a barter of printer that is manufactured by the recipient and the value of the printer known at the time of supply is Rs.4000 but the open market value of the laptop is not known, the value of the supply of laptop is Rs.44000.

Valuation of supplies between distinct or related persons other than through an agent

The value of the supply of goods or services or both between distinct persons as specified in 25(4) and 25(5) or where the supplier and recipient are related, other than where the supply is made through an agent, shall,-

(a) be the open market value of such supply;
(b) if open market value is not available, be the value of supply of goods or services of like kind and quality;
(c) 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:

Provided 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 of goods made or received through an agent

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

(a) 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.

Illustration: Where a principal supplies groundnut to his agent and the agent is supplying groundnuts of like kind and quality in subsequent supplies at a price of Rs.5000 per quintal on the day of supply. Another independent supplier is supplying groundnuts of like kind and quality to the said agent at the price of Rs.4550 per quintal. The value of the supply made by the principal shall be Rs.4550 per quintal or where he exercises the option the value shall be 90% of the Rs.5000 i.e. is Rs.4500 per quintal.

(b) 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 – Valuation based on Cost

If the value can not be determined by any rules or provisions mentioned above then value will be determined under rule 4. Under rule 4 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 services.

Rule 5 – Residual method for determination of value of supply of goods or services or both

If the value can not be determined by any rules or provisions mentioned above and through rule 4 then value will be determined under rule 5. Under rule 5 value 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, disregarding rule 4.

Valuation in Special Cases

  1. Money Changer

The value in case when currency is exchanged

From or to Indian Rupees (INR)

(Buying rate or selling rate – RBI reference rate for that currency)* Total units of currency

If reference rate for any currency is not available then value = 1% of Indian rupees provided or received by such money changer.

NOT from or to Indian Rupees (INR)

Value is equal to 1% of lesser of the two amounts the person changing the money would have received by converting any of the two currencies into Indian Rupee on that day at the reference rate provided by RBI.

Option with money changer

Also a money changer may exercise option to ascertain value with below mentioned method. Such option once exercised can not be withdrawn during that financial year.

(i) one per cent. of the gross amount of currency exchanged for an amount up to one lakh rupees, subject to a minimum amount of two hundred and fifty rupees.
(ii) one thousand rupees and half of a per cent of the gross amount of currency exchanged for an amount exceeding one lakh rupees and up to ten lakh rupees; and
(iii) five thousand rupees and one tenth of a per cent. of the gross amount of currency exchanged for an amount exceeding ten lakh rupees, subject to maximum amount of sixty thousand rupees.

  1. Air Travel Agent

Value of services provided by air travel agent is calculated at rate of 5% of the basic fare in the case of domestic bookings and at the rate of 10% of the basic fare in the case of international bookings.

Basic fare means that part of the air fare on which commission is normally paid to the air travel agent by the airline.

  1. Life Insurance Business

(a) the gross premium charged from a policy holder reduced by the amount allocated for investment, or savings on behalf of the policy holder, if such amount is intimated to the policy holder at the time of supply of service;
(b) in case of single premium annuity policies other than (a), ten per cent. of single premium charged from the policy holder; or
(c) in all other cases, twenty five per cent. of the premium charged from the policy holder in the first year and twelve and a half per cent. of the premium charged from policy holder in subsequent years:

Provided that nothing contained in this sub-rule shall apply where the entire premium paid by the policy holder is only towards the risk cover in life insurance.

  1. Person dealing in second hand goods

In case of person who is dealing in second hand goods, the value of supply taken for application of GST is the difference between selling price and purchase price. If such difference is negative then such amount should be ignored and no GST is payable on that transaction.

This provision is applicable only when the used goods is sold in same condition or after minor processing and nature of the goods is not changed after purchasing. Also such person should not avail input tax credit if paid on such transaction.

For example – A person deals in second hand cars. He buys a car for Rs. 5,00,000. No GST is paid on it. Now he make an expense of Rs. 20,000 for its servicing and repairs and then sold it for Rs. 6,00,000. The amount on which GST is payable is Rs. 1,00,000.

  1. Pure Agent

Notwithstanding anything contained in these rules, 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 payment to the third party on authorization 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.

Explanation . – For the purposes of this rule, “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.
(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 Registrar of the Companies. The fees charged by the Registrar of the companies 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.

  1. Goods repossessed from a defaulting borrower
    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.
  2. 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.

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 timing of supply provisions.

Meaning of Related Persons

Persons shall be deemed to be “related persons” if

(i) such persons are officers or directors of one another’s businesses;
(ii) such persons are legally recognised partners in business;
(iii) such persons are employer and employee;
(iv) 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;
(v) one of them directly or indirectly controls the other;
(vi) both of them are directly or indirectly controlled by a third person;
(vii) together they directly or indirectly control a third person; or they are members of the same family;

The term “person” also includes legal persons.
Persons who are associated in the business of one another in that one is the sole agent or sole distributor or sole concessionaire, howsoever described, of the other, shall be deemed to be related.

Distinct Persons

As per section 25(5) of CGST Act

  • A person who has obtained or is required to obtain more than one registration, whether in one State or Union territory or more than one State or Union territory shall, in respect of each such registration, be treated as distinct persons for the purposes of this Act.
  • Where a person who has obtained or is required to obtain registration in a State or Union territory in respect of an establishment, has an establishment in another State or Union territory, then such establishments shall be treated as establishments of distinct persons for the purposes of this Act.

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

Source: GST Valuation Rules

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