Seven things to know about valuation under GST Regime – An Analysis

Seven things to know about valuation under GST: Section 15 of the CGST Act states that, the value of taxable supply under GST is the transaction value. Transaction value means the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply..

“consideration” in relation to the supply of goods or services or both includes:-

(a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government;

(b) the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government.

Seven things to know about valuation under GST

As per section 15 of CGST Act, GST would be payable on the ‘transaction value’. Transaction value is the price actually paid or payable for the said supply of goods and/or services between un-related parties and where price is the sole consideration. The Government has Notified Central Goods and Services Tax Rules, 2017 (vide Not. No. 10/2017-CT) and Rule 27 to 35 deal with Valuation.

Section 15 (2) specifically provides for inclusion and exclusion from value as discussed below.

I. Whether value include other taxes, duties etc?

Yes, transaction value will include any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than, if charged separately by the supplier,:

  • a. CGST Act
  • b. State Goods and Services Tax Act
  • c. Union Territory Goods and Services Tax Act
  • d. Goods and Services Tax (Compensation to States) Act

Thus, all taxes than GST and cess will be includible in the value subject to GST. For example, in case a person takes a cab from Pune to Mumbai and the cab owner charges him Rs 4,000 for travel and Rs 300 for toll tax then GST will be payable on Rs 4,300. However, as GST will be payable on all the taxes other than GST, it may hamper the very basic objective of removing cascading effect of taxes.

II. Whether value will include amount supplier is liable to pay but incurred by recipient?

Transaction value will include any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods or services or both.

This provision could create challenges as amount that the supplier is liable to pay but which has been incurred by the recipient is required to be included. In this regard, interpretation challenges could arise as to whether say:

  • a. Hotel expenses incurred by client directly for auditor should be included in the invoice of auditor
  • b. Free of cost supply of material for job work

III. Whether value will include incidental expenses?

Transaction value will include 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 of the supply of goods or services or both at the time of, or before delivery of goods or supply of services.

Given the aforesaid provision, packing, freight expenses etc will be includible in the value of supplies.

IV. Whether value will include interest or late fee or penalty?

Transaction value will even include interest or late fee or penalty for delayed payment of any consideration for any supply.

V. Whether value will include subsidies?

Transaction value will even include subsidies directly linked to the price excluding subsidies provided by the Central Government and State Governments. It is also provided through Explanation that the amount of subsidy shall be included in the value of supply of the supplier who receives the subsidy.

VI. Value to exclude discounts

As regards discounts/ incentives, it will not form part of ‘transaction value’ subject to fulfilment of conditions as under:

a. Discount given before or at the time of the supply provided such discount has been duly recorded in the invoice issued in respect of such supply;

b. Discount given after supply is 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

VII. Valuation related Rules

As per section 15 (4) of CGST Act empowers the Government to make Rules. Further, section 20 of IGST Act and section 21 of UTGST Act states that rules made under CGST Act shall mutatis mutandis, apply for IGST/ UTGST. Valuation related Rules comprises of 8 Rules from Rule 27 to Rule 35 of CGST Rules.

Value of Supply Includes following

  • any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than GST Act
  • any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods or services or both;
  • 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 of the supply of goods or services or both at the time of, or before delivery of goods or supply of services;
  • interest or late fee or penalty for delayed payment of any consideration for any supply
  • subsidies directly linked to the price excluding subsidies provided by the Central Government and State Government

Value of Supply Excludes following

Before or at the time of supply: if discount has been duly recorded in invoice

After the supply:

  • Established in terms of an agreement and specifically linked to relevant invoices.
  • Input tax credit, attributable to discount have been reversed by recepient

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
  • (viii) they are members of the same family

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