Value of taxable supply under GST – 23 Important Questions Answered
Value of taxable supply under GST – 23 Important Questions Answered. we expect that GST will be implemented by July 1, 2017 and hence the month of May is very critical for our profession as we have to fully geared up with transition to the biggest indirect tax law reform of India. The CAknowledge is striving to organise more and more workshops and lecture meets on GST. This article explains GST (Goods and service tax) Value of taxable supply, GST effective date, Short term and long term impact on GST & latest updates related to Value of taxable supply under GST Regime. Lets understand what is the Value of taxable supply under GST, Applicability of GST in GST Regime, GST rates, its impact on your business and latest updates about GST Act 2017. Now check more details for Value of taxable supply as per CGST Act 2017..
Value of taxable supply under GST
Q 1. Is there any specific valuation mechanism provided for composite supplies and mixed
Ans. No. Section 15 and the rules prescribed under this Section are common for supply of goods and supply of services. The provisions of valuation and the rules would apply to composite supplies and mixed supplies equally.
Q 2. Are the valuation provisions similar for both inter-State and intra-State supplies?
Ans. Yes. Section 15 is common for all all supplies.
Q 3. Will the valuation rules provided in Section 15 apply to IGST payable on import of
Ans. No. Customs Law will be applicable for valuation of imported goods.
Q 4. Will the Customs Valuation apply to IGST payable on import of services?
Ans. No. Customs Law is applicable only for valuation of imported goods. Section 15 read with valuation rules will apply for valuation of import of services
Q 5. Is contract price not sufficient to determine valuation of supply?
Ans. Contract price is more specifically referred to as ‘transaction value’ and that is the basis for computing tax. However, the transaction will not be accepted as the value of supply where the supply is between related persons (including different registrations of the same PAN and principal-agent supplies), or where the consideration payable is not wholly in money..
Q 6. Is reference to Valuation Rules required in all cases?
Ans. No. Reference to Valuation Rules is required only when the supply is between related persons (including different registrations of the same PAN and principal-agent supplies), or where the consideration payable is not wholly in money. However, in specific cases where the categories of goods and services are notified in this regard (such as money changing), the valuation rules must be referred to, irrespective of the fact that the supplier and recipient are unrelated and price is the sole consideration.
Q 7. What is to be done if there are certain factors affecting price but same cannot be
Ans. Where transaction value is partly, or not wholly in money, the same cannot be accepted. The value of supply should be determined under the Valuation Rules.
Q 8. Can the value of supplies be a deemed value?
Ans. Section 15(5) empowers the Government to prescribe the value of certain supplies which may or may not be linked to the transaction value. Thus, in cses such as interState stock transfer to a branch would be valued based on a “deemed value” as determined under the valuation rules.
Q 9. When will the recipient and supplier be treated as related?
Ans. The relationship will be examined based on the explanation appended to Section 15 which defines the term “related persons”. Accordingly, the following persons would be treated as “related persons” for the purpose of GST:
- such persons are officers or directors of one another’s businesses;
- such persons are legally recognized 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;
- persons who are associated in the business of one another where one is the sole agent/ sole distributor/ sole concessionaire of the other.
Q 10. If related persons transact at arm’s length price, can the valuation still be questioned?
Ans. The law mandates a reference to valuation rules where the supply is between related persons. However, since the supply is at “arm’s length price”, the fact that the price assigned to the transaction is an ‘open market value’ should be established.
Q 11. What is the meaning of the term “Price is not the sole consideration”?
Ans. Under the GST law, consideration can be in “money or otherwise”, and also includes the monetary value of an act or forbearance, in relation to a supply. Consideration may also flow from any person other than the recipient. In cases where the money received in respect of the supply is not the sole consideration, the “price is not the sole
consideration”. E.g. Buyer of capital goods discharges the loan of seller, goods purchased on exchange offer, etc.
Q 12. Can any additions be made to the contracted price when ‘Transaction Value’ is
Ans. Yes. Section 15 provides for inclusions to the transaction value (on which GST will be
payable). The below are broadly, the inclusions prescribed:
- any taxes, duties, cesses, fees and charges levied under a law other than the GST law, if charged separately by the supplier;
- any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient, but not included in the price;
- incidental expenses, including commission and packing, charged by the supplier to the recipient, and any amount charged for anything done by the supplier in respect of the supply until delivery of goods or supply of services;
- interest or late fee or penalty for delayed payment of any consideration for any supply; and
- subsidies directly linked to the price excluding subsidies provided by the
Q 13. While calculating the transaction value of an intra-State supply, is there any order of calculating CGST and SGST/ UTGST?
Ans. Transaction Value does not include the taxes payable under GST. Therefore, there is no order required to be followed for arriving at the amount of tax. Both CGST and SGST/UTGST should be calculated on the ‘transaction value’.
Note: Taxes, cesses etc. applicable under any other law will have to be included in the transaction value for computation of taxes under GST.
Q 14. Will the flight tickets booked by client for travel of Chartered Accountants to facilitate an outstation audit be liable to GST, even if the engagement contract provides that any travel expenses incurred by the supplier in this behalf will be reimbursable to the chartered accountants?
Ans. The law provides that expenses incurred by the recipient in relation to supplies made by supplier of goods / services is to be included in the transaction value, only where such expenses were to be borne by the supplier. However, in the instant case, it cannot be said that the suppliers are liable to incur the cost of booking of flight tickets or that the cost was incurred by the recipient on behalf of the supplier. Hence, the value of flight tickets booked are not required to be included by the Chartered Accountants on their invoice, for computation of transaction value of audit service.
Q 15. Are transport charges for supply, paid by the supplier required to be included in the
Ans. All the expenses incurred by the supplier, in relation to the supply, -are required to be included in the transaction value to the extent they are charged for. Even if the contract is for delivery of goods ex-factory, and the supplier incurs the cost of transportation on behalf of the recipient for delivery of goods to the recipient, the cost should be included in the transaction value if the supplier charges the recipient for the same. However, if the contract price is for delivery of goods is at the location of the recipient, then the transportation charges incurred by the supplier would not be required to be added to the transaction value, as the cost is contained in the said value.
Q 16. Will discounts given to customers be allowed as deduction from transaction value?
Ans. Yes, the following two types of discounts would be excluded from transaction value:
- Discount at the time of Sale – Allowed as a deduction provided if the discount is recorded on the face of invoice.
- Post-supply Discount – If such discount is based on the arrangement entered into before or at the time of supply, AND where the same can be linked to relevant invoices, then the same is allowed as a discount on the condition that the recipient reverses the tax credit related to such discount availed earlier.
Q 17. Quantity discounts are not recorded on the face of the invoice. Can the Quantity discounts be claimed as deduction while computing GST?
Ans. Quantity Discounts are allowed based on the volume / value of purchases made by the customer for a particular period. The discount is allowed at the end of a particular period based on the pre-agreed rates entered into between the supplier and the recipient. Such discounts will be eligible for exclusions by way of credit notes, only where the supplier is in a position to link the discount to each and every invoice, and the recipient reverses the credit to the extent of such discount.
Q 18. Can the transaction value be questioned if supplier and recipient’s relationship come into existence after entering into a contract/arrangement to supply goods or services?
Ans. The laws assume that the relationship between the contracting parties prima facie has influenced the price at which the transaction is being carried out. Since the relationship did not exist on the date the prices were finalized (i.e., entering into the contract), the transaction value should be accepted in case of supplies effected prior to the forming of such relationship. However, for supplies effected after the two persons become ‘related persons’ for the purpose of the GST law, the transaction value cannot be accepted and reference must be made to the valuation rules.
Q 19. Will GST be applicable on any interest charged for payment after the credit period?
Ans. Interest, Penalty or Late fee charged from the customer would also be liable to GST. However, the law provides that the GST liability on such values can be paid only on receiving such additional amounts.
Q 20. In certain cases, the selling price of the final product is less since subsidy is received from Government. Are subsidies received from Government required to be included in the transaction value?
Ans. Subsidies received by the supplier, from Central / State Governments are not required to be included in the transaction value of supplies effected by him, even if the subsidies are directly linked to the supplies made by him.
Q 21. Are subsidies received from Private Enterprises on procurement of eco-friendly capital goods required to be included in the transaction value?
Ans. Subsidies directly linked to the price of the supply are to be included in the transaction value, where such subsidies are not provided by the Central/ State Governments. Where it can be established that the price of the supply is not directly linked to the subsidy given on capital goods, the same is not required to be included.
Q 22. Will the out-of-pocket expenses charged by professionals to claim reimbursement of expenses incurred by them for rendering services to their clients be included in the transaction value?
Ans. Yes. Any expenses incurred by the supplier relating to supply until the services are delivered, and which are charged to the recipient, will have to be included in the transaction value.
Q 23. Will the Customs duty paid by Customs House Agent on behalf of the client also be required to be included in the transaction value?
Ans. Presently, under the Service tax law, the aforementioned expenses are treated as reimbursements as ‘pure agent’ and are hence, not liable to service tax. Similar treatment exists in case of pure agents under the GST law as well, where the expenditure/ costs are incurred by the supplier acting as a pure agent of the recipient, on fulfilment of prescribed conditions.