DETERMINATION OF VALUE OF SUPPLY

The Section that deals with value of taxable supply of Goods, Services or both is Section 15 of the CGST Act, 2017. The details are given below:

i) Value of taxable supply goods, services or both shall be transaction value. The Transaction value means:
1) Price actually paid or payable;
2) Supplier and the recipient of supply not related; and
3) Price is the sole consideration. (Sec. 15(1))

ii) Value include
a) Any taxes duties, cess, fees & charges levied under any law other than GST related laws;
b) Amount that the supplier liable to pay in relation to such supply but which has been incurred by the recipient;
c) Interest, late fee, penalty for delayed payment of any consideration for any supply; and
d) Subsidies directly linked to price excluding Government (both State & Central) subsidies (Sec. 15(2)).

iii) Discounts excluded from value, provided
a) If such discount recorded in invoice before or after the time of supply
b) After supply if
(i) Established in terms of agreement entered into at or before the time of such supply; and
(ii) ITC reversed on discount by recipient. (Sec. 15(3))

iv) Value not determined by sub section (1), the same shall be determined in such member as may be prescribed. (Sec. 15(2))

VALUE OF SUPPLY OF GOODS/SERVICES WHERE THE CONSIDERATION IS NOT WHOLLY IN MONEY

The same is explained by way of following chart:

Value of supply of goods or services or both between distinct or related person other than through an agent (Rule 2)

The same is explained by way of following chart:

The meaning of few of the terms used above is described below:

1. DISTINCT PERSON
   A person or establishment has obtained or is required to obtain more than are one or more registration in one or more State or UT.
   Note: Supplier his option to charge an amount equal to 90% of price charged for the supply of goods of like kind and quality, by the recipient to his customer, not being a related person.

2. OPEN MARKET VALUE OF GOODS, SERVICES OR BOTH MEANS:
⦁ full value of money excluding taxes (GST cess, etc.)
⦁ supplier & recipient not related
⦁ price is the sole consideration
⦁ supply at the same time when the supply being valued is made

3. SUPPLY OF GOODS OR SERVICES OR BOTH LIKE KIND AND QUALITY MEANS:
⦁ both made under similar circumstances that in respect of the characteristics, quality, quantity, functional components, materials
⦁ reputation is the same as or closely or substantially resembles

Value of supply of goods made or received through an agent (Rule 3)

In this case two options are available:

OPTION: 1
Open market value of goods being supplied

OPTION: 2
90% of price charged for the supply of goods of like kind and quantity by the recipient to his customer.

Conditions to apply Option 2
i) Customer not a related person
ii) Goods intended for further supply by the recipient

If the value is not determinable by above options rule 4&5 will apply.

Value of Supply of Goods or Services or Both BASED ON COST (Rule 4):
If value of supply of goods or services is not determinable by rule 1 to 3, the value shall be 110% of
i) Cost of production/manufacture
ii) Cost of acquisition
iii) Cost of provision of sub services

RESIDUAL METHOD FOR DETERMINATION OF VALUE OF SUPPLY OF GOODS OR SERVICES OR BOTH:
The value is determined using reasonable means consistent with the principles and general provisions of Sec.15& these rules.

Valuation of few of the transactions as given in the rules is given below:
1. VALUE OF SUPPLY OF SERVICES IN RELATION TO PURCHASE OR SALE OF FOREIGN CURRENCY INCLUDING MONEY CHANGING

a) For a currency, when exchanged from or to Indian currency, the value shall be equal to
⦁ Difference in buying or selling rote as the case may be and the RBI reference rate
⦁ When RBI reference rate is not available 1% of the gross amount in INR provided or received
b) Neither of the currencies exchanged is INR, 1% of the lesser of the two amounts the persons charging the money would have received by converting any of the two currencies to INR on that day at the reference rate provided by RBI.
Option available to supplier of foreign currency including money changing supplier to follow for the entire financial year and the same can’t be withdrawn
GROSS AMOUNT % OF GROSS AMOUNT OF CURRENCY EXCHANGED

Up to Rs. One Lakh 1% Subject to a minimum of Rs.250/-
Rs. One Lakh to Rs. Ten Lakh 1000+0.50% for gross amount exceeding R. One Lakh

Above Rs. Ten Lakh Rs.5500 + 0.10% for gross amount exceeding Rs.10 Lakh
Maximum Rs.60,000/-
Rate of exchange of currency other than INR for determination of value
⦁ reference rate of that currency as determined by RBI on date when point of taxation arises in respect of such supply in terms of section 12 or section 13 of the act as the case may be (Time of supply of goods/services).
2. VALUE OF SUPPLY OF SERVICES IN RELATION TO BOOKING OF TICKETS FOR TRAVEL BY AIR

a) Air travel agent – Domestic – 5% of the basic fare
b) International – 10% of the basic fare
Basic fare means, that part of the air force on which commission is normally paid to the air travel agency by the airline
3. INSURANCE BUSINESS:

a) If the amount allocated for investment or savings an behalf of policy holder is intimated to policy holder
GROSS PREMIUM – AMOUNT ALLOCATED FOR INVESTMENT/SAVINGS
b) Single premium annuityy other the (a) above
10% of single premium charged
c) All other cores
First year premium – 25%
Subsequent years – 12.50%
The above three conditions will not apply where the entire premium paid by the policy holder is only towards the risk cover in life insurance.

4. PERSONS DEALING IN BUYING AND SELLING OF SECOND HAND GOODS:

. Value = Difference between the selling price and purchase price
. No input tax credit is availed
. Only minor processing done after purchase and it does not change the nature of goods
5. VALUE OF TOKEN, VOUCHER, COUPON OR STAMP (OTHER THAN POSTAGE STAMP) REDEEMABLE AGAINST SUPPLY OF GOODS, SERVIES OR BOTH

The money value of goods, services or both redeemable i.e, the value of goods, services or both that can be availed with the token, voucher etc..

6. REPOSSESSION OF GOODS FROM A DEFAULTING BORROWER:
Purchase value = the purchase price of such goods by the defaulting borrower such goods by the defaulting borrower reduced by 5% points for every quarter or part thereof between the date of purchase and date of disposal by the person making such repossession.
7. VALUE OF SUPPLY OF SERVICES IN CASE OF PURE AGENT:
The expenditure or costs incurred by the supplier as a pure agent of the recipient of supply of services shall be excluded from the value of supply if all the following conditions are satisfied namely:-
i) supplier act as pure agent of the recipient of the supply
– when he makes payment to third party for services procured
– the contract of supply is between the third party and recipient of service;
ii) the recipient of supply uses the services so procured by pure agent (by the supplier service provider in his capacity as pure agent of the recipient of supply);
iii) the recipient of supply is liable to make payment to third party;
iv) the recipient of service authorize the supplier (pure agent) to make payment on his behalf;
v) the recipient of supply knows that the services for which payment has been made by the supplier (PA) shall be provided by the third party;
vi) the payment made by the (pure agent) supplier on behalf of the recipient of supply has been separately indicated in the invoice issued by the (PA) supplier to recipient of service;
vii) The supplier (PA) recovers from the recipient of supply only such amount as has been paid by him to the third party; and
viii) the services procured by the supplier (PA) from the third party as a pure agent of recipient of supply are in addition to the supply the provided on his account.

Note: For better understanding substitute “Recipient of Service” as “Principal” and “Supplier/Supplier of Service” as “Pure Agent”.
PURE AGENT means:
i) Entered in to contractual agreement with the recipient of supply to act as his pure agent to incure expenditure or costs in the course of supply of goods, services or both.
ii) neither intends to hold nor holds any title to the goods, service or both so procured or provided as pure agent of recipient of supply
iii) does not use for his own interest such goods or services so procured and
iv) receives only the actual amount incurred to procure such goods or service.