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'Supply' includes all forms of supply of goods and/or services such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.

VALUATION OF SUPPLY UNDER GST

Value of supply means the money that a seller would want to collect for the goods and services supplied to the buyer. But where parties are related and a reasonable value may not be charged, or transaction may take place as a barter or exchange; the GST law prescribes that the value on which GST is charged must be its 'transnational value'.

Transaction value is the price actually paid (or payable) for the supply of goods/services between un-related parties (i.e., price is the sole consideration)

The value of supply under GST shall include:

  • Any taxes, duties, cess, fees, and charges levied under any act, except GST. GST Compensation Cess will be excluded if charged separately by the supplier.
  • Any amount that the supplier is liable to pay which has been incurred by the recipient and is not included in the price.
  • The value will include all incidental expenses in relation to sale such as packing, commission etc.
  • Subsidies linked to supply, except Government subsidies will be included.
  • Interest/late fee/penalty for delayed payment of consideration will be included.

Valuation of Supply Rules

Sec-15(40 states Valuation Rules for supply of goods or services or both which are as follows:

  • Rule 27: Value of supply of goods or services where the consideration is not wholly in money.
  • Rule 28: Value of supply of goods or services or both between distinct or related persons, other than through an agent.
  • Rule 29: Value of supply of goods made or received through an agent.
  • Rule 30: Value of supply of goods or services or both based on cost.
  • Rule 31: Residual method for determination of value of supply of goods or services or both.

(I) Value of Supply of Goods or Services Where the Consideration is not Wholly in Money

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 the open market value is not available under clause (a), 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 the 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 the application of rule 30 or rule 31 in that order.

ILLUSTRATION: Where a new phone is supplied for `20,000 along with the exchange of an old phone and if the price of the new phone without exchange is `24,000, the open market value of the new phone is `24,000.

I. Value of Supply – Related Party Transaction or Distinct Persons

The value of the supply of goods or services or both between distinct persons or related parties, other than where the supply is made through an agent, should be calculated as:

  • 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 the above two methods, then the value as determined by cost method or residual method.
  • Also, if goods are intended for further supply as such by the recipient, then the value of supply an amount equivalent to 90% 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.

(II) Value of supply of goods made or received through an 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 90% 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 `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 `4550 per quintal. The value of the supply made by the principal shall be `4550 per quintal or where he exercises the option the value shall be 90% of the `5000 i.e. is `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.

(IV) Cost Method for Determining Value of Supply under GST

Where the value of a supply of goods or services or both is not determinable by any of rules prescribed in the procedure for determining value of supply under GST, the value should be taken as 110% of the cost of production or manufacture or cost of acquisition of such goods or cost of provision of such services.

(V) Residual method for determination of value of supply of goods or services or both

Where the value of supply of goods or services or both cannot be determined under rules 1 to 4, the same shall be determined using reasonable means consistent with the principles and general provisions of section 15.

Disclaimer: The article is based on the relevant provisions and as per the information existing at the time of the preparation. In no event i shall be liable for any direct and indirect result from this article. this is only a knowledge sharing initiative.

The author can be reached at vinayak.charu@gmail.com


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Category GST, Other Articles by - CS CHARU VINAYAK 



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