Gst applicability on sale of assets on exchange basis

According to section 7(1)(a), supply includes various activities like sale, transfer, license, rental, lease but most significantly, it includes barter and exchange made or agreed to be made for consideration in the course or furtherance of business. Additionally, as per section 2(31) of the GST Act, consideration includes payment made in money or otherwise. Thus, there is no ambiguity in the fact that barters now attract tax on the full value rather than just the cash component.

Further, once an event of barter triggers taxation, it is essential to understand how a tax on it will be calculated. A tax rate exists but the value of supply indicates on what such a tax rate shall be applied. Generally, each fiscal statute requires tax to be paid on an ad valorem basis. In GST act also, tax is payable on such a basis, i.e, as a proportion of the value of supply of the good or service. Section 15 of the GST act and the “Goods and Services Tax (Determination of Value of supply) rules, 2017” (hereinafter referred to as “The Rules” prescribe how supply is valued as per different circumstances and persons.

“Transaction Value” is the taxable value. This refers to the price actually paid or is payable, provided the parties, the supplier and recipient are not related to price being the sole consideration. That means that if the parties are related (for example, if the parties are in the same family or they are associated enterprises), then the value would be that which would have dictated the transaction had the parties been unrelated. Generally, invoice value is the taxable value. However, for certain specific situations, the Rules have been prescribed. In the value, there are certain compulsory inclusions like taxes, fees, charges levied under any law other than GST law and expenses incurred and there exist certain exclusions as well, like discounts that are a part of trade and commerce.

Transaction Value in Barter Transactions

Rules have been prescribed for situations when consideration is not wholly in money. Rule 27 provides the following values to be taken in a sequence in such a situation:

Open market value of the supply
If the open market value is not available, then the total money value plus the money value of the rest of the consideration if such value was known at the time of supply.
The value of supply of goods and services of like quality
Value based on Cost: Cost of supply plus markup of 10 %.
Best judgment method: value calculated using reasonable means consistent with principles and provisions of GST law.

From the above, “Open Market Value” refers to the full money value excluding GST payable to obtain the supply in question at the time supply is being made, provided it’s between unrelated persons and price is the sole consideration.

“Like quality” means any other supply made under similar circumstances, and which is either same or resembles closely with respect to quality, quantity, functionality, characteristics, and reputation.

An Instance of a Barter Transaction

GST law provides the opportunity for firms and individuals to seek binding rulings on questions they seek clarity on. “M/s. Durga Projects and Infra Structure Pvt. Ltd. 2019 (8) TMI 395 (AAR – Karnataka)” is one such advance ruling of Karnataka wherein a real estate transaction was ruled as a barter.

In the case, a builder/developer had entered into an agreement with a landowner in the pre-GST regime as per which the landowner would get constructed area in exchange of bestowing development rights of the land to the developer. The construction started before the GST came into effect. The authority considered the transaction and the service provided by the applicant of constructing flats and held the transaction to be a barter accordingly with GST being applicable. Time of supply did not prove to be an issue as possession of the flats were given when the GST had come into effect.