Valuation of Supply

GST will be levied on the value of supply. In other words to levy GST, correct value of supply is required. What can be part of the value of supply or what does not form part of the value of supply is very important to levy GST.

Definitely determination of value of supply is not so easy but I will try to cover all the valuation rules with practical example to make it easy.

Relevant provision for determination of Value of Supply

Section 15 of the Central Goods & Service Tax Act and Valuation Rule 27 to 35

Meaning:

In general meaning, Value of Supply means consideration charged for the supply from recipient.

Example: Mr. X is selling a product for Rs. 1,000 to Mr. B. In this example value of supply will be consideration charged i.e. Rs. 1,000.

Definition:

The value of a supply of goods or services or both shall be the transaction value, which is 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 theprice is the sole consideration for the supply. [Section 15(1)].

We need to understand four important terms involved in the definition.

Transaction Value: – Transaction value is the consideration charged from the recipient for 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:

Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply;

Price actually paid or payable: – It means the consideration paid or to be paid by the supplier for the supply.

Condition-1: Supplier and Recipient of the supply are not related: Supplier and recipient should not be related party. Definition of related party is as below:

Persons shall be deemed to be “related persons” if

Such persons are officers or directors of one another 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.

Condition-2: Price is the sole consideration: Price will be sole consideration if it is on the arm length price. It means if the price charged which is equivalent to Open Market Value or Fair Market Value then the same will be sole consideration.

One important aspect is that both the conditions will apply simultaneously. It means if only one condition is dissatisfied then the actual consideration will be value of supply.

If the above conditions are not satisfied then value of supply will be determined with the help of valuation rules.

Example:

Mr. A is selling a product to Mr. B for Rs. 12,000. Open market value of the product is 24,000. Mr. A & Mr. B is unrelated parties. In this case Value of supply will be Rs. 12,000 as single condition is satisfied.

Suppose Mr. A & Mr. B is related parties. Then both the conditions are dissatisfied. Hence valuation rule will apply and Value of supply will be Rs. 24,000 for levy of GST.

Inclusions & Exclusions from the value of supply:

Inclusion in Value of Supply [Section 15(2)]:Exclusion from Value of Supply [Section 15(3)]:

♠ Any taxes, duties, cesses, fees & charges levied under any law other than GST law if charged separately by the supplier;

♠ Any Amount

-Liable to Pay – Supplier

-Incurred By – Recipient and

-Not included in the price actually paid or payable for the supply

♠ Incidental expenses i.e. Packing & Commission etc.

♠ Interest, Late Fee or Penalty for delayed payment.

♠Subsidies provided by State or Central Government

♠ Discount given before or at the time of supply through invoice.

♠ Discount given after the supply through credit note but

-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