Critical study of provisions of CENTRAL GOODS AND SERVICES TAX ACT, 2017–( in short CGST) Section 15 about. – ‘value of taxable supply’ thirteenth article in the series.

[DEV KUMAR KOTHARI]

Section 15 is about valuation of taxable supply for the purpose of levy of GST. The provision is very complex, and it seems that legislators (through drafters) have very strong suspicion in mind about honesty and integrity of businessperson who supply taxable goods and / or services. The provisions try to  contemplate various situations which may not prevail at the time of supply and may not take place in case of most of invoices in future also. Provision also attempt take into account possible ways of manipulations in valuation.

The provision is such that it can provide authority to GST officers to check each and every tax invoice and ask the supplier to establish that the value charged is as per provisions and satisfy every aspect to show that price charged is as per ‘third party pricing’ and there is no under valuation, directly or indirectly.

In the section, we find:

Explanation – twice for providing about subsidies and for deemed meaning of related person.

Notwithstanding– once in relation to valuation method which may be prescribed by government.

Deemed is found twice.

No amendment has been noticed.

Statutory Provisions

CENTRAL GOODS AND SERVICES TAX ACT, 2017

From provision with highlights added  for easy analysis, catch words for easy understanding and memory recall:	Further remarks and observations
Value of taxable supply.	Meaning of supply and various types of supplies are found in S.2 in different clauses
15. (1) 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 the price is the sole consideration for the supply.	‘Shall be’ means mandatory. Various conditions as highlighted make the provision very complex. Any supplier will find it difficult to  examine them. The GST officers can make enquiry for satisfaction of each condition, if not satisfied, another price can be substituted.
(2) The value of supply shall include–	Items to be included:
(a) any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than this Act, the State Goods and Services Tax Act, the Union Territory Goods and Services Tax Act and the Goods and Services Tax (Compensation to States) Act, if charged separately by the supplier;	Levies charged under any law  other than GST laws, will be included in value, if charged separately by the supplier. If it is not charged separately, then it is included by default.   If it is not charged in tax invoice but charged in some other manner, then also it will be taxable.
(b) any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods or services or both;	‘supplier is liable to pay’, is to be decided as per terms and conditions between supplier and recipient. This can be different in relation to different supplied.
(c) incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services;	Other charges will be included only if charged to recipient. If supplier himself bear that cost, then it will not be included. For example, commission on sale is usually not charged to buyer.
(d) interest or late fee or penalty for delayed payment of any consideration for any supply; and	This provision seems superfluous, because  interest or penalty for late payment is another event and that constitute separate supply.
(e) subsidies directly linked to the price excluding subsidies provided by the Central Government and State Governments. Explanation.––For the purposes of this sub-section, the amount of subsidy shall be included in the value of supply of the supplier who receives the subsidy.	This provision read with Explanation to it also appears to be superfluous. For the reason that subsides are disbursed and received by buyer/ recipient and not the seller.
(3) The value of the supply shall not include any discount which is given––	Discount  not to be included subject to conditions:
(a) before or at the time of the supply if such discount has been duly recorded in the invoice issued in respect of such supply; and	Before at the time of supply and is recorded in invoice.
(b) after the supply has been effected, if–	After the supply:
(i) 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; and	There must be agreement prior to supply and relatable to supply covered by any invoice. and
(ii) input tax credit as is attributable to the discount on the basis of document issued by the supplier has been reversed by the recipient of the supply.	The recipient of supply must reverse ITC (if availed). If ITC was not availed on supply received, then question of reversal does not arise.
(4) Where the value of the supply of goods or services or both cannot be determined under sub-section (1), the same shall be determined in such manner as may be prescribed.	If value cannot be determined as per sub-section (1), then as per prescribed manner. This can raise several dispute as to whether price can be determined or not as per SS (1)
(5) Notwithstanding anything contained in sub-section (1) or sub-section (4), the value of such supplies as may be notified by the Government on the recommendations of the Council shall be determined in such manner as may be prescribed.	If on recommendation of the Council, Government has notified any supply or supplies for determination of value in particular manner, then such notified manner will prevail.
Explanation.- For the purposes of this Act,––	This explanation is for the purposes of entire Act and not only for this section.
(a) persons shall be deemed to be “related persons” if––	‘related persons’ are deemed if
(i) such persons are officers or directors of one another’s businesses;	Common officers or directors
(ii) such persons are legally recognised partners in business;	Legally recognised partners.
(iii) such persons are employer and employee;	Employer and employee
(iv) 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;	25% or more of voting stock held directly or indirectly, by any person – this means any single person.
(v) one of them directly or indirectly controls the other;	If one control other directly or indirectly.
(vi) both of them are directly or indirectly controlled by a third person;	If both are controlled by a third person ( one person) directly or indirectly.
(vii) together they directly or indirectly control a third person; or	If two or more persons control a third person, directly or indirectly.
(viii) they are members of the same family;	Member of  the same family. ( not necessarily coparceners)
(b) the term “person” also includes legal persons;	Leal person is included.
(c) persons who are associated in the business of one another in that one is the sole agent or sole distributor or sole concessionaire, howsoever described, of the other, shall be deemed to be related.	Associated   in business of other. It seems that association only by way of ‘sole agent’ or ‘sole distributor’ or ‘sole concessionaire’  or similar capacity are covered. These terms are related to function of selling only and not other capacities.

Provisions of state GST laws for example S.15 of the Andhra Pradesh Goods and Services Tax Act, 2017 is reproduced below with highlights only for difference found. The difference is only for necessary adaptation for State  Tax:

“ Value of taxable supply.

15. (1) 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 the price is the sole consideration for the supply.

(2) The value of supply shall include,-

(a) any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than this Act, the Central Goods and Services Tax Act, 2017 (Act No.12 of 2017.) and the Goods and Services Tax (Compensation to States) Act, 2017 (Act No.15 of 2017.) if charged separately by the supplier;

(b) any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods or services or both;

(c) incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply, and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services;

(d) interest or late fee or penalty for delayed payment of any consideration for any supply; and

(e) subsidies directly linked to the price excluding subsidies provided by the Central Government and the State Government.

Explanation:- For the purposes of this sub-section, the amount of subsidy shall be included in the value of supply of the supplier who receives the subsidy.

(3) The value of the supply shall not include any discount which is given,-

(a) before or at the time of the supply if such discount has been duly recorded in the invoice issued in respect of such supply; and

(b) after the supply has been effected, if,-

(i) 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; and

(ii) input tax credit as is attributable to the discount on the basis of document issued by the supplier has been reversed by the recipient of the supply.

(4) Where the value of the supply of goods or services or both cannot be determined under sub-section (1), the same shall be determined in such manner as may be prescribed.

(5) Notwithstanding anything contained in sub-section (1) or sub-section (4), the value of such supplies as may be notified by the Government on the recommendations of the Council shall be determined in such manner as may be prescribed.

Explanation:- For the purposes of this Act,-

(a) persons shall be deemed to be “related persons” if,-

(i) such persons are officers or directors of one another’s business;

(ii) such persons are legally recognized partners in business;

(iii) such persons are employer and employee;

(iv) any person directly or indirectly owns, controls or holds twenty five percent or more of the outstanding voting stock or shares of both of them;

(v) one of them directly or indirectly controls the other;

(vi) both of them are directly or indirectly controlled by a third person;

(vii) together they directly or indirectly control a third person; or

(viii) they are members of the same family;

(b) the term “person” also includes legal persons.

(c) persons who are associated in the business of one another in that one is the sole agent or sole distributor or sole concessionaire, howsoever described, of the other, shall be deemed to be related.”

So far provision is AP GST Act ( and similar other enactments of States) in S. 15 find no difference except those required for necessary adaptation.

However, it is important that when we think of State GST, the particular state will be the state. So any notified or prescribed manner or method has to be so notified or prescribed by that particular state also.  

Recommendation of GST Council must also be made applicable to States.