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VALUATION OF GOODS AND SERVICES |
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VALUATION OF GOODS AND SERVICES |
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Section 15 of the Act provides that the value of a supply of goods or services or both shall be the transaction value. The transaction value 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. If both of them are related persons there is a separate procedure for valuation which is prescribed in the rules. Before going into the detailed discussed it is highly required to know the definition of some expressions. Basic fare The expression ‘basic fare’ means that part of the air fare on which commission is normally paid to the air travel agent by airline. Related person Explanation to Section 15 provides that for the purposes of this Act-a person shall be deemed to be ‘related person’ if-
The 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. Person The term ‘person’ also includes legal persons. Open market value ‘Open market value’ of a supply of goods or services or both means the full value in money, excluding the integrated tax, central tax, State tax, Union territory tax and the cess payable by a person in a transaction, where the supplier and the recipient of the supply are not related and price is the sole consideration, to obtain such supply at the same time when the supply is being valued is made. Supply of goods or services or both of like kind and quality ‘Supply of goods or services or both of like kind and quality’ means any other supply of goods or services or both made under similar circumstances that, in respect of the characteristics, quality, quantity, functional components, materials and reputation of the goods or services or both first mentioned, is the same as, or closely or substantially resembles, that supply of goods or services or both. Pure agent ‘Pure agent’ means a person who-
Illustration Corporate services firm A is engaged to handle the legal work pertaining to the incorporation of company B. Other than its service fees, A also recovers from B, registration fee and approval fee for the name of the company paid to Registrar of Companies. The fees charged by the Registrar of the companies registration and approval of the name are compulsorily levied on B. A is merely acting as a pure agent in the payment of those fees. Therefore A’s recovery of such expenses is a disbursement and not part of the value of supply made by A to B. Section 15(2) of the Act provides what are the items to be included in the valuation. Section 15(3) of the Act provides that discounts are not to be included in the value of supply. Includible items The value of supply shall include-
if charged separately by the supplier.
The amount of subsidy shall be included in the value of supply of the supplier who receives the subsidy. Discount The value of the supply shall not include any discount which is govern -
Powers of Government Section 15(5) of the Act provides that 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. Rules for valuation Chapter IV of Goods and Services Tax Rules, 2017 deals with the procedure for determination of value of supply. This Chapter has been inserted vide CGST (Second Amendment) Rules, 2017 which came into force with effect from 01.07.2017. Value where the consideration is not wholly in money Rule 27 provides that where the supply of goods or services is for a consideration not wholly in money, the value of the supply shall-
Illustration : 1. Where a new phone is supplied for Rs. 20,000/- along with the exchange of an old phone and if the price of the new phone without exchange is Rs. 24,000/-, the open market value of the new phone is Rs. 24,000/-. 2. Where a laptop is supplied for Rs. 40,000/- along with a barter of printer that is manufactured by the recipient and the value of the printer known at the time of supply is Rs.4,000/- but the open market value of the laptop is not know, the value of the supply of laptop is Rs. 44,000/-. Value of supply of goods made or received through an agent Rule 29 provides that the value of supply of goods made or received through an agent shall-
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 Rs. 5,000/- 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 Rs. 4550/- per quintal. The value of the supply made by the principal shall be Rs. 4550/- per quintal or where he exercises the option the value shall be 90% of Rs. 5,000/- i.e., Rs. 4500/- per quintal. Value of goods between distinct or related person other than agent Rule 28 provides that the value of the supply of goods or services or both between distinct persons or where the supplier and the recipient are related, other than where the supply is made through an agent, shall-
Application of Rule 30 or Rule 31 Rule 30 deals with the value of supply of goods or services or both based on cost. Where the value of a supply of goods or services or both is not determinable by any of the above discussed rules, the value shall be 110% of the cost of production or manufacture or cost of acquisition of such goods or cost of provision of such services. Rule 31 deals with the 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 27 to 30, the same shall be determined using reasonable means consistent with the principles and genera provisions of Section 15 and the rules. In the case of supply of services, the supplier may opt for this rule ignoring Rule 30. Determination of value in respect of certain supplies Rule 32(1) provides that the value in respect of supplies specified below shall be determined in the manner provided as below-
Rule 32(2) provides that the value of supply of services in relation to purchase or sale of foreign currency, including money changing, shall be determined by the supplier of service in the following manner-
Rule 32(3) provides that the value of supply of services in relation to booking of tickets for travel by an air travel agent, shall be deemed to be an amount calculated @ 5% of the basic fare in the case of domestic bookings and @ 10% of the basic fare in the case of international bookings of passage for travel by air.
Rule 32 (4) provides that the value of supply of services in relation to life insurance business shall be-
Where the entire premium paid by the policy holder is only towards the risk cover in life insurance nothing in this rule shall apply.
Rule 32 (5) provides that where a taxable supply is provided by a person dealing in buying and selling of second hand goods i.e. used goods as such or after such minor processing which does not change the nature of the goods and where no input tax credit has been availed on purchase of such goods, the value of supply shall be the difference between the selling price and purchase price. If the value of such supply is negative it shall be ignored. The purchase of value of goods reprocessed from a defaulting borrower, who is not registered, for the purpose of recovery of loan or debt shall be deemed to be the purchase price or such goods by the defaulting borrower reduced by 5% points for every quarter or part thereof, between the date of purchase and the date of disposal by the persons making such representation.
Rule 32 (6) provides that the value of a token, or a voucher or a coupon, or a stamp, other than postage stamp, which is redeemable against a supply of goods or services or both, shall be equal to the money value of the goods or services or both redeemable against such token, voucher, coupon or stamp.
Rule 32(7) provides that the value of services provided by such class of service providers as may be notified by the Government on the recommendations of the Council as referred to in Entry 2 of Schedule I between distinct persons as referred to in section 25, where input tax credit is available shall be deemed to be NIL. Value of supply of services in case of pure agent Rule 33 provides that the expenditure 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-
Rate of exchange of currency, other than Indian rupees, for determination of value Rule 34 provides that the rate of exchange for determination of value of taxable goods or services or both shall be the applicable reference rate for that currency as determined by Reserve Bank of India on the date when the point of taxation arises in respect of such supply in terms of Section 12 of Section 13 of the Act. Value of supply inclusive of integrated tax, central tax, State tax, Union territory tax Rule 35 provides that where the value of supply is inclusive of integrated tax or as the case may be, central tax, State tax, Union territory tax, the tax amount shall be determined in the following manner,
By: Mr. M. GOVINDARAJAN - July 15, 2024
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