VALUATION OF SUPPLY OF GOODS AND SERVICES UNDER GST - Handbook of GST Law & Procedures (CBIC) [October 2024] - GST

13. VALUATION OF SUPPLY OF GOODS AND SERVICES UNDER GST 13.1 Section 15 of the CGST Act, 2017 deals with the valuation of taxable supply. 13.2 The value of taxable supply of goods and services shall ordinarily be the transaction value , which is the price actually paid or payable for the supply of goods and/or services, when the supplier and recipient of such supply are not related and price is the sole consideration. The transaction value includes any amount which the supplier is liable to pay but which has been incurred by the recipient of the supply, but shall not include refundable deposit, discount allowed, subject to certain conditions, before or at the time of supply. 13.3 When consideration either wholly or in part is not in money terms, the price of the supply of goods and/or services is influenced by factors like relationship of parties or where certain transactions are deemed to be supply which do not have a price and transaction value declared is not reliable, the value has to be determined in accordance with the Rules prescribed in CGST Rules, 2017, for determination of value of taxable supplies. 13.4 As per Section 15(3) of the CGST Act, 2017, post-supply discounts or incentives are to be included in the transaction value. However, where the post-supply discount is established as per the agreement which is known at or before the time of supply and where such discount is specifically linked to the relevant invoice and the recipient has reversed input tax credit attributable to such discount, the discount is allowed as admissible deduction. 13.5 Pre-supply discounts allowed before or at the time of supply are not includible in the transaction value, provided it is allowed in the course of normal trade practice and has been duly recorded in the invoice. 13.6 The inclusions specified in Section 15(2) of the CGST Act, 2017, which could be added to transaction value are as follows: (a) Any taxes, duties, cesses, fees and charges levied under any statute, other than the SGST/CGST Act, 2017 and the Goods and Services Tax (Compensation to the States for Loss of Revenue) Act, 2016, if charged separately by the supplier to the recipient; (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 and/or services; (c) Incidental expenses, such as commission and packing, charged by the supplier to the recipient of a supply, including any amount charged for anything done by the supplier in respect of the supply of goods and/or services at the time of, or before delivery of the goods or as the case may be supply of the 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 and State Government. 13.7 As per Rule 32(5) of the CGST Rules, 2017, 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 the purchase of such goods, the value of supply shall be the difference between the selling price and the purchase price and where the value of such supply is negative, it shall be ignored. 13.8 In case of supply of Construction service (Works Contract), involving transfer of property in land or undivided share of land, the value of supply of service and goods portion in such supply shall be equivalent to the total amount charged for such supply less the value of land or undivided share of land. The value of land or undivided share of land, in such supply shall be deemed to be one third of the total amount charged for such supply. 13.9 Open market value of a supply of goods and/or services 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, to unrelated recipient of the supply and price is the sole consideration. Open market value will be relevant in cases where consideration for the supply is not wholly in money, in cases where supply is between related persons, or between distinct persons (entities having same PAN but different GSTIN) and between principal and agent. 13.10 Value of supply where the consideration is not wholly in money will be: - (a) Open market value of such supply; (b) If open market value is not available, value shall be the sum total of consideration in money and any amount equivalent to the consideration not in money. (c) if value cannot be determined as above, it shall be the value of supply of goods or services or both of like kind and quality. (d) if value is not determinable as per above clauses, value shall be the sum total of consideration in money and any amount in money equivalent to consideration not in money, as determined by application of Rule 30 or Rule 31 of Valuation Rules in that order. 13.11 When a supply does not have money as sole consideration and neither open market value nor consideration involved can be ascertained, then, cost based rule as prescribed in Rule 30 of CGST Rules, 2017 is applied. In such cases, the value shall be one hundred and ten percent of the cost of production or manufacture or cost of acquisition of such goods or cost of provision of such services. 13.12 Rule 31 of CGST Rules, 2017, also known as the residual method of Valuation, prescribes that where the value of supply of goods or services or both cannot be determined under Rule 27 to 30, then, the value of supply shall be determined using reasonable means consistent with the principles and general provisions of Section 15 and relevant CGST Rules, 2017. 13.13 The value of the supply of goods or services or both between related persons or distinct persons, as per Rule 28 of CGST Rules, 2017, shall, - (a) be the open market value of such supply; (b) if open market value is not available, be the value of supply of goods or services of like kind and quality; (c) if value is not determinable under clause (a) or (b), be the value as determined by application of rule 30 or Rule 31, in that order; (d) In case the goods are intended for further supply as such by the recipient, the value shall be an amount equivalent to ninety percent 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; (e) In case the recipient is eligible for full input tax credit, the value declared in the invoice shall be deemed to be the open market value of goods or services. 13.14 Agent means a person who carries on the business of supply or receipt of goods or services or both on behalf of another. The meaning of the term and the relationship with principal and agent has been clarified vide Circular No. 57/31/2018-GST, dated 4th September, 2018. 13.15 The value of supply of goods between the principal and his agent, as per Rule 29 of the CGST Rules, 2017, shall, - (a) be the open market value of the goods being supplied, or at the option of the supplier, be ninety percent 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; (b) where the value of a supply is not determinable under clause (a), the same shall be determined by application of cost based method as prescribed in Rule 30 or residual method as prescribed in Rule 31 in that order. 13.16 A Del-Credere Agent (DCA) is a selling agent who is engaged by a principal to assist in supply of goods or services by contacting potential buyers on behalf of the principal. The factor that differentiates a DCA from other agents is that the DCA guarantees the payment to the supplier. Where the buyer fails to make payment to the principal by the due date, DCA makes the payment to the principal on behalf of the buyer. 13.17 The valuation in respect of supplies made through the DCA shall be made as per the guidelines given in CBIC Circular No. 73/47/2018-GST dated 5th November, 2018. 13.18 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 manner prescribed under Rule 32 of the CGST Rules, 2017, as under: - (a) For a currency, when exchanged from or to Indian Rupees (INR), the value shall be equal to the difference in the buying rate or the selling rate, and the Reserve Bank of India (RBI) reference rate for that currency at that time, multiplied by the total units of currency. In case where the RBI reference rate for a currency is not available, the value shall be 1% of the gross amount of Indian Rupees provided or received by the person changing the money. In cases where neither of the currencies exchanged is Indian Rupee, the value shall be equal to 1% of the lesser of the two amounts the person changing the money would have received by converting any of the two currencies into Indian Rupee on that day at the reference rate provided by RBI. (b) The person supplying the services can also exercise below mentioned option instead of valuation method mentioned as (a) to ascertain the value: - At the option of supplier of services, the value in relation to supply of foreign currency, including money changing, shall be deemed to be (i) one per cent, of the gross amount of currency exchanged for an amount up to one lakh rupees, subject to a minimum amount of two hundred and fifty rupees; (ii) one thousand rupees and half of a per cent, of the gross amount of currency exchanged for an amount exceeding one lakh rupees and up to ten lakh rupees; and (iii) five thousand rupees and one tenth of a per cent, of the gross amount of currency exchanged for an amount exceeding ten lakh rupees, subject to maximum amount of sixty thousand rupees. 13.19 The value of supply of services in relation to booking of tickets for travel by air provided by an air travel agent, shall be an amount calculated at the rate of 5% of the basic fare in the case of domestic bookings, and at the rate of 10% of the basic fare (on which commission is normally paid to the air travel agent by the airline) in the case of international bookings of passage for travel by air. 13.20 The value of supply of services in relation to life insurance business shall be: (a) the gross premium charged from a policy holder reduced by the amount allocated for investment, or savings on behalf of the policy holder, if such amount is intimated to the policy holder at the time of supply of service; (b) in case of single premium annuity policies other than (a), ten per cent of single premium charged from the policy holder; or (c) in all other cases, twenty-five per cent, of the premium charged from the policy holder in the first year and twelve and a half per cent, of the premium charged from policy holder in subsequent years. 13.21 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 and/or services shall be equal to the money value of the goods and/or services redeemable against such token, voucher, coupon, or stamp. 13.22 Pure agent means a person who - (a) enters into a contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs in the course of supply of goods or services or both; (b) neither intends to hold nor holds any title to the goods or services or both procured or provided as pure agent of the recipient of supply; (c) does not use goods or services procured for his own interest; and (d) receives only the actual amount incurred to procure such goods or services. 13.23 The expenditure or 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, namely: - (i) the supplier acts as a pure agent of the recipient of the supply, when he makes the payment to the third party on authorisation by such recipient; (ii) the payment made by the pure agent on behalf of the recipient of supply has been separately indicated in the invoice issued by the pure agent to the recipient of service; and (iii) the supplies procured by the pure agent from the third party as a pure agent of the recipient of supply are in addition to the services he supplies on his own account.