MEANING
Goods and Services Tax will be charged on the value of supply made.
Section 15 of CGST Act, 2017 provides the provisions for determining the value of goods and services. It provides the mechanism to know how to calculate the value of goods or services when supply of goods and services is made between unrelated persons and when the price is the sole consideration of the supply. Provisions of the value of supply under CGST act have also been made applicable to IGST Act vide Section 20 of the IGST Act.
INCLUSIONS IN VALUE OF SUPPLY
There are certain elements which are required to be included in the value of taxable supply. These are as follows:
- Taxes, duties,cesses,fees and Charges
- Amount incurred by recipient on behalf of supplier
- Incidental expenses and amount charged for activities done before delivery
- Delayed payment charges
- Subsidies
Taxes, Duties, Cesses, Fees and Charges
Value includes all the taxes, duties, cesses, fees and charges except the CGST, SGST, UTGST and GST cess if charged separately by the supplier. Thus we can say that GST and GST cess are not part of Taxable value but other taxes & duties, cesses, fees and charges are part of the taxable value.
Amount incurred by recipient on behalf of supplier
Any amount paid by the recipient in relation to supply which is liable to be paid by the supplier then such amount will become part of the taxable value. A supplier may need to incur some expenses in relation to supply however if these expenses are directly paid by the recipient then such expenses also needs to be included in the value of taxable supply.
Incidental expenses and amount charged for activities done before delivery
It means any amount charged by supplier for anything done by him for the supply of goods or services or both. Incidental expenses includes:
Commission:
Any commission paid to an agent by the supplier and recovered from the recipient for supply of goods or services or both will be the part of the value of taxable supply.
Inspection or certificate charges:
This is another element that may be added to the value, if billed to the recipient of supply.
Packing :
If the packing charges are charged by the supplier to the recipient then it is to be included in the value of supply.
Freight and other charges:
Where the supplier agrees to deliver the goods to the recipient and facilitate the transportation then the charges of freight will be the part of value of supply.
Delayed payment charges
Interest or late fee or any penalty for delayed payment of any consideration for supply of goods or services is required to be included in the value of supply.
Subsidies
Any subsidy which is direct link to the supply will be the part of value of supply except subsidies provided by the central government and state government.
EXCLUSIONS IN THE VALUE OF SUPPLY
There are two types of discount which is required to be excluded from the value of supply:
Discount given on or before supply: Any discount which is duly recorded in the invoice and given before the time of supply is required to be excluded from the value of taxable supply.
Discount given after the supply (Post supply discount): Any discount which is given after the supply however such discount is already decided as per the agreement between supplier and the recipient before the time of supply and recipient has reversed the input tax credit on the value of discount then such discount value is required to be excluded from the value of taxable supply.
RULES FOR TAXABLE VALUE OF SUPPLY UNDER GST
RULE 27: IN CASE THE CONSIDERATION FOR A SUPPLY IS NOT COMPLETELY IN MONEY
There are cases where the consideration for the supply of goods or services is not wholly in money. In such cases, the value of supply shall be:
- Open market value of such a supply.
- Total of consideration in money plus any amount in money which is equivalent to the consideration not in money. Provided the open market value is not known at the time of supply.
- Value of goods or services that are equal in quality or kind to the goods or services supplied. Provided value of supply in clause 1 or 2 is not available.
RULE 28: VALUE OF SUPPLY OF GOODS OR SERVICES OR BOTH BETWEEN DISTINCT PERSONS OR RELATED PERSONS
Rule 28 relates with value of supply in a case where the supply of goods or services or both takes place between distinct persons or related persons. However, the related persons do not cover the scenario of principal-agent relationship.
Thus, the value of supply in this case shall be:
- Open market value of such supply.
- Value of goods or services that are equal in quality or kind to the goods or services supplied. Provided value of supply in clause 1 is not available.
- Value as determined by applying Rule 30 or Rule 31 in that order. Provided that the value of supply cannot be determined as per Clause 1 or Clause 2 above.
RULE 29: VALUE OF SUPPLY OF GOODS MADE OR RECEIVED THROUGH AN AGENT
This rule covers the case of supply between a principal and an agent. In such a scenario, the value of supply shall be:
- Open market value of the goods supplied or 90% of the value of goods supplied by an agent to his customer who is not a related person. Provided the goods supplied by an agent to his customer are of the same quality and kind as supplied by the principal to the agent. And the agent intends to sell the goods received by him from the principal in the market.
- Value as determined by applying Rule 30 or Rule 31 in that order. Provided that the value of supply cannot be determined as per Clause 1 above.
RULE 30: VALUE OF SUPPLY OF GOODS OR SERVICES OR BOTH BASED ON COST
There are scenarios when the value of supply of goods or services or both cannot be determined by applying any of the above rules. In such cases, the value of such a supply shall be 100% of the cost of:
- production of such goods or
- acquisition of such goods or
- provision of such services.
RULE 31: RESIDUAL METHOD TO DETERMINE THE VALUE OF SUPPLY OF GOODS OR SERVICES OR BOTH
There can also be scenarios where the value of supply of goods or services or both cannot be determined by applying rules 27 to 30.
In such scenarios, the value of supply needs to be determined by using rational means. Such means must be in accordance with the principles and provisions of Section 15 of the CGST Act as well as Chapter IV of CGST Rules.
RULE 32: DETERMINATION OF VALUE IN RESPECT OF CERTAIN SUPPLIES
Rule 32 specifies the regulations to determine the value of supply in case of specific supplies which are as follows:
1. Purchase or Sale of Foreign Currency
This case relates to determining the value of supply in cases where a person or an entity provides services relating to purchase or sale of foreign currency. The value of supply shall be equal to Reserve Bank of India’s reference rate for that currency.
2. Booking of Tickets
There are cases where an air travel agent provides services pertaining to booking of tickets for travel by air. In such scenarios, the value of supply shall be equal to
- 5% of the basic fare in case of domestic bookings of passage for travel by air and
- 10% of the basic fare in case of international bookings of passage for travel by air.
3. Life Insurance Business
There are entities or persons running life insurance business. Thus, the value of supply of such services shall be:
- Gross premium charged from a policy holder less amount allocated for investment or savings on behalf of the policy holder. Provided such an amount of savings or investment is communicated to the policy holder at the time of supply of service.
- 10% of single premium charged from the policy holder in case of single premium annuity policies other than those covered in clause (1) or
- 25% of the premium charged from the policy holder in the first year and 12.5% of the premium charged from the policy holder in subsequent years in all the other cases. Provided this rule shall not apply to cases where the policyholder pays the entire premium only towards risk cover in life insurance.
4. Buying and Selling of Second Hand Goods
There are cases where persons or entities deal in buying and selling of second hand goods i.e., used goods. Such goods are supplied either as such or after such minor processing that does not change the nature of goods. Furthermore, no input tax credit has been availed on the purchase of such goods.
Thus, the value of supply of such services shall be the difference between the selling price and the purchase price. However, the value of such supply shall be ignored if the difference is negative.
5. Token Or Voucher or Coupon Or Stamp
There are cases where a token, or a voucher, or a coupon, or a stamp (other than postage stamp) is redeemable against a supply of goods or services or both.
In such cases, the value of supply of such services shall be equal to the money value of the goods or services or both redeemable against such token, voucher, coupon, or stamp.
6. Government Notified Service Providers
There are cases where the Government notifies certain service providers to supply goods and services. Further, such a notification is given by the government on the recommendation of the Council. And this is as per Section 25, paragraph 2 of Schedule I of the CGST Act.
Thus, the value of taxable services provided by such class of service providers shall be deemed to be NIL.
RULE 33: VALUE OF SUPPLY OF SERVICES IN CASE OF PURE AGENT
There are scenarios where a supplier incurs costs or expenditures as a pure agent of the recipient of supply. In such cases, the value of supplies shall exclude such costs provided if the following conditions are satisfied:
- The supplier enters into a contractual agreement with the recipient of the supply to act as his pure agent. Furthermore, as a pure agent, the supplier has the authority to incur
- Expenditure or costs in the course of supply of goods or services
- Payment made by the pure agent on behalf of the recipient of supply has been separately mentioned in the invoice issued by the pure agent to the recipient of service; and
- The supplier neither intends to hold nor holds any title to the goods or services procured as a pure agent of the recipient of supply. Furthermore, the supplier acting as a pure agent does not use the goods or services so procured for his own use.
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