Chapter 4 Value of Supply – Goods and Services Under GST


(Last Updated On: May 27, 2019)

  

Value of Supply

In GST regime it is important to know about the value of goods or services or both on which tax is to be paid. As per CGST Act, 2017 along with rules prescribed the provisions for determining the value of supply of goods or services have been made applicable in different circumstances and to different people.



Value of  taxable supply

  • Which section describe the value of supply?
  • Value of taxable supply as per section 15
  • Inclusions in the Value of supply
  • 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
  • Exclusions in the Value of supply
  • Discount given on or before supply
  • Discount given after the supply  (Post supply discount)
  • Value cannot be determined as per the provisions
  • Value of taxable supply where the consideration is not wholly in money (Rule 27)
  • Value of taxable supply where supply between distinct or related persons other than agent ( Rule 28)
  • Value of taxable supply where supply made through an agent (Rule 29)
  • Value of supply as per rule 30
  • Value of supply as per rule 31
  • FAQs





Which section describe the value of supply?


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.


Government has introduced various criteria for the determination of value of supply so now we will understand how to calculate the value of supply as per Section 15 of CGST Act, 2017.



Value of taxable supply as per section 15


Provisions relating to value of taxable supply are as under-


As per this section value of taxable supply is transaction value which is the price actually paid or payable for the supply of goods or services and the price is the sole consideration. Also, where the supplier and the recipient are not related or unrelated parties.

So we can say that if the supplier and recipient are not related and the price is the sole consideration then the value of taxable supply is the Transaction Value.



Inclusions in the Value of supply


There are certain elements which is required to be included in the value of taxable supply. We will understand all the elements step by step as under-

  • 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 of supply 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:-

  1. 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
  2. Inspection or certificate charges:- This is another element that may be added to the value , if billed to the recipient of supply
  3. Packing :- If the packing charges are charged by the supplier to the recipient then it is to be included in the value of supply
  4. 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.

Discounts details are given as under:-

  • Discount given on or before supply
  • Discount given after the supply  (Post supply discount)

  • 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.



Value cannot be determined as per the provisions


When it is not possible to calculate value of supply as per section 15 due to related party transaction or price not being the only or  the sole consideration. The value of taxable supply is to be calculated as per the chapter IV of CGST Rules, 2017.


Now we will understand the value of supply as per rules.





Value of taxable supply where the consideration is not wholly in money (Rule 27)


Where the consideration is not wholly in money then the value of supply is

  • Open market value
  • If the open market value is not available then the sum total of consideration in money and any further amount in money as is equivalent to the consideration not in money.
  • If the value of supply is not determinable as per above points then the value of supply of goods or services of like kind and quality
  • If the value of supply is not determinable as per above points then the value of supply of goods or services will be calculated as per rules 30 that means the consideration in money plus money equivalent of the non money consideration plus 10% mark up or
  • As per rule 31 other reasonable methods.


Value of taxable supply where supply between distinct or related persons other than agent ( Rule 28)


The value of taxable supply between distinct persons or where the recipient and supplier are related other than in case of supply being made through agent then value is

  • Open market value
  • If the open market value is not available then the value of supply of goods or services of like kind and quality
  • If the value of supply is not determinable as per above points then the value of supply of goods or services will be calculated as per rules 30 or 31

However if the goods are as such supplied by the recipient then the supplier has an option to take 90% of the price charged by the recipient from his unrelated customers as value of goods



Value of taxable supply where supply made through an agent (Rule 29)


Where supply is made through an agent then value of supply is

  • Open market value of goods
  • Or supplier has an option to take 90% of the price charged for the supply of goods of like kind and quality by the recipient from his unrelated customers as value of goods.
  • If the value of supply is not determinable as per above points then the value of supply of goods or services will be calculated as per rules 30 or 31


Value of supply as per rule 30


Where value of taxable supply is not determinable as per rules 27,28,29 than it will be calculated as per Rule 30. As per this rule the value shall be 110% of the

  • Cost of production
  • Cost of acquisition
  • Cost of provision of such service

However service provider has an option to take rule 31 by passing rule 30.



Value of supply as per rule 31


Where the value of supply of goods or services or both cannot be determinable as per Rule 27 to 30 then the same shall be determined as per reasonable means with the principles and general provisions of the section 15 and the provisions of the chapters.




FAQs


Q 1 What is Open market Value ?

Ans. Open Market Value means the full value in money. Which is paid to obtain such supply at the same time when the supply being valued is made. Also, where the recipient and supplier are unrelated or not connected parties and the price is the sole consideration for such supply.


Q 2 What is meaning of supply of goods or services of like kind and quality ?

Ans. It means any other supply of goods or services made under the same circumstances. Same circumstances means that the supply is same in respect of the characteristics, quality, quantity, functional components, materials and reputation of the goods or services or both or closely or substantially resembles.


Q 3 What is the meaning of distinct person ?

Ans. It means a person who has obtained or is required to obtain more than one registration. These separate registrations can either be in one state or union territory or more than one state or union territory.

Author


Team Tax2Win