Valuation Rule For Supply Under Goods and Services Tax: Value of Supply in common terms is nothing but the amount paid by the recipient of supply to the supplier as consideration for supply (also known as transaction value). It means Value of supply is the figure upon which tax is levied and collected.
It is important to know to ascertain correct value of supply for correct levy of GST.
Valuation rules determine value of goods or services or both on which tax under GST has to be charged. Valuation rules have been prescribed under CGST Rules, 2017 for the purpose of determination of fair market value of goods or services or both supplied by the registered person. It means valuation rules are helpful to determine the value of supply where value not determined under Sec. 15(1) as mentioned under Sec. 15(4) of CGST Act, 2017.
What is Valuation of Supply Under GST?
Goods and Services Tax will be charged on the value of supply made. The new law has provided various rules which can be referred to for determining the value of supply on which GST has to be charged. In simple words, these rules will help in determining the charging value for GST.
Analysis of Valuation Rules for Supply
Valuation Rules have recently been released and are now open for public comment. These rules are currently hosted on CBEC’s portal and you can access them here. These rules are going to impact all the businesses. To make it easier for our readers, we have come up with our analysis of these valuation rules.
All possible scenario wherein valuation is required are categorized under seven different heads. These heads are:
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1. Value of Supply of Goods or Services where the consideration is not wholly in money.
Where the supply of goods or services is for a consideration not wholly in money, the value of the supply shall-
- (a) be the open market value of such supply;
- (b) if the open market value is not available under clause (a), be the sum total of consideration in money and any such further amount in money as is equivalent to the consideration not in money, if such amount is known at the time of supply;
- (c) if the value of supply is not determinable under clause (a) or clause (b), be the value of supply of goods or services or both of like kind and quality;
- (d) if the value is not determinable under clause (a) or clause (b) or clause (c), be the sum total of consideration in money and such further amount in money that is equivalent to consideration not in money as determined by the application of rule 30 or rule 31 in that order.
For example :
- (1) Where a new phone is supplied for twenty thousand rupees along with the exchange of an old phone and if the price of the new phone without exchange is twenty-four thousand rupees, the open market value of the new phone is twenty four thousand rupees.
- (2) Where a laptop is supplied for forty thousand rupees along with the barter of a printer that is manufactured by the recipient and the value of the printer known at the time of supply is four thousand rupees but the open market value of the laptop is not known, the value of the supply of the laptop is forty four thousand rupees.
2. Value of Supply of Goods or Services or both between distinct or related persons, other than through agent.
The value of the supply of goods or services or both between distinct persons as specified in sub-section (4) and (5) of section 25 or where the supplier and recipient are related, other than where the supply is made through an agent, shall
- (a) be the open market value of such supply;
- (b) if the open market value is not available, be the value of supply of goods or services of like kind and quality;
- (c) if the value is not determinable under clause (a) or (b), be the value as determined by the application of rule 30 or rule 31, in that order
Provided that where the goods are intended for further supply as such by the recipient, the value shall, at the option of the supplier, 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:
Provided further that where 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 the goods or services.
3. Value of Supply of Goods made or received through an agent.
The value of supply of goods between the principal and his agent 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.
For example: 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 five thousand rupees per quintal on the day of the supply. Another independent supplier is supplying groundnuts of like kind and quality to the said agent at the price of four thousand five hundred and fifty rupees per quintal. The value of the supply made by the principal shall be four thousand five hundred and fifty rupees per quintal or where he exercises the option, the value shall be 90 per cent of five thousand rupees i.e., four thousand five hundred rupees per quintal.
(b) where the value of a supply is not determinable under clause (a), the same shall be determined by the application of rule 30 or rule 31 in that order.
4. 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 preceding rules of this Chapter, the value shall be one hundred and ten percent of the cost of production or manufacture or the cost of acquisition of such goods or the cost of provision of such services.
5. Residual method for determination of the 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 the general provisions of section 15 and the provisions of this Chapter:
Provided that in the case of supply of services, the supplier may opt for this rule, ignoring rule 30.
6. Determination of value in respect of certain supplies.
Specific cases such as Foreign Currency Convertor, Life Insurance Business are covered under this head.
7. Value of Supply of Service in the case of a pure agent.
This valuation rule will apply to exclusive Principal-Agent related cases.
Most of these valuation rules are case specific, the all powerful GST council has also listed up certain businesses such as the sale of foreign currency and life insurance business etc and their specific valuation rules (Under clause 6 above).
Rate of exchange of currency, other than Indian rupees, for determination of value
- (1) The rate of exchange for determination of value of taxable goods shall be the applicable rate of exchange as notified by the Board under section 14 of the Customs Act, 1962 for the date of time of supply of such goods in terms of section 12 of the Act.
- (2) The rate of exchange for determination of value of taxable services shall be the applicable rate of exchange determined as per the generally accepted accounting principles for the date of time of supply of such services in terms of section 13 of the Act.