Must Know Valuation rule under GST with examples
Hi Readers, in this Article we discuss about must know valuation rule under GST with examples. As we know that GST will be charges on transaction value. If transaction value is not correctly determined then GST will be wrong calculated and deposited which cause unnecessary further burden to the taxpayer in form of interest and penalty. Section 15 (1) of CGST act explain how to determine the value of supply on which GST to be Levied. According to Section 15 (1) Value of supply of Goods or services is transaction value if price is the sole consideration for the supply and supplier and the recipient of supply is not related to each other.
Section 15(4) of CGST Act state that if value of supply of goods or services is not determined under section 15(1) then value of supply shall be determined as per below mention rules. Thus, valuation rule may be required in the following situation where: –
1. Consideration is not wholly in money.
2. The supplier and recipient are related person.
Now we will analyse valuation rules in different scenario: –
Value of Supply of Goods or services where the consideration is not wholly in money (Rule 27)
Where the supply of goods or services is for a consideration which is not wholly in money i.e. if price is not sole consideration for supply of goods or services then value of supply shall be determine as below.
1. Open market value of such supply.
For example, if a computer is supplied for thirty thousand rupees along with exchange of an old computer and if the price of new computer without exchange is thirty-five thousand rupees then the open market value of the new computer shall be thirty-five thousand.
2. If the open market value is not available then value of supply shall be the sum of consideration in money and if consideration not in money for example consideration is in kind then such further amount in money as is equivalent to the consideration, if such amount is known at the time of supply.
For Example, where a computer 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 computer is not known then the value of the supply of the computer shall be forty-four thousand rupees.
3. If the value of supply is not determinable as per above (1) & (2) then be the value of supply of goods or services of like kind and quality.
4. If the value of supply is not determine as per above (1), (2) & (3) then value of supply shall be the sum of consideration in money and if consideration not in money for example consideration is in kind then such further amount in money as is equivalent to the consideration as determined by the application of rule 30 or rule 31 in that order.
Following types pf transaction is covered under Rule 27 :-
1. Barter and exchange transaction
2. Transaction listed in Schedule I
3. Transaction listed in Schedule II but without consideration
Value of supply of goods or services between distinct or related persons other than through an Agent – Rule (28)
Who is distinct persons: – Distinct person is define in section 25 (4) and 25 (5) of CGST Act. Its covers those cases where the same person has taken separate registration in different state or even in the same state.
Also See “Related persons are defining in the explanation to the section 15 of GST Act.”
Value of Supply of goods or services between distinct or related persons shall be: –
1. Open market value of such supply.
2. If the open market value is not available then value of supply shall be the value of supply of goods of like kind and quantity.
3. If the value of supply is not determinable as per above (1) & (2) then value of supply shall be the value as determined by the application of rule 30 or rule 31 in that order.
Provided that where goods are intended for further supply as such by the recipient then value of supply shall be, at the option of the supplier, be an amount equivalent to 90% of price charged for the supply of goods of like kind and quantity by the recipient to his customer who is not related persons.
Provided if the recipient is eligible for full ITC, the invoice value shall be deemed to be the open market value of the goods or services.
For Example: ABC Ltd supplier goods worth Rs 20,000 (Original Market Value of goods) to XYZ Ltd. (Related person) for Rs 15,000. XYZ Ltd claims the full amount of GST Charged in the invoice which is 2700 (15000@18%) as input tax credit then this invoice value will hold true for valuation purpose. Thus, value declared in the invoice shall be deemed to be the open market value of goods or services.
Value of supply of goods made or received through an agent – (Rule 29)
Who is agent: – According to Section 2(5), Agent mean a person, including a factor, arhatia, broker, del credere agent including commission agent, an auctioneer or any mercantile agent etc. Agent done supply or receipt of goods or services on behalf of another persons.
The Value of supply of goods between the principal and his agent shall: –
1. Be the open market value of goods being supplied or at the option of the supplier be an amount equivalent to 90% of price charged for the supply of goods of like kind and quantity by the recipient to his customer who is not related persons. This option will be available only if 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 5,000 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 4,550 rupees per quintal. The value of the supply made by the principal shall be 4,550 rupees per quintal if open market value approach taken or where he exercises the option of 90 % then the value shall be 90 % of 5,000 i.e. 4,500 rupees per quintal.
2. If the value of supply is not determinable as per above (1) then value of supply shall be the value as determined by the application of rule 30 or rule 31 in that order.
Also See, “Value of supply by a Del-Credere Agent (DCA) clarification vide Circular no 73/47/2018 – GST dated 05 November 2018.
Value of supply of Goods or services or both based on Cost – Rule (30)
Where the value of a supply of goods or services or both which is not determinable by any of the preceding rules (Rule 27, Rule 28 and Rule 29) of this Chapter, the value shall be 110% of the cost of production or the cost of provision of such services.
Residual method for determination of value of supply of goods or services or both – Rule (31)
As per the residual method, Where the value of supply of goods or services or both cannot be determined by using rules 27 to rule 30 of valuation rule then in such case value shall be determined using reasonable means which is consistent with the principles and general provisions of section 15 and the provisions of this Chapter.
Provided that supplier of services may opt for rule 31 instead of rule 30 of valuation rule.
Value of supply in case of lottery, betting gambling and Horse racing – Rule (31A)
CGST Rule vide notification no 03/2018 – Central Tax dated 23-01-2018 state that value in respect of supplies specified below shall be determined in the manner provided below:-
1. The value of supply of lottery run by State Government shall be deemed to be 100/112 of the face vale of ticket or of the price as notified in the official gazette by the organizing state, which ever is higher.
2. If the lottery is authorised by State Government then the value of supply shall be deemed to be 100/128 of the face vale of ticket or of the price as notified in the official gazette by the organizing state, which ever is higher.
Also See, “Determination of value of supply in respect of certain supplies – Rule (32)”
Value of supply of services in case of pure agent (Rule 33)
Who is pure agent: –
Pure agent is a person who: –
1. Enters into a contractual agreement with the recipient of supply to act as his as pure agent to incur expenditure or costs in the course of supply of goods or services.
2. Does not hold or intends to hold any title in the goods or services so procured or supplied as pure agent.
3. Does not use for his own interest such goods or services so procured and
4. Pure agent receive only the actual amount incurred to procure such goods or services in addition to the amount received for supply he provides on his own account.
If following condition is satisfied then expenditure or costs incurred by pure agent does not form part of value of supply.
1. When the supplier done make payment to the third party on authorisation by the recipient, the supplier should acts as a pure agent.
2. The payment done by pure agent on behalf of recipient has been separately indicated in the invoice issued by the pure agent.
- Pure agent receive only the actual amount incurred as pure agent plus the amount received for supply he provides on his own account.
Valuation rule in respect of transaction in foreign currency – Rule (34): –
The rate of exchange for the determination of the value of taxable goods shall be the applicable reference rate for that currency as notified by the Board under Section 14 of Custom Act 1962 for the date of time of supply of such goods in term of section 12 of the act.
The rate of exchange for the determination of the value of taxable services shall be determined as per the generally accepted accounting principles for the date of time of supply of such services in term of section 13 of the act.
Section 12 or Section 13 pertain to Time of Supply of Goods / Services under GST
Also See, “How to determine Time of Supply of Goods or Services under GST.
Value of supply inclusive of integrated Tax, central tax, state tax, union territory tax – Rule (35): –
Where the value of supply is inclusive of IGST or CGST, SGST, UTGST, the tax amount shall be determined in the following manner, namely, –
Tax amount= (Value inclusive of taxes X tax rate in % of IGST or, as the case may be,
CGST, SGST or UTGST) ÷ (100+ sum of tax rates, as applicable, in %)
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