All About Valuation – How valuation is done for supply of Goods/Services under GST

1.0 Introduction

Valuation is one of the most important and litigious concept under the law. Under present indirect laws, whether it is VAT, service tax, excise or any other law, valuation is the core because it is linked with the revenue of the government directly, whatever is the valuation, and the tax rate will be applied upon it. It is that figure which government wants it to be at higher side and the assessee wants it to be on a lower side and that is where the dispute occurs.

Under GST regime, valuation is based on the transaction value as in the previous laws. However, in case transaction value is not accepted then we have to refer the rules for the correct valuation. Therefore, we need to read and evaluate every important word of the section and the law. Let us move quickly on the valuation part and analyze it in depth.

2.0 Valuation of Supply of Goods and Services

1. The value of a supply of goods and/or services shall be the transaction value [in monetary terms], that is the price actually paid or payable for the said supply of goods and/or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply.

Value of supply of goods/services to include the following:

• Any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than GST (SGST, IGST, CGST, UTGST).

• 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 or services or both.

• Incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services.

• Interest or late fee or penalty for delayed payment of any consideration for any supply; and

• Subsidies directly linked to the price excluding subsidies provided by the Central Government and State Governments. However, the amount of subsidy shall be included in the value of supply of the supplier who receives the subsidy.

3.0 Treatment of discount on Goods/services under GST (CGST/SGST/IGST)

1. The value of the supply shall not include any discount which is given before or at the time of the supply if such discount has been duly recorded in the invoice issued in respect of such supply.

2. The value of supply shall not include any discount which is given after the supply has been affected if

• Such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices; and

• Input tax credit as is attributable to the discount on the basis of document issued by the supplier has been reversed by the recipient of the supply.

4.0 Analysis on Valuation of supply of goods/services

(a) The conditions that supplier and the recipient of the supply are not related and the price is the sole consideration for the supply must be satisfied together, because word ‘and’ has been used in the point no.1.

(b) From the plain reading of the section, we can observe that value of a supply of goods and/or services shall be the transaction value. However, if the value cannot be determined, then we need to proceed with the rules to calculate the value of supply.

The transaction value shall not be accepted under the following cases:

• Price is not a sole consideration – Rule 1

• Value of goods or services or both supplier and recipient are related (but not agent) – Rule 2

• Value of supply of goods (NOT Services) made or received through an agent. – Rule 3

4.1 Price is not the sole consideration (Rule 1)

1. The transaction value shall be accepted if the price is the sole consideration. In other words, what is received or what is to be received should only be the price paid or payable to the supplier. No other consideration in any form should be payable for the supply.

2. If price is not the sole consideration for the supply, then the valuation shall be done in accordance with the rule 1 of the Valuation rules.

3. As per rule 1 of the valuation rules, where the supply of goods and services is for a consideration not wholly in money, the value of the supply shall:

• Be the open market value of such supply.

• If open market value is not available, 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;

• However, if the value of supply is not determinable under above two clauses, be the value of supply of goods or services or both of like kind and quality.

• Further, if value is not determinable under any of the aforesaid clause, then the value shall 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 application of rule 4 or rule 5 in that order. (Rule 4 states that value shall be 110% of the cost and the rule 5 is the residual rule.)

4.2 Value of goods or services or both supplier and recipient are related (but not agent)

The value of the supply of goods or services where the supplier and recipient are related shall –

• Be the open market value of such supply.

• If open market value is not available, the value shall be the value of supply of goods or services of like kind and quality.

• If value is not determinable under aforesaid clauses, then the value shall be the value as determined by application of rule 4 or rule 5, in that order.

Note: To know who all are deemed to be related person under GST, kindly refer definition under section 15(5) of IGST act.

4.3 Value of supply of goods (NOT SERVICES) made or received through an agent

1. The value of supply of goods between the principal and his agent shall be the open market value of the goods being supplied.

However, the value shall, 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.

2. Where the value of a supply is not determinable under above clause, the same shall be determined by application of rule 4 or rule 5 in that order

5.0 Conclusion

Valuation is a not a easy ball game and hence any casual approach may hurt the sentiments of the business. GST will not be going to spare anyone in case of non compliance. Hence, if you have any queries or questions, ask direct to our experts by info@hubco.in.

Related Links:

• GST Registration
• GST Return Filings
• GST Software

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