VALUATION UNDER GST REGIME

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1 VALUATION UNDER GST REGIME APARNA NANDAKUMAR, ADVOCATE & TAX CONSULTANT, MADRAS HIGH COURT,

2 VALUATION- RELEVANT PROVISIONS Section 15 of the CGST Act GST ( Determination of Value of Supply of goods & services) Rules,2016 Value of supply of goods and /or services : the transaction value 2

3 TRANSACTION VALUE RULE 2(d) of GST ( Determination of Value of Supply of goods & services) Rules,2016: Transaction value means the value of goods and/ or services within the meaning of Section 15 of the CGST Act 3

4 NORMAL PRICE v. TRANSACTION VALUE Normal Price : Basis of valuation under the Central 4

5 TRANSACTION VALUE Transaction value: Section 15(1) of CGST Act: The value of supply of goods and /or services shall be the transaction value, that is the price actually paid or payable for the said supply of goods and/or services where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply 5

6 THE TRANSACTION VALUE Definition adopted from the Central Excise and the Customs Valuation Rules Use of the definite article the indicating that the price actually paid for the particular transaction to be accepted under Section 15(1) ( substituted here instead of Rule 4(1) of Customs Valuation Rules) unless price is unacceptable for the reasons set out in Section 6

7 PRICE ACTUALLY PAID/PAYABLE FOR THE TRANSACTION : Value should include: vis-à-vis [ Section VALUE 15(2)] OF SUPPLY All taxes, cess, fees, charges and levies under statutes other than GST laws ( if charged separately by supplier to recipient) Any liability of the supplier borne by the recipient ( Not included in the price paid or payable for the supply); Any incidental expenses ( commission, packing) charged by supplier, including any amount charged for anything done in respect of the supply at the time of or before delivery; 7

8 PRICE ACTUALLY PAID/PAYABLE FOR THE TRANSACTION : Value should include: vis-à-vis [ Section VALUE 15(2)] OF SUPPLY Late fee, interest, penalty for belated payment of consideration Subsidies linked to the price except Govt.subsidies ( to be included in the price component of the supplier who receives the subsidy) 8

9 PRICE ACTUALLY PAID/PAYABLE FOR THE TRANSACTION : Value excludes: vis-à-vis [ Section 15(2)] VALUE OF SUPPLY PRE-SALE DISCOUNT: condition: to be included in the invoice POST SALE DISCOUNT: Conditions: a) discount already established in agreement and specifically linked to the invoices 9 b) ITC attributable to the discount amount to have been reversed on the

10 PRICE PAYABLE FOR THE TRANSACTION : Payable refers only to the particular transaction and not comparative data Envisages a situation when the payment for a transaction has been deferred.eicher TRACTORS [(2000)122 ELT321 (SC)] 10

11 Methods of Determination of Value: THUMB RULE (RULE 3) 1. Value of supply is always the transaction value [ Mandate cast on authorities to accept price actually paid/payable as transaction value: Eicher] 2. unless and otherwise rejected as per Rule 7 [ Mandate is not invariable: Eicher] 3. Transaction value to be determined in monetary terms 4. When the supply is both taxable and non taxable supply then taxable supply will that part of monetary consideration attributable thereto between 11

12 Methods of Determination of Value: THUMB RULE (RULE 3) 5. If the relationship the Supplier and Recipient does not affect the Price transaction value will be accepted. 6.When goods are transferred from 1. One place to another place of the same business ; 2. Or from Principal to Agent or Agent to Principal then VALUE OF SUPPLY = TRANSACTION VALUE 12

13 Methods of Determination of Value: THUMB RULE (RULE 3) 7.Rule 4 to Rule 6 to be sequentially followed for determination of Transaction Value under Sec15(4) SECTION 15(4): When value of supply cannot be determined under Section 15(1), the same shall be determined in the manner prescribed 13

14 RULE 7 - When takes effect Ø When officer has reason to doubt accuracy/truth of transaction value: Ø (a) seeks information: gets the information but not satisifed and still entertains doubts Ø (b) seeks information: No response Ø TV deemed to be undeterminable under Rule 3(1) 14

15 SEQUENTIAL APPLICATION OF RULES 4 TO 6 When value undeterminable under Section 15(4) or doubted under Rule 7: RULE 4-Determination of Value by Comparison RULE 5- Computed Value Method RULE 6- Residual Method 15

16 Rule 4-Comparison Method comparison with TV of like kind and quality of goods/services adjustments by difference in: the date of Supply; commercial levels and quantity levels; Composition, quality and design; Freight and insurance Charges 16

17 2(b)- goods of like kind and quality Identical or similar in physical characteristics, quality and reputation as the goods being valued and Perform the same functions or Commercially interchangeable and Supplied by the same person or by a different person 17

18 RULE 2(c)- services of like kind and quality Identical or similar in nature, quality and reputation and Supplied by the same person or different person 18

19 If value cannot be determined under Rule 4 proceed to Rule 5 19

20 Rule 5- Computed value method Cost of production of goods/cost of provision of services Charges for design or Brand General Expenses/Profit/Transaction Value applicable to same class or kind of goods or services as the case may be 20

21 If value cannot be determined under Rule 5 proceed to Rule 6 21

22 Rule 6- Residual Method Value determined on the basis of reasonable means consistent with the principles and general provisions of these rules. 22

23 Rule 8-Valuation in certain Cases 23

24 Rule 8(1)-Pure Agent excluded from value of taxable service of service provider as pure agent CONDITIONS: a) Acts as a pure agent of recipient when making payment to third party for the supply of goods/services b) Recipient uses the goods/services procured from the pure agent c) Recipient authorises pure agent to make payment on his behalf d) Payment by pure agent indicated seperately e) Pure agent recovers the same amount paid to third party from the recipient 24

25 Rule 8(2) -Money Changer Value of taxable service in relation to purchase or sale of foreign currency including money changing will be Option 1 The difference in the rate of exchange and the reference rate of RBI x total units of Currency Option 2 If RBI reference rate is not available, 1% of gross amount of Indian Rupees Option 3 If both currencies are foreign, Then 1% of lesser of the amounts converted into Indian Rupees as per RBI reference rate. 25

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