SBS Hyderabad 9 th December, 2017 VALUE OF SUPPLY UNDER GST By S.Divyasree Intern 1 st year M/s SBS and Company LLP divyasrees@sbsandco.com
SECTION 15- VALUE OF SUPPLY As per Section 15(1): Value of supply (For Goods or Services or both) Transaction Value Supplier and Recipient are not related Persons Price is the Sole Consideration 2
WHY IT IS REQUIRED TO DETERMINE THE VALUE OF SUPPLY? Make a Person liable to pay Tax (GST or any other Act) Following should be clearly specified in the Act What should be levied to tax Aspect of Supply which is to made Taxable Time at which Supply should be Taxed Value on which tax is to charged Tax rate to determine the Tax Liability 3
Related Person Following are deemed to be Related Persons: Officers or Directors of one another s business. Legally recognised partners in a business. Employer and Employee. Any person holding directly or indirectly 25% or more of the stocks, Shares. One of them is able to directly or indirectly control the other. Both of them are directly or indirectly controlled by the other. Members of the same family. Associated business entities one among them is a Sole Agent or Sole Distributor or Sole Concessionaire. 4
Section 15(2) Inclusions in the value of Supply:- Extends the Value of Supply. Any Taxes, Duties, Cesses, charges,fees levied under any other law other than IGST, CGST, SGST and compensation cess, if any charged separately by the supplier. Interest, Penalty, Late fees if any charged by the Supplier from the recipient for delayed payment of consideration.(addition in value should be processed through a debit note.) Eg: X supplied goods to P on 01.09.2017 with two months credit. The value of goods supplied are 10 lakhs and GST charged is Rs. 1 lakhs. The amount is paid on 01.01.2018 along with interest at 18% for the period 01.11.2017 to 31.12.2017 i.e. Rs.33,000/-. Incidental expenses if any incurred by the supplier to make the product/service available to the recipient before or at the time of delivery of goods to the supplier. Eg: Commission, packing charges etc; 5
Section 15(2) The expense if any incurred by the recipient on behalf of the supplier and not included in the price paid or payable by the recipient for the supply of such services or goods. Eg: A Ltd placed an order with B Ltd. to supply goods worth 1,00,000/-. The raw material required for the manufacture of those goods is available at best quality at A Ltd place. So Altd acquired the raw materials ( Cost 20,000/-) and sent to B ltd. For the Supply made from BLtd to A Ltd, A Ltd paid 80,000/- now what will be amount on which B Ltd is liable to pay tax??? Subsidies directly linked to the price of the product other than subsidies given by Central Govt. and State Govt. Eg: Mr. X a manufacturer had launched a new product,the price at which it is made available to the retailer Mr.Y is 500/- further the retailer sells the product to the end customer at 550/-.As a part of sales promotion X agreed Y to make the product available to the end customer at 450/- the balance price of the product will be compensated by X. Subsidy should be included in the value of supply of the recipient of the Subsidy. 6
Section 15(3) Exclusions from the value of Supply : Discount provided before or at the time of supply. Such type of discount should be excluded from the value of supply. If that discount is recorded in the invoice issued for the supply of goods or services. Discount provided after the time of Supply. Should not be included in the value of Supply. Mentioned in the agreement prior to the time of Supply. Discount shall be linked to the Invoices. Input Tax Credit if any availed by the recipient on the discount which is obtained now should be reversed accordingly.(reduction in the value should be processed through credit notes). 7
Illustration: P Ltd. engaged into a contract with R Ltd. to supply cement bags( 300/- per bag). As per the terms of the agreement if R Ltd. Purchases more than 300 bags, discount of 20% will be given per bag for all of the purchase. Date of Purchase Quantity Price Charged 1/11/2017 125 37,500/- (125*300) 5/12/2017 75 22,500/- (75*300) 18/1/2017 100 30,000/- (100*300) 2/2/2017 150 36000 (150*240) GST paid Revised Price Discount 3750 30,000 7,500 750 2250 18,000 4,500 450 3000 24,000 6000 600 3600 - - - ITC Impact Credit note should be issued for the value of 1800/- to the recipient and Input Tax Credit should be reversed accordingly by the recipient. 8
Rule 27 of CGST Rules, 2017 Value of supply in case where price is not the sole consideration: Consideration if given partly or fully in Non- Monetary form then the Value of Supply should be determined in the following manner: Open Market Value be the value of Supply. Sum total of consideration in money and any such further amount equivalent to consideration not in money. If open market value is not available and such amount is known at the time of supply. Be the value of supply of goods or services of like kind and quality. Value shall be determined as per Rule 30 and 31. 9
Open Market Value and Like Kind and Quality: open market value of a supply of goods or services or both means the full value in money, excluding the integrated tax, central tax, State tax, Union territory tax and the cess payable by a person in a transaction, where the supplier and the recipient of the supply are not related and the price is the sole consideration, to obtain such supply at the same time when the supply being valued is made. Eg: X sold a phone to Y for rupees 20,000/- along with exchange of an old phone. On the same day X sold another mobile to Z for rupees 24,000/-. Here the open Market value for the phone is 24,0000/- which can be considered as value of Supply. Supply of goods or services of like kind and quality: Means any other supply of goods or services or both made under similar circumstances that, in respect of the characteristics, quality, quantity, functional components, materials, and the reputation of the goods or services or both first mentioned, is the same as, or closely or substantially resembles, that supply of goods or services or both. 10
Rule 30 and 31 of CGST Act, 2017: Rule 30 : Valuation based on Cost The value of supply shall be one hundred ten percent(110%) of the cost of manufacture or acquisition of the goods or the cost of provision of the service. Rule 31: Consistent with the provisions of Section 15 Where the value cannot be determined based on the rules specified in 27-30. The same shall be determined on a reasonable basis, consistent with the general provisions specified in Section 15 of the CGST Act,2017. In case of Services instead of Rule 30,Rule 31 can be directly applied. 11
Value od Rule 28 of CGST Rules 2017 Value of Supply where supply is between Related and Distinct Persons other than principal and agent: Valued at Open Market Value. Eg: X Ltd owns 40% of shares in Y Ltd. Y Ltd is engaged in manufacture of industrial equipment and it has supplied to X Ltd an industrial equipment at Rs. 2,00,000/- on 20.07.2017. It is noticed that on 17.07.2017 and 18.07.2017, identical equipment was sold to unrelated party for Rs. 2,70,000/- and 2,50,000/- respectively. What is the value that Y Ltd is required to adopt in order to charge GST on supply to X Ltd? If the Open Market Value is not available, value of supply of goods or services of Like Kind and quality. Eg: Assume that the industrial equipment manufactured for X Ltd is a unique one which is customized to the needs of X Ltd. Y Ltd supplies to unrelated person a similar equipment which has similar functionality at a price of Rs. 2,20,000/- What is the value that Y Ltd is required to adopt in order to charge GST on supply to X Ltd? 12
Rule 28 of CGST Rules 2017 If value cannot be determined above, Value shall be determined by application of Rule 30 and 31. Eg: Assume that the industrial equipment manufactured for X Ltd is a unique one and Y Ltd does not even manufacture any equipment of like kind and quality. Y Ltd arrived at the cost of production of said equipment as Rs. 2,00,000/-. What is the value that Y Ltd is required to adopt in order to charge GST on supply to X Ltd? Provisoes relating to Rule 28: If goods supplied above are intended for further supply by the recipient to a person who is not related, then at the option of the supplier the value of supply can be considered as 90% of the value at which the recipient makes the further Supply. For the supplies made to recipient if the recipient avails Input Tax Credit then the value charged in the Invoice can be considered as the Value of supply. 13
Rule 29 of CGST Rules,2017: Determination of value for supplies made between Principal and Agent: Open market value of such supply or at the option of supplier, ninety percent of price charged for further supply of goods of like kind and quality by recipient. If value cannot be determined above, value shall be determined by application of rule 30 and 31. Eg: 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. 14
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