Value of taxable supply (section 15), enables determination of amount of GST liability (whether IGST or CGST or SGST).
Generally, it would be price actually paid or payable for supply of goods or services.
The provision explains it as "transaction value", that is, price actually paid or payable (excluding discount allowed in the course of normal trade practice and recorded in invoice issued) for supply of goods or services; provided:
In case of:
Transaction value would be such as is provided for in Determination of Value Rules [proposed and named as GST Valuation (Determination of Value of supply of Goods and Services) Rules, 2016].
Transaction value should include:
It appears from the inclusions that they are borrowed from existing VAT laws. However, it appears, with unification of tax on goods and services, such inclusions are not called for. Any such charge or recovery, independent of supply invoice, would anyways be taxable under GST laws.
In following situations (hereafter referred as "specific situations"), value should be determined in the manner as may be prescribed by Rules:
Rules provide following methods to determine value of supply (presently, they do not provide for value in case of insurer, travel agent and distributor or selling agent of lottery):
| Sr No | Situation | Method | Requirements, conditions and remarks |
|---|---|---|---|
| 1.1 | Sale to unrelated party | Transaction value (Rule 3) |
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| 1.2 | Sale to unrelated party | Transaction value (Rule 3) |
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| 1.3 | Self-supply of goods (one place of business to another place of same business) | Transaction value (Rule 3) |
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| 1.4 | Goods transfer from: · principal to agent or · agent to principal | Transaction value (Rule 3) | Same as above |
| Specific situations | Methods specified in Rules 4 to 6 | Methods should be applied sequentially (that is, firstly, Rule 4 method; then Rule 5 method and so on) | |
| 2 | Specific situations | Value by comparison ("comparison method") (Rule 4) (Applies if value cannot be determined under Rule 3 by transaction value method) |
|
| 3 | Specific situations | Computed value method (Rule 5) (Applies if value cannot be determined under Rule 4 by comparison method) |
Computed value should include:
|
| 4 | Specific situations | Residual method (Rule 6) (Applies if value cannot be determined under Rule 5 by computed value method) |
Determine value by using reasonable means consistent with principles and general provisions of Rules |
1. "Goods of like kind and quality" is defined by Rules to mean: identical or similar goods in physical characteristics, quality and reputation as goods being valued and perform the same functions or are commercially interchangeable
2. "Services of like kind and quality" means: identical or similar services in nature, quality and reputation as services being valued.
Rules provide for it as follows:
It provides for mechanism and procedure to reject declared value in case of reasonable doubt that it does not represent transaction value. If, based on procedure and mechanism, it needs to be rejected, to value or substitute declared value, methods prescribed (comparison value or computed value or residual method) should be applied.
For the purpose, when Proper Officer doubts truth or accuracy of declared value (of any goods or services), he may follow the following process:
Reasons for doubting truth or accuracy of declared value may, inter alia, include following:
Rule 8 provides for valuation in case of Pure Agent and Money Changer. They appear to be more or less same as provided for in the existing Service tax law and, therefore, presently, not dealt with. In terms of Rules, in these cases, other methods would not apply.
Prima facie, it appears, Valuation provisions, inter alia, not deal with following situations:
1. Apparently, self supply covers only one situation, that is, where goods are transferred from one place of business to another place of business of the same business; if there are different businesses and goods are transferred from one place of business of a business to another place of business of another business, what could be the basis of valuation? Prima facie, on account of use of language "same business", valuation method provided does not cover the situation.
2. Further, it covers only case of supply of goods. If there is a supply of both goods and services or there is only supply of services, what could be the basis of valuation? Prima facie, not provided for.
1. It may be appreciated that consideration agreed-upon and/or paid or payable may not be only taxable value of supplies; in certain circumstances (where transaction is with related party), the agreed consideration may be questioned or examined, having regard to the Rules laid down for valuing supply.
2. Usually, in course of business, while executing an agreement for supply of goods and/or services, a supplier may do several things, agreed-upon or otherwise, to execute supply (of goods and/or services) for which there may be a separate charge or may not be and, in fact, it may be implied (between the parties) that everything is included in price agreed-upon. It is not very clear whether anything done (not agreed-upon or implied but still performed) needs to be valued and taken into consideration.
3. Free supplies, gifts etc may have to be valued as per applicable Rules; once again, it appears, it may not have any tax cost impact but only affect cash flow; however, it may depend on nature of scheme of giving free supplies, gift and the like.
4. In case of exchange or barter, wholly or partly, manner of application of Rules for valuation, presently, is not very clear.
5. In case of supplies of goods by customer for incorporation in work and the like, if no value is fixed or agreed-upon by and between the parties, it may have to be valued as per Rules and accordingly discharge the liability, if any. Yet again, it may not have any cost impact but only affect cash flow depending on nature of business, terms of contract and related matters.
6. Methods prescribed by Rules 4 to 6 are generally accepted, commercially or otherwise, methods for determining prices, usually called as methods for "transfer pricing". Other statutes provide for transfer pricing (like, Income tax Act, 1961 or Customs Act). The methods adopted for those statutes may also be considered relevant, having regard to the facts and circumstances. To apply such methods, necessary documents, records and information will have to be gathered and maintained as well as produced, wherever necessary.
7. In case of comparison value method, adjustments are required by Proper Officer. Does it imply that, a taxable person, pursuant to self-assessment, cannot make adjustment? In that case, method may not be workable at all for Taxable person?!?
8. Computed value method, as such, is quite vague. Apparently, borrowed from existing provisions in VAT law. It was applied in respect of works contract. Possibly, it needs substantial improvement.
9. Residual method can be applied consistent with principles and general provisions of Rules. The objective of Rules is to provide for determination of "price" or "transaction value" or "value" on which tax is payable. Accordingly, it should cover cost plus appropriate margin. If that be the principle and the case and the objective, methods evolved by business community or experts (to determine "transfer pricing" under Income tax Act, 1961 or Customs Act), possibly, can be applied.
10. In case of rejection of value, undoubtedly, tax would be payable on higher value as may be determined by Proper Officer (subject to appeal proceedings). However, possibly, it cannot be charged to recover from customer?!? If not, Taxable person may suffer.
11. In case of related party transactions, there may be extra burden on taxable person to establish price charged or determine price in terms of applicable provisions of Rules.
12. A supplier of goods may offer performance incentives or discount, which may not have been agreed-upon prior to the supply; but, may be given in the interests of business. It appears that such discount cannot be reduced from price charged for goods. On account of non-deduction, it would suffer tax; it may not have any cost impact but will certainly affect cash flow.
13. Denial of discount given post sale does not accord with commercial practices. Law should recognize commercial realities and should not be influenced by possibility of its misuse or abuse. In any case, it can impact Credit and, therefore, there is no revenue loss. Obviously, in case of retail sale, discount, if any, would be simultaneous with supply and, therefore, in that case, any disallowance thereof would not arise.
These are some of the implications for Business; for which, necessary representations, if any, may be desirable.
