C H A P T E R

7
Valuation Rules if value for
GST not ascertainable

7.1 Determination of value when value not ascertainable

The value of the supply of goods or services or both which cannot be valued under section 15(1) of CGST
and SGST Act, shall be determined as per rules - section 15(4) of CGST Act.
Such valuation may be required in following situations—
(i) the consideration, whether paid or payable, is not money, wholly or partly.
(ii) the supplier and the recipient of the supply are related.

7.2 Value of supply of goods or services where the consideration is not wholly in money
Where the supply of goods or services is for a consideration not wholly in money, the value of the supply
shall be as follows - Rule 27 of CGST and SGST Rules, 2017.
(a) the open market value of such supply,
(b) if open market value is not available, 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,
(c) if the value of supply is not determinable under clause (a) or clause (b), the value of supply of
goods or services or both of like kind and quality,
(d) if value is not determinable under clause (a) or clause (b) or clause (c), the sum total of consideration
in money and such further amount in money that is equivalent to consideration not in money as
determined by rule 30 or 31 of CGST and SGST Rules, 2017, in that order.

7.2-1 Meaning of “open market value”

“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 price is the sole consideration, to
obtain such supply at the same time when the supply being valued is made - Explanation (a) of Rule 35
of CGST and SGST Rules, 2017.
“Supply of goods or services or both 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 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 - Explanation (b)
of Rule 3 of CGST and SGST Rules, 2017.

53
Para 7.3 Valuation Rules if value for GST not ascertainable 54

The important points are as follows—

u Value should be exclusive of IGST, CGST, UTGST and GST Compensation Cess (but all other taxes,
if applicable).
u Price should be full value in money to unrelated buyer and price should be sole consideration.
u Supply should be at the same time when supply being valued is made.
u ‘Such supply’ means of ‘like kind and quality’.
u Even brand image is relevant. For example, Lux and Lifebuoy of same weight are not ‘like goods’
u Quantity and quality should be comparable.

7.2-2 Price should be of supply similar in all respects

The price should be at same commercial level. e.g. whole price and retail price or OE price and spare
parts price cannot be compared.
Selling price of 100 Kg. of goods to an unrelated buyer in India cannot be considered for comparison of
sale price of sale of 10,000 Kg. of similar goods to related person in India - same view in - CC v. Hewlett
Packard Ltd. 1999(108) ELT 221 = 29 RLT 290 (CEGAT) * Stahl India v. CC 2005 (184) ELT 408 (CESTAT).
In Volvo India v. CC 2005 (180) ELT 489 (CESTAT), it has been held that even if assessee and exporter are
related persons, prices of OE (Original Equipment) parts cannot be taken to level of price of spare parts,
unless department after investigation comes with evidence to show that relationship has influenced the
price.
In Mirah Exports P Ltd. v. CC 1998 AIR SCW 687 = AIR 1998 SC 928 =98 ELT 3 (SC), it was held that
giving quantity discount for higher quantity is not unusual and merely because such a discount has been
given during negotiations, it cannot be said that there is any under-valuation.

7.2-3 Value in case of exchange or barter

In case of exchange or barter, the actual value of goods is higher than the amount received for such
exchange e.g. exchange of old mixer or computer for new mixer or computer. In such case, the real price
of such goods should be considered, as illustrated below.
Where a new phone is supplied for ` 20,000 along with the exchange of an old phone and if the price
of the new phone without exchange is ` 24,000, the open market value of the new phone is ` 24,000 -
Illustration 1 to Rule 27 of CGST and SGST Rules, 2017.
Where a laptop is supplied for ` 40,000 along with a barter of printer that is manufactured by the recipient
and the value of the printer known at the time of supply is ` 4,000 but the open market value of the
laptop is not known, the value of the supply of laptop is ` 44,000 - Illustration 2 to Rule 27 of CGST and
SGST Rules, 2017.
The first illustration is correct but second illustration does not appear to be correct as it is not full barter.

7.3 Value of supply of goods or services or both between distinct or related persons,
other than through an agent
The value of the supply of goods or services or both between distinct persons as specified in section 25(4)
and 25(5) of CGST Act or where the supplier and recipient are related, other than where the supply is
made through an agent, shall be as follows -
(a) the open market value of such supply
(b) if open market value is not available, the value of supply of goods or services of like kind and
quality
(c) if value is not determinable under clause (a) or (b), the value as determined by application of rules
30 and 31 of CGST and SGST Rules, in that order.
Section 25(4) and 25(5) of CGST Act covers those cases where same person has taken separate registration
in different States or even in the same State.
55 Value of supply of goods or services Para 7.3

7.3-1 Value declared accepted when recipient is eligible for full input tax credit
Where the recipient is eligible for full input tax credit, the value declared in the invoice shall be deemed
to be the open market value of goods or services - proviso to rule 28 of CGST and SGST Rules.
This is not a general provision. This applies only in following cases - (a) distinct person as specified in
section 25(4) and 25(5) of CGST Act i.e. where same person with single PAN has taken separate registration
in different States or even in the same State (b) Related person.
This is a very sensible provision as when the recipient can take entire input tax credit, there cannot be
any intention to evade tax.
Really, this provision should apply to all transactions, as in such cases, there can be no intention to evade
tax.
Manipulation is possible - Though provision is sound, some manipulation is possible e.g. lower price
may be shown to reduce blockage of funds in tax. Some times, higher price may be charged so that
available ITC is fully utilized. Such manipulation is possible to some extent, but it has to be ensured that
there is no loss of Input Tax Credit at either end.

7.3-2 Value of supply of goods made or received through an agent

Specific provisions have been made where sale is made through Consignment Agent. This is because
property in goods does not pass to Consignment Agent when goods are despatched to him on consignment
basis.
‘Agent’ means a person, including a factor, broker, commission agent, arhatia, del credere agent, an
auctioneer or any other mercantile agent, by whatever name called, who carries on the business of supply
or receipt of goods or services or both on behalf of another - section 2(6) of CGST Act.
‘Principal’ means a person on whose behalf an agent carries on the business of supply or receipt of goods
or services or both - section 2(88) of CGST Act.
Liability only of Consignment Agents, not of commission agents - As per aforesaid clause (a), the agent
will be liable for GST on value goods or services only if he undertakes to supply any goods or services or
both on behalf of any principal (like consignment agent). However, if the agent does not supply goods or
services, he is not liable for GST on value of goods or services. For example, in case of commission agent,
he does not undertake supply of goods or services. He will be liable for GST only on his commission. He
is not covered under this clause.
Clause (b) will cover cases where agent returns goods to Principal.
Value of supply by Principal to Agent - The value of supply of goods between the principal and his
agent shall be as follows—
(a) the open market value of the goods being supplied, or at the option of the supplier, 90% 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.
(b) where the value of a supply is not determinable under clause (a), the same shall be determined
by application of rules 30 and 31 in that order - Rule 29 of CGST and SGST Rules, 2017.
Illustration : Where 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 per quintal on the day of supply.
Another independent supplier is supplying groundnuts of like kind and quality to the said agent at the
price of ` 4,550 per quintal. The value of the supply made by the principal shall be ` 4,550 per quintal or
where he exercises the option the value shall be 90% of the ` 5,000 i.e. is ` 4,500 per quintal.
Provision does not apply when sale is to selling agent on principal to principal basis - The rule 29
really covers only C&F Agents who store and sale goods on behalf of Principal. This rules does not cover
distributor or selling agents who purchase goods from Principal and then sale on their own. Here, their
relations are on Principal to Principal basis.
The Consignment Agent merely stores goods and sales on behalf of Principal. That is the reason why
provision of 90% price charged to final customer can be taken for valuation purposes.
Para 7.5 Valuation Rules if value for GST not ascertainable 56

7.4 Value of supply of goods or services or both based on cost

Where the value of a supply of goods or services or both is not determinable by any of the preceding
rules, the value shall be one hundred and ten per cent of the cost of production or manufacture or cost of
acquisition of such goods or cost of provision of such services - Rule 30 of CGST and SGST Rules, 2017.

7.4-1 Costing method for valuation has limited utility

The valuation method based on cost has limited value as in case of stock transfer or supply to related
person where he is in position to avail entire Input Tax Credit, the value as declared in invoice is acceptable.
Further, for valuation of supply of services, costing method is optional - proviso to Rule 31 of CGST
Rules, 2017.

7.5 Residual method for determination of value of supply of goods or services or both
Where the value of supply of goods or services or both cannot be determined under rules 27 to 30 of CGST
and SGST Rules, the same shall be determined using reasonable means consistent with the principles
and general provisions of section 15 of CGST Act and provisions of rules 27 to 30 of CGST Rules - rule
31 of CGST and SGST Rules, 2017.
Value of service can be on basis of rule 31 instead of on cost plus 10% basis - In case of supply of services,
the supplier may opt for rule 31 ignoring rule 30 - proviso to Rule 31 of CGST and SGST Rules, 2017.

7.5-1 Summary of Valuation Rules

Description Open Mar- The 90% of price 110% of cost of 110% of 110% of cost Residual
ket Value value of of supply of production or cost of of acquisition Method
supply of goods of like manufacture provision of such goods (best judg-
goods or kind and of goods [rule of service [rule 30] ment on
services quality 30] [rule 30] basis of
of like principles
kind and of valua-
quality tion) [rule
31]
When consid- 1 [rule 27] 2 [rule 27] N.A. 3 [in case of 3 [in case 3 [in cases where 4
eration not goods manu- of services] goods were ac-
wholly in mon- factured by (can direct- quired by sup-
ey and supplier supplier] ly go to 4) plier]
and recipient - rule 27
neither distinct
persons nor re-
lated persons
Supply of 1 [rule 28] 2 [rule 28] 1 - at option 3 - if goods were N.A. 3 [if goods were 4
goods between of supplier [if manufactured acquired by sup-
distinct per- [value as recipient will by supplier plier] - rule 28
sons or related declared in be supplying [rule 28]
persons (Other tax invoice goods received
than Agent) of sup- as such i.e.
plier will stock trans-
be deemed fer or branch
to be open transfer - not
marketman for use in fur-
value if ther manufac-
recipient eli- ture = first pro-
gible for full viso to rule 28]
ITC - second
proviso to
rule 28]
57 Composition schemes when value cannot be easily determined Para 7.6

Description Open Mar- The 90% of price 110% of cost of 110% of 110% of cost Residual
ket Value value of of supply of production or cost of of acquisition Method
supply of goods of like manufacture provision of such goods (best judg-
goods or kind and of goods [rule of service [rule 30] ment on
services quality 30] [rule 30] basis of
of like principles
kind and of valua-
quality tion) [rule
31]
Supply of ser- 1 [rule 28] 2 [rule 28] 1 - at option N.A. 3 [can di- N.A. 4
vices between of supplier - if rectly go to
distinct per- [value as de- recipient will 4 - rule 28]
sons or related clared in tax be supplying
persons (Other invoice of goods received
than Agent) supplier will as such i.e.
be deemed stock trans-
to be open fer or branch
marketman transfer - not
value if re- for use in fur-
cipient eli- ther manufac-
gible for full ture [first pro-
ITC - second viso to rule 28]
proviso to
rule 28]
Supply of goods 1 NA 1 - at option of 2 [ i f g o o d s NA 2 [if supplied 3
through Agent supplier [if re- manufactured by supplier as
cipient (agent) by supplier are such i.e. without
will be sup- supplied] manufacture]
plying goods
received as
such i.e. stock
transfer or
branch trans-
fer - not for
use in further
manufacture
= first proviso
to rule 28]
Notes - (a) NA - Not Applicable (b) 1, 2, 3, 4 - sequence in which valuation is required to be done.

7.6 Composition schemes when value cannot be easily determined

In some cases, it is not easy to find value of ‘supply’. In such cases, composition schemes have been
provided. These are (a) Exchange of foreign currency (b) booking of air tickets (c) Life Insurance business
(d) Sale of second hand goods.
These schemes are discussed at appropriate places.

7.6-1 Margin scheme for valuation in buying and selling second hand goods
A ‘margin scheme’ has been provided for dealers in second hand goods.
If a taxable supply is provided by a person dealing in buying and selling of second hand goods (i.e. used
goods as such or after such minor processing which does not change the nature of the goods) and where
no input tax credit has been availed on purchase of such goods, the value of supply shall be the difference
between the selling price and purchase price and where the value of such supply is negative it shall be
ignored - Rule 32(5) of CGST and SGST Rules, 2017.
‘Value of supply is negative’ means sale price is less than purchase price. In such case, no GST is payable.
The provision applies to all taxable persons dealing in second hand goods, including old and used empty
bottles - PIB press release, dated 15-7-2017 15:35 IST - CBE&C press release No. 79/2017, dated 15-7-2017.