05 Valuation GST

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NOTES
● Provisions of value of supply under CGST Act have also been made applicable to IGST Act vide section 20 of the
IGST Act.
● Irrespective of the fact that whether the supply is of goods or services value will be computed as per section 15.
● Irrespective of the fact whether the supply is intra State supply or inter state supply value will be computed as
per section 15.
● Even in case of import of services value will be computed as per section 15.
● In case of import of goods value will not be determined as per section 15.
Value to be Transaction value.

● Related party transactions are not valued as per section 15(1)
● Free of charge supplies are not valued as per section 15(1)
● Supplies for non monetary considerations are not valued as per section 15(1) for example exchange etc.
● Supply for monetary as well as non monetary consideration are not valued as per section 15(1)


Certain amounts to be included

● Taxes
○ Central excise duty is leviable on manufactured tobacco along with GST, central excise duty will be
included in the transaction value for supply of tobacco for chargeability of GST.
○ In case of entertainment services GST will be levied on basic price plus entertainment tax. Transaction
value will be equal to basic price plus entertainment tax.
○ In case of renting of immovable property GST will be levied on rent + Municipal taxes. In other words we
can say that transaction value will include Municipal taxes.
○ TCS under Income-Tax Act, 1961 not includible in the taxable value for the purpose of GST.
● Amount incurred by recipient on behalf of the supplier
○ ABC & Co. has placed order for supply of certain goods to Mr. Z . As per the contract, Mr. Z is required to
deliver the goods to the premises of ABC & Co. Mr. Z hires a transporter for transportation of the goods.
However, the lorry receipt indicates that the freight is payable by ABC & Co. In this case, Mr. Z was
required to make the payment to the transporter as it was the obligation of Mr. Z to deliver the goods to
the premises of ABC & Co. As against Mr. Z making the payment of transporter, the payment is made by
ABC & Co. therefore, such payment will form part of transaction value of the goods supplied.
Thus, in a contract, the obligation undertaken by the supplier for supplying goods need to be
determined. All the expenses in respect of such obligation must be incurred by the supplier. In case any
amount has been incurred by the recipient of supply in connection with the supply, the same will be
included in the transaction value.
○ XYZ Ltd. a supplier of goods has engaged Mr. X as selling agent. The commission to Mr. X has been paid
by the recipient of supply. In this case the underlying obligations of payment of selling commission is of
XYZ Ltd. as it has engaged the agent to identify prospective customer. If the obligation to pay the agent (
the amount towards selling commission) is passed on to the recipient, then the price paid to XYZ Ltd.
does not reflect the true value of supply. Had the recipient refused to pay this selling commission to the
agent, then XYZ Ltd, would have paid Mr. X and made a corresponding increase in the price of the supply.
Thus, the selling commission paid by the recipient to Mr. X is to be included in the value of taxable
supply.
ICAI Study Mat Example

Grand Biz contracts with ABC Co. to conduct a dealers’ meet. In furtherance of this, Grand Biz contracts with vendors to
deliver goods / services, like water, soft drinks, audio system, projector, catering, flowers etc. at the venue on the stipulated
dates at the stipulated prices. Grand Biz is liable to make these payments as contracted.
The soft drinks supplier wants payment upon delivery; ABC Co. agrees to pay the bill raised by the soft drinks vendor on Grand
Biz on receiving the crates of soft drinks. This amount is not billed by Grand Biz to ABC Co. However, it would be added to the
value of service provided by Grand Biz to ABC Co. for payment of GST Because the amount was required to be paid by supplier
and ABC co paid it on behalf of the supplier.


● Incidental Expense
○ Outward freight, transit insurance - Where the supplier agrees to deliver the goods at the buyer’s
premises and arranges for transport and insurance the contract of supply becomes a composite supply,
the principal supply being the supply of goods. Therefore, outward freight and transit insurance become
part of the value of the composite supply and GST is payable thereon at the same rate as applicable for
the relevant goods. However, if the contract for supply is on ex-factory basis where buyer pays the
outward freight and insurance, the same will not be included in the value of supply of goods.
ICAI Study Mat Example

AKJ Foods Pvt. Ltd. gets an order for supply of processed food from a customer. The customer wants the consignment tested
for gluten or specified chemical residues. AKJ Foods Pvt. Ltd. does the testing and charges a testing fee for the same from the
customer. AKJ Foods Pvt. Ltd. argues that such testing fess should not form part of the consideration for the sale as it is a
separate activity.
Is his argument correct in the light of section 15?
Section 15(2) mandates the addition of certain elements in the value of supply. Clause (c) of section 15(2) specifies that amount
charged for anything done by the supplier in respect of the supply at the time of or before delivery of goods or supply of services shall be
included in the value of supply.
Since AKJ Foods Pvt. Ltd. does the testing before the delivery of goods, the charges therefor will be included in the value of the
consignment. Therefore, AKJ Foods Pvt. Ltd.’s argument is not correct. The testing fee should be added to the price to arrive at value of
the consignment.
● Interest, late fee or penalty for delayed payment
ICAI Study Material Example

A supply priced at ₹ 2,000 is made, with a credit period of 1 month for payment. Thereafter, interest of 12% is chargeable.
The payment is received after the lapse of two months from the date of supply. The amount of 12% p.a. (i.e. 1% per month) on
₹ 2,000 for one month after the free credit period is ₹ 20. Such interest will be added to the value and thus, the value of supply
will work out to be ₹ 2,020, assuming the interest to be exclusive of GST.
ICAI Study Material Example

Mezda Banners, an advertising firm, gives an interest-free credit period of 30 days for payment by the customer. Its customer
ABC paid for the supply 32 days after the supply of service. Mezda Banners waived the interest payable for delay of two days.
The Department wants to add interest for two days as per contract. notional interest be added to the value?
This is a supply that is valued as per transaction value under section 15(1) as the price is the sole consideration for the supply and the
supply is made to unrelated person. The value of a supply includes certain elements like interest which are actually payable. Once
waived, the interest is not payable and is therefore, not to be added to the value.
● Subsidies
ICAI STUDY MATERIAL EXAMPLE

The selling price of a notebook is ₹ 50. For notebooks sold to students in Government schools, a company uses its CSR funds to
pay the seller ₹ 30, so that the students pay only ₹ 20 per notebook. The value of the notebook will be ₹ 50, as this is a
non-government subsidy. If the same subsidy is paid by the Central Government or State Government, the value of the
notebook would be ₹ 20.


ICAI STUDY MATERIAL EXAMPLE

A philanthropic association makes a substantial donation each year to a reputed private management institution to subsidise
the education of low income group students who have gained admission there. The fee for these individuals is reduced
thereby coming to ₹ 3 lakh a year compared to ₹ 5 lakh a year for other students.
What would be the value of the service of coaching and instruction provided by the institution to the low income group
students?
As per section 15(2)(e), the value of a supply includes subsidies directly linked to the price, excluding State Government and Central
Government subsidies. In this case, the subsidy is not from the Government but is from a philanthropic association. Therefore, the
subsidy is to be added back to the price to arrive at the value, which comes to ₹ 5 lakh a year.
More examples
● X Ltd. has supplied goods valued Rs 2,00,000 to M/s Y on a credit period of one month. The contract provides for levy of interest
at the rate of 18% p.a. On delay in payment M/s Y makes payment to X Ltd, after 2 months along with interest of Rs 3,000 . The
GST law specifically provides that such interest of Rs 3,000 will form part of the consideration of supply and GST will be
payable on the same.
● The selling price of a water colours set is Rs 65. For water colours set sold to students in Government schools, a
company uses its CSR funds to pay the seller Rs 50, so that the students pay only Rs 15 water colours set. The
taxable value of the water colours set will be Rs 65, as this is a non-government subsidy. If the same subsidy is
paid by the Central Government or State Government, the taxable value of the water colours set would be Rs 15.


Allowability of certain specific types of discounts offered by the suppliers as clarified vide Circular No. 92/11/2019 GST
dated 07.03.2019
Staggered discounts (‘Buy more, Save more’ offers)
In case of staggered discounts, rate of discount increases with increase in purchase volume. For example - Get 10 %
discount for purchases above ₹ 5,000/-, 20% discount for purchases above ₹ 10,000/- and 30% discount for
purchases above ₹ 20,000/-. Such discounts are shown on the invoice itself.
Such discounts are excluded to determine the value of supply.
Periodic / year ending discounts/volume discounts
These discounts are offered by the suppliers to their stockists, etc. For example- Get additional discount of 1% if you
purchase 10,000 pieces in a year, get additional discount of 2% if you purchase 15,000 pieces in a year. Such
discounts are established in terms of an agreement entered into at or before the time of supply though not shown on
the invoice as the actual quantum of such discounts gets determined after the supply has been affected and generally
at the year end.
In commercial parlance, such discounts are colloquially referred to as “volume discounts”. Such discounts are passed
on by the supplier through credit notes.
Such discounts are excluded to determine the value of supply provided they satisfy the parameters laid down in
sub-section (3) of section 15 of the CGST Act, including the reversal of ITC by the recipient of the supply as is
attributable to the discount on the basis of document (s) issued by the supplier.
Secondary discounts
These are the discounts which are not known at the time of supply or are offered after the supply is already over. For
example, M/s A supplies 10,000 packets of biscuits to M/s B at ₹ 10/- per packet. Afterwards, M/s A re-values it at ₹
9/- per packet. Subsequently, M/s A issues credit note to M/s B for ₹ 1/per packet.
Such secondary discounts shall not be excluded while determining the value of supply as such discounts are not
known at the time of supply and the conditions laid down in clause (b) of sub-section (3) of section 15 of the CGST Act
are not satisfied.
It may be noted that financial / commercial credit note(s) can be issued by the supplier even if the conditions
mentioned in clause (b) of sub-section (3) of section 15 of the CGST Act are not satisfied.
Chameli Chocolate Co. gives a discount of 30% on the list price to its distributors. Thus, for a carton of Chameli Chocolates, in the invoice
the list price is mentioned as ₹ 500, on which a discount of 30% is given to arrive at the final price of ₹ 350. The value is ₹ 350, as the
discount is allowed at the time of supply and shown in the invoice.
ICAI Study material example

The agreement of Raju Electrical Appliances with its dealers is that purchase of rice cookers over 1000 pieces in the Diwali month will
entitle them to a discount of 5% per cooker. Therefore, the quantum of discount can be determined only at the end of Diwali month.
However, since the agreement relating to discount was in existence at the time of supply, and the discount can be worked out for each
invoice, such post supply discount will be allowed as a deduction from the value of supply of rice cookers.
Raju Electrical Appliances can issue credit note for 5% of the value of goods along with GST and claim adjustment of excess tax paid. The
dealer must reverse the proportionate input tax credit on the relevant stock to bring it in line with the reduced tax.


ICAI Study Material Example (w ww.icai.org)
Pink and Blue Pvt. Ltd. (PBPL) sold goods to Orange Pvt. Ltd. (OPL) on 15 th January at ₹ 50,000 (exclusive of taxes and
discounts) and charged ₹ 9,000 as IGST @ 18%. The terms of supply stipulated that discount @ 2% will be given to OPL if it
makes the payment within one month of the supply. OPL avails the input tax credit of ₹ 9,000 in the month of January and
makes the payment for the goods on 10 th February.
PBPL issues credit note for ₹ 1180 [₹ 1,000 for value of discount and ₹ 180 for proportionate IGST leviable thereon] to OPL
on 11 th February.
After receiving credit note, OPL reverses the input tax credit of ₹ 180 attributable to the discount given by the PBPL. PBPL
can reduce its GST liability of the month of February by ₹ 180. OPL would have paid ₹ 57,820 (₹ 50,000 + ₹ 9,000 - ₹ 1,000 -
₹ 180) to PBPL on 10 th February.

In the above example, if the terms of supply did not provide for discount @ 2% for payment within one month but PBPL
offers such discount to OPL at the time of payment after negotiation, the discount will not be allowed as a deduction from
the value. PBPL will issue a commercial credit note for only the value of discount, i.e. for ₹ 1,000. OPL will not reverse any
input tax credit and PBPL will also not be able to reduce its GST liability for the month of February. In this case, OPL would
pay ₹ 58,000 (₹ 50,000 + ₹ 9,000 - ₹ 1,000) to PBPL on 10 th February.

A company announces turnover discounts after reviewing dealer performance during the year. The discounts are based on
performance slabs and are given as cash-back. As these discounts were not known at the time of supply of the goods, they
will not be deducted from value of those goods. Hence, the company will not be able to adjust excess tax paid from its tax
liability.


Raman Ltd., a registered supplier in Mumbai (Maharashtra), has supplied goods to Sahil Traders and Jaggi Motors Ltd. located in
Ahmedabad (Gujarat) and Pune (Maharashtra) respectively. Raman Ltd. has furnished the following details for the current
month:

S.No. Particulars Sahil Traders Jaggi Motors
1. Price of the goods (excluding GST) 20,000 15,000
2. Packing charges 600 -
3. Commission 400 -
4. Weighment charges - 1,000
5. Discount for prompt payment (recorded in the invoice) - 500

Items given in points (2) to (5) have not been considered while arriving at price of the goods given in point (1) above.

Compute the GST liability [CGST & SGST or IGST, as the case may be] of Raman Ltd. for the given month. Assume the rates of
taxes to be as under:
Particulars Rate
CGST 9%
SGST 9%
IGST 18%


From the following information determine the value of taxable supply as per provisions of Section 15 of the CGST Act, 2017?
Particulars Rs
Contracted value of supply of goods (Including GST @18%) 21,00,000
The contracted value of supply includes the following :
1 Cost of primary packing 65,000
2 Cost of protective packing at recipient’s request for safe transportation 14,000
3 Design and engineering charges 95,000
Other information :
1 Commission paid to agent by recipient on instructions of supplier 15,000
2 Freight and insurance charges paid by recipient on behalf of supplier. 45,000

Give reasons with suitable assumption where necessary.


Computation of value of taxable supply :from the following information determine the value of taxable supply as per provisions
of Section 15 of the CGST Act, 2017?

Contracted value of supply of goods (including GST @ 18%) 11,00,000
The contracted value of supply includes the following:
1. Cost of primary packing 25,000
2. Cost of protective packing at recipient’s request for safe transportation 15,000
3. Design and engineering charges 85,000
Other Information
1. Commision paid to agent by recipient on instruction of supplier 5,000
2. Freight and insurance charges paid by recipient 75,000

Give reasons with suitable assumptions where necessary.

Particulars Working Amount Rs.
Note
Contracted value of supply of goods 11,00,000
1. Cost of primary packing -----
2. Cost of protective packing at recipient’s request for safe -----

transportation
3. Design and engineering charges -----
Add Commission paid to agent by recipient on instruction of supplier 5,000
Freight and insurance charges paid by recipient on behalf of 75,000 80,000
supplier
Cum Tax Value 11,80,000
Less GST @ 18% (Rs 11,80,000*18/118) 1, 80,000
Value of taxable supply 10,00,000

Working Notes : For the purpose of determining the value of taxable supply, the following adjustments shall be made-
1. As per Section 15(2) (c) of CGST Act, 2017, cost of primary packing and protective packing at recipient’s request for safe
transportation charged by supplier from the recipient shall be included for determining the value of taxable supply.
Since it is already included in the value, no treatment is required.


2. As per Section 15(2)(c) of CGST Act, 2017 any amount of charged for anything done by the supplier in respect of the
supply of goods at the time of, or before delivery of goods shall be included in the value of taxable supply. Hence, design
and engineering charges shall also included in the value of taxable supply. Since it is already included in the value, no
treatment is required.

3. As per Section 15(2)(b) of the CGST Act, 2017, 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 shall be included in the value of supply. Thus, commission paid to agent by recipient on instruction of supplier and
freight and insurance incurred by recipient on behalf of supplier shall form part of value of taxable supply.
4. As per section 15(2) (a) of the CGST Act, 2017 value of supply shall not include any taxes or cesses levied under CGST Act,
SGST Act, UTGST Act and the GST (Compensation to States) Act, if charged separately by the supplier.


(Practice Question)
Ram Ltd. has provided the following particulars relating to goods sold by it to Sharma Pvt. Ltd.
Particulars Rs
List price of the goods (exclusive of taxes and discounts) 1,25,000
Tax levied by Municipal Authority on the sale of such goods 15,000
CGST and SGST chargeable on the goods 19,200
Packing charges (not included in price above) 15,500
Ram Pvt. Ltd. received Rs 9,500 as a subsidy from a Non profit making organisation in respect of timely supply of such
goods. The price of Rs 1,25,000 of the goods is after considering such subsidy. Ram Ltd. offer 4% discount on the list
price of the goods which is recorded in the invoice for the goods.
Determine the value of taxable supply made by Ram Pvt. Ltd.


JSR Pvt. Ltd., a registered dealer, furnishes the following information relating to goods sold by it to OSR pvt. Ltd. in the
course of Intra-State.
Particulars Rs
1 Price of the goods 2,00,000
2 Municipal tax 6,000
3 Inspection charges 5,000
4 Subsidies received from Ballu Trust (As the product is going to be used by 55,000
association for people with hearing problems)
5 Late Fees for delayed payment. (Though OSR Pvt. Ltd. made late payment 11,000
but these charges are waived by JSR Pvt. Ltd.)
6 OSR Pvt. Ltd. paid to Palta Pvt. Ltd. (on behalf of JSR Pvt. Ltd.) Testing 12,000
charges.
According to GST Law, determine the value of supply made by JSR Pvt. Ltd. Items given in point (2) to (6) are not
considered while arriving at the price of the goods given in point no. (1)


Yo Yo Ltd. Delhi, a registered supplier, is manufacturing Biscuits. It provides the following details of taxable inter-state
supply made by it for the month of October, 20XX:
Particulars Amount (Rs)
List price of goods supplied inter-state 10,40,000
Items already adjusted in the price given above:
a Subsidy from State Government for supply of Biscuits to 1,30,000

Government School
b Subsidy from Trade Association for supply of quality Biscuits 10,000
Items not adjusted in the list price given above
a Tax levied by Municipal Authority 64,000
b Packing charges 18,000
c Late Fee paid by the recipient of supply for delayed Payment of 3,000
invoice
Calculate the value of taxable supply made by M/s. Yo Yo Ltd. for the month of October 20XX.


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Value to be Transaction value.

Certain amounts to be included

● Amount incurred by recipient on behalf of the supplier

ICAI Study Mat Example

ICAI Study Mat Example

Is his argument correct in the light of section 15?

● Interest, late fee or penalty for delayed payment

ICAI Study Material Example

ICAI Study Material Example

ICAI STUDY MATERIAL EXAMPLE

ICAI STUDY MATERIAL EXAMPLE

Staggered discounts (‘Buy more, Save more’ offers)

Such discounts are excluded to determine the value of supply.

Periodic / year ending discounts/volume discounts

ICAI Study material example

1. Price of the goods (excluding GST) 20,000 15,000

2. Packing charges 600 -

3. Commission 400 -

4. Weighment charges - 1,000

5. Discount for prompt payment (recorded in the invoice) - 500

Contracted value of supply of goods (Including GST @18%) 21,00,000

The contracted value of supply includes the following :

1 Cost of primary packing 65,000

2 Cost of protective packing at recipient’s request for safe transportation 14,000

3 Design and engineering charges 95,000

Other information :

1 Commission paid to agent by recipient on instructions of supplier 15,000

2 Freight and insurance charges paid by recipient on behalf of supplier. 45,000

The contracted value of supply includes the following:

1. Cost of primary packing 25,000

2. Cost of protective packing at recipient’s request for safe transportation 15,000

3. Design and engineering charges 85,000

1. Commision paid to agent by recipient on instruction of supplier 5,000

2. Freight and insurance charges paid by recipient 75,000

Contracted value of supply of goods 11,00,000

1. Cost of primary packing -----

2. Cost of protective packing at recipient’s request for safe -----

3. Design and engineering charges -----

Add Commission paid to agent by recipient on instruction of supplier 5,000

Cum Tax Value 11,80,000

Less GST @ 18% (Rs 11,80,000*18/118) 1, 80,000

Value of taxable supply 10,00,000

List price of the goods (exclusive of taxes and discounts) 1,25,000

Tax levied by Municipal Authority on the sale of such goods 15,000

CGST and SGST chargeable on the goods 19,200

Packing charges (not included in price above) 15,500

Determine the value of taxable supply made by Ram Pvt. Ltd.

1 Price of the goods 2,00,000

2 Municipal tax 6,000

3 Inspection charges 5,000

Particulars Amount (Rs)

List price of goods supplied inter-state 10,40,000

Items already adjusted in the price given above:

a Subsidy from State Government for supply of Biscuits to 1,30,000

b Subsidy from Trade Association for supply of quality Biscuits 10,000

Items not adjusted in the list price given above

a Tax levied by Municipal Authority 64,000