of GST

Incidence
and
Procedure

VALU
ATION AND VALUATION RULES
The value of taxable supply of goods and services shall ordinarily be 'the transaction value
Aeh is the actually the price paid or payable, when the parties are not related and price is the sole
which
c o n s i d e r a t i o n .

The GST Law further elaborates various inclusions and exclusions from the ambit of transaction
ae For example, the transaction value shall not include refundable deposit, discount allowed
the time of supply.
before or at
To determine the value on which GST would be levied has been described in the Chapter IV
ofCGSTACT, 2017.

VALUE OF TAXABLE SUPPLY

1. The value of a supply of goods or services or both shall be the transaction value, which is the
price actually paid or payable for the said supply of goods or services or both where the
supplier and the recipient of the supply are not related and the price is the sole consideration
for the supply.

2 The value of supply shall include:

a. any taxes, duties, cesses, fees and charges levied under any law for the time
other than this Act, the State Goods and Services Tax being in force
Act, the Union Territory
Goods and
Services Tax Act and the Goods and Services Tax
separately by the supplier;
(Compensation to States) Act, if charged
b. 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
for the goods or services or
price actually paid or payable
both;
C. incidental expenses, including commission and
packing, charged by the supplier to the recipient
of a supply and any amount charged
for anything done by the supplier in respect of the
Supply of goods or services or both at the time of, or before delivery of goods or supply of
services,
interest or late fee or penalty for
delayed payment of any consideration for any supply; and
subsidies directly linked to the price excluding subsidies Provided by the Central Government
and State Governments.

Explanation.: For the purposes of this sub-section, the amount of subsidy shall be included in
the value of
supply of the supplier who receives the subsidy.
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3. The value of the supply shall not include any discount which is given:
before or at the time of the supply if such discount has been duly recorded in the invi
issued in respect of such supply; and

after the supply has been effected, if:

such discount is established in terms of an agreement entered into at or before the
and
time of such supply and specifically linked to relevant invoices,
basis of document isued by the
input tax credit as is attributable to the discount on the
supplier has been reversed by the recipient of the supply.
determined under Sub.
Where the value of the supply of goods or services or both cannot be
be prescribed.
section (1), the same shall be determined in such manner as may
sub-section (4), the value of such
Notwithstanding anything contained in sub-section (1)
or
5. Council shall
the recommendations of the
Supplies as may be notified by the Government
on

be determined in such manner as may be prescribed.

Transaction Value
as the 'price.
Provided in the section itself
Transaction value' has not been defined but is
Price is consideration in money terms.

for the said supply of goods

Transaction value which is the price actually paid or payable
not related and the price is
the recipient of the supply are
and/or services where the supplier and
the sole consideration for the supply.

prevalent under controlled conditions.

is price that would be
Value, as stated earlier,
These conditions being:
Transaction having a price

Between persons not related

sole consideration
And that price being the
valuation is aimed to recreate the above
conditions and take
the exercise of
In other words, addition to this price,
result price- that would emerge. In
any given transaction through to
seethe
inclusions are Provided:
certain express

in Section 15(2) which could be added to Transaction Value

Inclusions specified
other law(s)- Any taxes, duties, cesses, fees and charges levied
1. Taxes levied under any

154
 under any statute other than GST Procedure and Incidence of GST
recipient. Act/IGST Act, if charged
separately
parately by the suppller
supplier to the
Example-As per1rent contract,
tenantrequired
required to pay
wner of the premise. Such pay local tax directly to the local
service
local tax may
form partt of body or to
consideration for the supply ofof renting
renting
Any amount for which
2. supplier is liable to pay-
in relation to such suppiy but
which has been Any amount that the supplier is liable to
included in the price actually incurred pay
paid or payable for the by the recipient of the supply and not
Example-A Chartered Accountant goods and/or services.
conduct an audit at client
hotel payment is made by the client.
included in the transaction value. Here the premises out of the state and
payment made to hotel by the client will de
3. Incidental expenses- Incidental
expenses, such as commission
supplier to the recipient of a supply, and packing,
including
supplier in respect of the supply of goods and any amount charged for anything charged by the
the goods or, as the case /or services at the done by the
may be, time of, or before delivery of
supply of the services
4 Packing
Example-Mr X goes to haldiram outlet and
special packing for which Rs 500 is buys dryfruit worth Rs. 2000.Mr X
ask for the
Rs 2500 The amount
for special
charged for packing Here the
. transaction value will be
The cost of such packing is separately payable
packing will be included in the value of byeven recipient
the to the
supplier.
separately paid by the recipient. supply if the cost of
packing is
5.
Commission
Example-A company appoints an agent to procure order of
an order @Rs.100 rupees. Now Seller company ask goods from buyer. Agent procures
98 only and pay Rs 2 directly to the agent. Here GSTthewill
buyer to pay only to supplier @Rs.
be charged on full
Rs. 2 is the Rs.100 as the
commission for this transaction.
0.Anything done before sale
A
company advertises for sale of installed plant and machinery to sale the same on
wnere basis is". In this
"as is
case cost of dismantling the plant will also be included in the
value as the
transaction
dismantling activity has nexus before sale of goods.
1.
nterest or late fees- Interest/late feelpenalty for delay in payment of consideration for supply
will form part of value.

155
 Example: Mr. X has supplied goods to Mr. Y on credit of 30 days. The contract
interest will be
provides that th
charged at the rate of 18% for delay in making payment of supply. I
specifically provides that such interest will form part of consideration and GST will be payah
ble.
Subsidies- The amount of subsidy shall be included in the value of supply of the
supplier wh
receives the subsidy
(Except subsidies provided by the central and state Governments).
Exdusions from the Transaction Value 15(3)]
[Section
1. Discount given before or at the time of the supply
provided such discount has been dul
recorded in the invoice issued in respect of such supply; and

Discount given after the supply has been affected but:

such discount is established in terms of an agreement entered into at or before the
time of such supply and specifically linked to relevant invoice; and

b. Input tax credit has been reversed by the recipient of the supply as is attributable to
the discount issued by the supplies.
Example- M/S Carwala Ltd sells a car worth Rs 4, 00,000 to "B Automobiles".
a. They incur packing charges of Rs 5,000 on the car

b. They provide a discount of 1% on the price, as part of Diwali scheme

C. MS Carwala Ltd agrees to provide a further discount of 0.5% if "B Automobiles" makes
payment by 31st ofthe month by NEFT. "B Automobiles" makes the payment by 31lst of the
month by NEFT.

Solution:

Packing charge of Rs 5,000 is included in the transaction value.

Packing charges or any incidental expenses charged before or at the time of supply of goods
or services must be included in the transaction value.

Discount of 1% is deducted from the transaction value.

Discount given before or at the time of supply, and which is recorded in the invoice, can be
deducted from the transaction value.
Discount of 0.5% is not deducted in the invoice. As discount of 0.5% is given after the
supply, it will not be shown in the invoice. However, since the discount was known at the
time of supply, and can be linked to this specific invoice, the discount amount can be reduced
from the transaction value.
156
 Incidence
of GST
and
Procedure

MIS Carwala credit note to "B Automobiles" for Rs 2,360 (0.5% of Rs

will issue a

'400,0
000 Rs 2,000+ GST@18% on Rs 2,000 Rs 360), and the same must be linkedtothe
elevant tax invoice. ITC should be
invoice. reversed by the recipient.
unt given after supply but agreed upon before or at the time of supply and can be
Disco
Daly linked to relevant invoices, can be deducted from the transaction value.
ifically linked

VALUATION RULES

nder
Valuation rules und GST to calculate valuation when not ossible under section 15 of
CGSTAct, 2017

hhuation rules were notified by government to determine the value of supply of goods or
al
both.
services or both. These rules are notified to provide valuation methods in case valuation is not

possible
under section 15 of CGST Act, 2017.
aee rules provide the methods to value the supplies where:

RULE1OF VALUATION RULES: Calculation of taxable value of supply when consideration

in money
is not wholly
Dale 1 states, when the consideration is not wholly in money, the value of
supply/sale
shall:

be the open market value of such supply;

if open market value is not available, be 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;

if the value of supply is not determinable under clause (a) or clause (b), be the value of
Supply of goods or services or both of like kind and quality;

if value is not determinable under above

possible ways, then rule 4 or rule 5 needs to be
referred.
For example,

uppose Mr A sold a Motorcycle in exchange of an old motorcycle. The new motorcycle

without
exchange is sold at Rs. 90,000 and with exchange offer the motorcycle was sold for only
65,000.
n this case the value of supply will be Rs. 90,000 and not 65,000 because the open market
Yalue motor cycle is Rs. 90,000.
157
RULE 2 OF
VALUATION RULES: Supply between related persons
when the goods sold supplied to related person, thes
or services are delivered or or
value of goods shall be:
be the open market value of such supply;
if open market value is not available, be the value of supply of goods or services of like kind

and quality;

if value is not determinable as above, be the value as determined by application of rule 4

rule 5, in that order:
Provided 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.

RULE 3 OF VALUATION RULES: Supply through agent

The value of supply of goods between the principal and his shall be:

The open market value of the goods, or

There is an option where value can be taken as 90% of the ultimate selling price by the
agent, the customer and agent should not be related.

Let's understand this with an example.

Suppose Mr. Ais supplying goods to his agent who sells those goods for Rs. 10,000. Anothr
seller is also supplying same goods to agent and charge agent Rs. 8000.

Mr.A can either consider value of supply Rs. 8,000 or exercise his option and consider value
to be 90% of 10,000.

Ifvalue is not ascertainable by applying above rule, then rule 4 and rule 5 should be considere
RULE 4 OF VALUATION RULES: Value of supply of goods or services or both based on cost

When you are not able to calculate value of supply made from any of the rules explained
above, you should calculate value of supply with help of rule 4.
As per rule 4, ifthevalue of supply is not ascertainable from any ofthe above rules, the value
of supply should be 110% of the cost of manufacturing or cost of acquisition or cost incurred
provisioning of services.

Let's us understand this rule with an example,

158
 GST
Procedure and Inciden ce of

Suppose Mr. A bought a pen worth Rs. 500

n0se Mr and he is not ablet calculate the value of supply.
the value of supply will be considered as
110% of cost acquisition
(500 ), which will
n t h i s
c a s e

of
e R s .550.

RULE 5OFODF VALUATION RULES: Residual method for determination of value of

goods or services or both
y of
the valueof supply of goods
Where the
where services or both cannot be determined under rules 1
or
the Same shall be determined
sames
using reasonable
104, provisions ofsection 15 and these rules: means consistent with the
general principles and
Provided that in case of supply of services, the
rule4.
supplier may opt for this rule, disregarding
This is the general last option given to
the aabove rules (Rule I to Rule 4), he shall
supplier, if he is not able to calculate value as
determine the value using reasonable meansper any
he
of

nust be in consistent with above rules and section 15 which

of the
act.

Supplies which are curTently under form of abatement of value are

some
Where cost is used as a base for found in this rule
determining the value of supply and when
any of the more specific
methods prescribed are unavailable for
specific reasons, this rule may be applied. It
the value will be "cost plus 10%. Please note that
this rule applies to both provides that
supplied goods and services
RULE 6 OF VALUATION RULES:
Specific supplies
Supplies which are currently under some form of abatement of value
are found in this rule,
. namely:
supply of services involving sale/purchase of foreign the value of supply will be:
Option A: Difference between buying-selling rate and currency,
the reference rate
Where reference rate is not published by RBI.
available, 1% of gross Indian Rupee value of the transaction.
And where the conversion is not
into Indian Rupees, then 1% of the lesser
of the Indian
Rupee equivalent of each currency exchanged
for
example, Mr. A provides currency exchange service. He purchases 100 USD at the
rate
of 63, at the time of purchase RBI reference rate was 65. In this case
difference between RBI reference rate and actual purchase rate. taxable supply will be
In this case value of
Supply will be 100x(65-63) =200 Rs.
Uption B: 1% of gross amount up to Rs.1 lac, 1/2% after Rs.l lac to
up Rs.10 lacs and 1/
after Rs.10 lacs. This option (b) once exercised cannot be withdrawn the during financial
year

159
As per option provided, the value of supply shall be deemed to

to one lakh rupees, subject

C gross amount of currency exchanged for an amount up
to a minimum amount of Rs. 250;
1000 Rs. and .5% of the gross amount of currency exchanged
for an amount
exceeding
1,00,000 rupees and up to 10,00,000 rupees, and
for
,00 RS. and one tenth of a per cent. of the gross of currency excnanged
amount an
amount of Rs. 60,000.
to maximum
amount exceeding 10,00,000 rupees, subject
value of supply will
of booking of tickets for air-travel, the
2. Supply of services by travel agent international fare. Please
note that commission
10% of basic
be 5% of basic domestic fare or and the value
airline or any other person
flow from passenger or
to the travel agent may commission.
determined here will be the tax
for all the sources of
of supply will be gross premium
services in relation to life insurance, the value
3. Supply of will be 10% of premium
investment allocation, in the case ofsinglepremium policy
reduced by 12.5% for other year's premia.
will be 5% of first year's premium and
and in all other cases risk-of-life.
related to coverage for
This rule will not apply to premium

in second-hand goods, the value of supply will be difference

4. Supply ofservices of person dealing Please note 'second-hand goods'
refers to goods
between purchase price and selling price.
in some process without causing any
change in their nature.
used or otherwise employed of services of
only to 'supply of second-hand goods' but to supply
This rule does not apply
of leased car will also come
person dealing in second-hand goods. In other words, disposal
within the operation of this rule.
value of the voucher. Please note voucher
supply of voucher, the value will be the redemption
discussion on vouchers under section
includes coupon, stamp, token, etc. Please refer to the
13 for the various forms that voucher can take including digital vouchers to which this rule
will apply
and where no
6. supply of services between distinct persons, that are notified by Government
of credit
input tax credit is availed will be NIL. Please note that the implications of denial
s 17(2) in case of supply being exempt will be attracted in these cases

RULE 7 OF VALUATION RULES: Service of pure agent

Agency supplies are different from pure agent' in relation to valuation. This rule applies ony
to supply of services. It provides for the exclusion from valuation of any supply of certain costs al
expenses if and only if the following tests are satisfied:
y
contract ofsupply (actual or implied) subsists between a third party and beneficiary of supp
)
160
 Procedure and Incidence of GST

recipient uses the supply

actualrecipient for the purposes the
of beneficiary
beneficia
of supply liable to pay
third party (due to contract)
heneficiary autho
beneficiary authorizes (actual or implied) payment to third party by actual recipient
beneficiary aware that supply is by such third party and not by actual recipient claiming
( reimbursement

invojce of actual recipient indicates separately the reimbursement claim

(vi)
n
(vil actual recipient clams actuals only from beneficiary
actual recipient supplies (goods
(vii or services or both) independent of the reimbursement
supplies

Please note that these eight clauses appear to

overlap each other in some way but
the following key as aspects may be considered:

there is a payment made to third party by a payer

payer is a supplier of goods or services or both to a beneficiary (client)
underlying obligation to pay third party is of the beneficiary (client)
payment by payer is to discharge beneficiary's obligation toward third party
third party enjoys recourse to beneficiary in case of non-payment by payer
RULE 8 OF VALUATION RULES: Exchange rate to be used

Transactions undertaken in foreign currency must be translated into Indian Rupees. Due to
the availability of multiple exchange rates such as RBI
rate, SBI rate, FIDAI rate, Customs rate,
etc. this rule
prescribes that rate of exchange will be 'RBI rate' and the date of the rate of exchange