Valuation of Goods and Services in GST Law
The value of the supply is the amount on which the GST is chargeable. Determination of value of the supply is not only required to charge the goods and services tax, but also for arriving at the value of supply to compute the turnover
prescribed for obtaining registration under GST. The Model GST Law proposes to adopt the concept of ‘transaction value’ for determining the taxable value of supply on which the goods and services tax shall be levied. Currently, the concept of transaction value is followed both under Central Excise and Customs legislations for levying central excise
and customs duties by the Central government.
The value of a supply of goods and/or services shall be the transaction value, that is the price actually paid or payable for the said supply of goods and/or services where the supplier and recipient of the supply are not related and the price is the sole consideration for the supply. Section 15 of the Model GST Law provides that the transaction value for the purpose of valuing a taxable supply shall include;
- any amount that the supplier is liable to pay in relation to such supply which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods and/or services.
- the value, apportioned as appropriate, of such goods and/or services as are supply directly or indirectly by the recipient of the supply free of charge or at reduced cost for use in connection with the supply of goods and / or services being valued, to the extent such value has not been included in the price actually paid or payable
- royalties and licence fees related to the supply of goods and / or services that the recipient of supplies must pay either directly or indirectly, a condition of the said supply, to the extent that such royalties and fees are not included in the price actually paid or payable
- any taxes, duties, fees and charges levied under any statute other than the SGST Act or the CGST Act or the IGST Act
- incidental expenses such as commission and packing, including any amount charged for anything done by the supplier in respect of the supply of the goods and/or services at the time of, or before the delivery of goods /supply of services.
- subsidies provided in any form or manner, linked to the supply
- any reimbursable expenditure or cost incurred by or on behalf of the supplier and charged in relation to the supply of goods and / or services
- any discount or incentives that may be allowed after the supply has been effected. However, post-supply discount which is established as per the agreement and known at before the time of supply linked to relevant invoices shall not be included in the transaction value.
FAQs Valuation of Goods and Services in GST Law
Q 1. What is the value of taxable supply to be adopted for the levy of GST?
Ans. The value of taxable supply of goods and services shall ordinarily be ‘the transaction value’ which is the
actually the price paid or payable, when the parties are not related and price is the sole consideration. The MGL
further elaborates various inclusions and exclusions from the ambit of transaction value. For example, the
transaction value shall not include refundable deposit, discount allowed before or at the time of supply.
Q 2. What is transaction value?
Ans. Transaction value refers to the price actually paid or payable for the supply of goods and or services where the
supplier and the recipient are not related and price is the sole consideration for the supply. It includes any amount
which the supplier is liable to pay but which has been incurred by the recipient of the supply.
Q 3. Are there separate valuation provisions for CGST, SGST and IGST and Goods and Services?
Ans. No, section 15 is common for all three taxes and also common for goods and services.
Q 4. Is contract price not sufficient to determine valuation of supply?
Ans. Contract price is more specifically referred to as ‘transaction value’ and that is the basis for computing tax. However, when the price is influenced by some factors like relationship of parties or certain transactions are deemed to be supply, which do not have a price, it is required to overcome these factors to determine the transaction value correctly.
Q 5. Is reference to Valuation Rules required in all cases?
Ans. No. Reference to Valuation Rules is required only in cases listed under section 15(4) i.e., where consideration
payable is not money, or parties to the transaction are related.
Q 6. What is to be done if there are certain factors affecting price though the transaction is not covered by section 15(4)?
Ans. Section 15(2) provides the list of adjustments that may be made to make the price of a transaction reliable
for purposes of determining tax payable.
Q 7. Can the transaction value declared under section 15(1) be accepted?
Ans. Yes, it can be accepted after examining for inclusions in section 15(2). Furthermore, the transaction value can
be accepted even where the supplier and recipient are related, provided the relationship has not influenced the
price. (Rule 3(4) of draft GST valuation rules)
Q 8. Whether post-supply discounts or incentives are to be included in the transaction value?
Ans. Yes. Unless the post-supply discount is established as per the agreement and is known at or before the time of
supply and specifically linked to relevant invoice.
Q 9. Whether pre-supply discounts allowed before or at the time of supply are includible in the transaction value?
Ans. No, provided it is allowed in the course of normal trade practice and has been duly recorded in the invoice.
Q 10. When are Valuation Rules applicable?
Ans. Valuation Rules are applicable when (i) Consideration not in money terms; (ii) parties are related or supply by
any specified category of supplier; and (iii) transaction value declared is not reliable.
Q 11. What are the reasons for doubting transaction value declared?
Ans. The reasons have been indicated in Rule 7(b) of the draft GST Valuation Rules. It is:- (i) comparable supplies
are at significantly higher value; (ii) transaction is at significantly lower or higher than market value of supplies;
and (iii) misdeclaration in parameters like description, quantity, quality, year of make etc. The list is indicative
and not exhaustive.
Q 12. What are the methods provided for determining the value, in terms of draft GST Valuation Rules?
Ans. Three methods are prescribed under GST Valuation Rules for determining the transaction value i.e., comparative method, computation method and residual method, which are required to be followed sequentially. Besides, some specific valuation methods have been specified like in case of pure agents and money changers. Further specific rules may later be notified in case of Insurer, Air travel Agent and distributor or selling agents of lottery.
Q 13. What are the inclusions specified in Section 15(2) which could be added to Transaction Value
Ans. The inclusions specified in Section 15(2) which could be added to Transaction Value are as follows:
a) Any amounts paid by recipient that are obligation of supplier to pay;
b) Money value of goods or services provided free or at concession by recipient;
c) Royalties and license fees payable by recipient as a condition of supply;
d) Taxes levied under any other law(s) (other than SGST / CGST or IGST);
e) Expenses incurred by supplier before supply and charged separately;
f) Subsidy realized by supplier on the supply;
g) Reimbursements claimed separately by supplier;
h) Discounts allowed ‘after’ supply except when known before supply; (Discounts allowed as a normal trade practice and reflected on the face of the invoice shall not be included).