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Value of Supply under GST: A Comprehensive Guide


Value of Supply under GST


Section 15 of the CGST Act, 2017 lays out the guidelines for figuring out how much goods and services cost. When the supply of products and services is conducted between unrelated parties and the price is the only factor taken into account, it offers the means to determine the value of the goods or services. Section 20 of the IGST Act has extended the applicability of the value of supply provisions under the CGST Act to the IGST Act. We will now comprehend how to compute the value of supply in accordance with Section 15 of the CGST Act, 2017 since the government has implemented several factors for determining the value of supply. In this guide, we will explain the concept of value of supply in detail.

 

Table of Contents

 

Value of Taxable Supply under Section 15 of the CGST Act

According to this provision, the price that is actually paid or due for the supply of goods or services—which is the only consideration—is the transaction value of a taxable supply. Additionally, when there is no relationship or connection between the supplier and the recipient. Therefore, the value of a taxable supply is the transaction value if the source and recipient are unrelated and the price is the only factor taken into account.


What is Included in the Value of Supply under GST

The value of a taxable supply must contain specified components. We shall gradually comprehend each component as follows:


Duties, taxes, fees, charges, and cesses

All taxes, duties, cesses, fees, and charges are included in the value of the supply, with the exception of any separate charges made by the provider for the CGST, SGST, UTGST, and GST cess. Therefore, other taxes, duties, cesses, fees, and charges are included in the taxable value, but GST and GST cess are not.


Amount spent by the recipient on the supplier's behalf

Any sum that the recipient pays in connection with a supply that the supplier is required to pay will be included in the taxable value. A provider might have costs associated with the supply; however, if the recipient pays these costs directly, the supplier must also include these costs in the value of the taxable supply.


Incidental costs and the total sum charged for pre-delivery activities

It refers to any sum that the provider charges for any work he performs in connection with the provision of goods, services, or both. Included in incidental costs are:

  • A portion of the value of a taxable supply is any commission that is reimbursed to an agent by the supplier and obtained from the recipient for the provision of goods or services, or both. 

  • Fees for certificates or inspections are an additional component that could increase the value if it is invoiced to the supply recipient. 

  • If the supplier charges the recipient for packaging, that cost must be deducted from the supply's value. 

  • If the supplier consents to deliver the goods to the recipient and arrange for transportation, the freight charges will be deducted from the supply value.


Subsidies

Except for subsidies given by the federal and state governments, any subsidy that has a direct connection to the supply will be included in the supply's value.


Late fees for payments 

The value of the supply must include interest, late fees, and penalties for any delay in paying for any consideration received in exchange for the provision of goods or services. 


What is Excluded from the Value of Supply under GST?

There are two kinds of discounts that need to be taken out of the supply value calculation. These are:

  • Discount applied on or ahead of supply:- Any discount that is properly documented on the invoice and granted before the supply date must be subtracted from the total amount of the taxable supply.

  • Discount given after the supply (post-supply discount): If a discount is granted after the supply but was previously agreed upon by the recipient and the supplier before the supply, and the recipient has reversed the input tax credit on the discount value, then the value of the discount must be subtracted from the value of the taxable supply.


CGST Rules Applicable to the Value of Supply

In situations where a related party transaction or the price is not the only or only consideration, it is not possible to assess the value of supply in accordance with section 15. The CGST Rules, 2017's chapter IV must be followed to determine the value of taxable supplies. The value of the supply of goods or services shall be treated according to the CGST Rules as follows: 

  • The Open Market Value shall be entirely monetary. It might not include the GST that a person owes on a transaction. This approach is appropriate and should be used when there is no relationship between the provider and the recipient and the price is the only consideration.

  • The term "Supply of Goods and Services of Like Kind and Quality" refers to the provision of any Goods or Services under conditions that are similar to those of the supply of those Goods or Services, or both, in terms of their qualities, quantities, functional aspects, materials, and reputation.


Rule 27: When the consideration is not entirely in money 

The value of the supply is 

  • Open market value 

  • The complete consideration in money plus any additional amount in money that is equal to the consideration not in money if the open market value is not available

  • If the supply value cannot be determined using the aforementioned criteria, the value of the supply of similar goods and services

  • The consideration in money plus the money equivalent of the non-monetary consideration plus a 10% markup, if the worth of the supply cannot be determined as per the aforementioned points, or

  • According to rule 31, alternative reasonable techniques


Rule 28: When supply is between distinct or related persons other than an agent

If the open market value is not available, the value of the supply of goods or services between distinct persons or in situations where the recipient and supplier are related is as follows:

  • Open market value

  • The value of the supply of similar goods or services if the supply is made through an agent

  • If the value of supply cannot be determined using the criteria listed above, regulations 30 or 31 will be used to assess the value of supply of goods or services. 

But if the recipient supplies the items as is, the supplier may choose to claim 90% of the amount the recipient charges his unaffiliated clients as the value of the commodities.


Rule 29: Supply is made through an agent

When a supply is made through an agency, the value of the supply is 

  • Open market value of the commodities

  • The supplier may elect to deduct 90% of the price that the recipient charges him for a similar supply of products of a similar sort and quality from his unaffiliated clients

  • If the value of supply cannot be determined using the criteria listed above, regulations 30 or 31 will be used to assess the value of supply of goods or services


Rule 30

In cases where the value of the taxable supply cannot be determined under Rules 27, 28, or 29, Rule 30 will be applied. This guideline states that the value is equal to 110% of the following: 

  • Production costs

  • Acquisition costs 

  • The price of providing such a service 

Service providers may, however, choose to implement Rule 30 to take Rule 31.


Rule 31

If the value of the supply of goods or services, or both, cannot be ascertained according to Rules 27 to 30, the value shall be ascertained by reasonable methods using the general guidelines and rules of Section 15 as well as the chapters' provisions.


Conclusion

Since the principle of determining the Tax Liability does not exist if the Value of the Taxable Supply is not established, the aforementioned Section 15 and CGST Rules help us determine the Value of the Taxable Supply of Goods or Services or Both, which serves as the Transaction Value. The Price Paid or Payable for the Supply of Goods or Services is frequently used to calculate the Value of Taxable Supply, although in some cases, determining the Value of Supply might be difficult. Consequently, necessary regulations have been established, giving us a way to figure out the Value of Supply. 


FAQ

Q1. What is the transaction value in GST?

When there is no relationship between the provider and the recipient and price is the only factor used to justify the supply, the price that is actually paid or due for the goods and/or services is referred to as transaction value.


Q2. Is GST included in the transaction value?

The price actually paid (or payable) for the supply of goods or services between unrelated parties is known as the transaction value; in other words, price is the only factor taken into account. Under GST, the value of the supply will consist of: all levied taxes, duties, cessations, fees, and charges (other than GST) under any act.


Q3. What are the elements of the taxable value of supply?

All taxes, duties, cesses, fees, and charges are included in the value of the supply, except any separate charges made by the provider for the CGST, SGST, UTGST, and GST cess. Therefore, other taxes, duties, cesses, fees, and charges are included in the taxable value, but GST and GST cess are not.


Q4. What is Open Market Value?

"Open Market Value" refers to the entire monetary value, which is paid in conjunction with the supply being valued to get such provision. Additionally, the price is the only factor taken into account for such a supply, and the recipient and supplier are independent or unconnected parties.


Q5. What is the supply of goods or services of like kind and quality?

It refers to any additional supply of products or services rendered in the same manner. The term "same circumstances" refers to a supply that is identical in terms of the features, caliber, quantity, materials, and reputation of the products or services, or both, and that is essentially or closely similar.


Q6. What is the meaning of a distinct person?

It refers to an individual who has received many registrations or who is compelled to do so. These distinct registrations may be made in more than one state or union territory, or they may be made in only one.


Q7. Which section of the CGST Act 2017 deals with the determination of the value of taxable supply?

Section 15 of the CGST Act and the CGST Rules, 2017 (Chapter IV: Determination of Value of Supply) deals with the valuation of supplies of goods and services made to various parties and under various conditions.






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