Valuation of supply

VALUATION OF SUPPLY

CONTENTS:

S.NO.	PARTICULARS	SECTIONS	RULES
1.	Value of Taxable Supply	15	-
2.	Determination of value of supply	-	27,28,29,30,31
3.	Value of supply in case of lottery, betting, gambling and horse racing.	-	31A
4.	Determination of value in respect of certain supplies.-	-	32
5.	Value of supply of services in case of pure agent.	-	33
6.	Rate of exchange of currency, other than Indian rupees, for determination of value.	-	34
7.	Value of supply inclusive of integrated tax, central tax, State tax, Union territory tax.-	-	35

Section 15: Value oftaxablesupply.

(1) The value of a supply of goods or services or both shall be the transactionvalue, which is the price actually paid or payable for the said supply of goods or services orboth where the supplier and the recipient of the supply are not related and the price is thesole 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 timebeing in force other than this Act, the State Goods and Services Tax Act, the UnionTerritory Goods and Services Tax Act and the Goods and Services Tax (Compensationto States) Act, if charged separately by the supplier;

(b) any amount that the supplier is liable to pay in relation to such supply butwhich has been incurred by the recipient of the supply and not included in the priceactually paid or payable for the goods or services or both;

(c) incidental expenses, including commission and packing, charged by thesupplier to the recipient of a supply and any amount charged for anything done by thesupplier in respect of the supply of goods or services or both at the time of, or beforedelivery of goods or supply of services;

(d) interest or late fee or penalty for delayed payment of any consideration forany supply; and

(e) subsidies directly linked to the price excluding subsidies provided by theCentral Government and State Governments.

Explanation.––

For the purposes of this sub-section, the amount of subsidyshall be included in the value of supply of the supplier who receives the subsidy.

(3) The value of the supply shall not include any discount which is given––

(a) before or at the time of the supply if such discount has been duly recorded inthe invoice issued in respect of such supply; and

(b) after the supply has been effected, if—

(i) such discount is established in terms of an agreement entered into at orbefore the time of such supply and specifically linked to relevant invoices; and

(ii) input tax credit as is attributable to the discount on the basis ofdocument issued by the supplier has been reversed by the recipient of thesupply.

(4) Where the value of the supply of goods or services or both cannot be determinedunder sub-section (1), the same shall be determined in such manner as may be prescribed.

(5) Notwithstanding anything contained in sub-section (1) or sub-section (4), thevalue of such supplies as may be notified by the Government on the recommendations of theCouncil shall be determined in such manner as may be prescribed.

Explanation.—

For the purposes of this Act,––

(a) persons shall be deemed to be “related persons” if––

(i) such persons are officers or directors of one another’s businesses;

(ii) such persons are legally recognised partners in business;

(iii) such persons are employer and employee;

(iv) any person directly or indirectly owns, controls or holds twenty-fiveper cent. or more of the outstanding voting stock or shares of both of them;

(v) one of them directly or indirectly controls the other;

(vi) both of them are directly or indirectly controlled by a third person;

(vii) together they directly or indirectly control a third person; or

(viii) they are members of the same family;

(b) the term “person” also includes legal persons;

(c) persons who are associated in the business of one another in that one is thesole agent or sole distributor or sole concessionaire, howsoever described, of theother, shall be deemed to be related.

DETERMINATION OF VALUE OF SUPPLY:

Rule 27:

Value of supply of goods or services where the consideration is not wholly inmoney.-Where the supply of goods or services is for a consideration not wholly inmoney, the value of the supply shall,-

(a) be the open market value of such supply;

(b) if the open market value is not available under clause (a), be the sum total ofconsideration in money and any such further amount in money as is equivalent tothe 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), be the valueof supply of goods or services or both of like kind and quality;

(d) if the value is not determinable under clause (a) or clause (b) or clause (c), be thesum total of consideration in money and such further amount in money that isequivalent to consideration not in money as determined by the application of rule30 or rule 31 in that order.

Rule 28:

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 betweendistinct persons as specified in sub-section (4) and (5) of section 25 or where the supplierand recipient are related, other than where the supply is made through an agent, shall-

(a) be the open market value of such supply;

(b) if the open market value is not available, be the value of supply of goods orservices of like kind and quality;

(c) if the value is not determinable under clause (a) or (b), be the value as determinedby the application of rule 30 or rule 31, in that order:

Provided that where the goods are intended for further supply as such by therecipient, the value shall, at the option of the supplier, be an amount equivalent to ninetypercent of the price charged for the supply of goods of like kind and quality by the recipientto his customer not being a related person:

Provided further that where the recipient is eligible for full input tax credit, the valuedeclared in the invoice shall be deemed to be the open market value of the goods or services.

Rule 29:

Value of supply of goods made or received through an agent.-The value of supply ofgoods between the principal and his agent shall-

(a) be the open market value of the goods being supplied, or at the option of thesupplier, be ninety percent. of the price charged for the supply of goods of like kind andquality by the recipient to his customer not being a related person, where the goods areintended for further supply by the said recipient.

(b) where the value of a supply is not determinable under clause (a), the same shall bedetermined by the application of rule 30 or rule 31 in that order.

Rule 30:

Value of supply of goods or services or both based on cost.-Where the value of asupply of goods or services or both is not determinable by any of the preceding rules of thisChapter, the value shall be one hundred and ten percent of the cost of production ormanufacture or the cost of acquisition of such goods or the cost of provision of suchservices.

Rule 31:

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 27to 30, the same shall be determined using reasonable means consistent with the principlesand the general provisions of section 15 and the provisions of this Chapter:

Provided that in the case of supply of services, the supplier may opt for this rule,ignoring rule 30.

Rule 31A: Value of supply in case of lottery, betting, gambling and horse racing. -

(1) Notwithstanding anything contained in the provisions of this Chapter, the value inrespect of supplies specified below shall be determined in the manner provided hereinafter.

(2) (a) The value of supply of lottery run by State Governments shall be deemed to be100/112 of the face value of ticket or of the price as notified in the Official Gazette by theorganising State, whichever is higher.

(b) The value of supply of lottery authorised by State Governments shall be deemed to be100/128 of the face value of ticket or of the price as notified in the Official Gazette by theorganising State, whichever is higher.

Explanation:–

For the purposes of this sub-rule, the expressions20

(a) “lottery run by State Governments” means a lottery not allowed to be sold in any State

other than the organizing State;

(b) “lottery authorised by State Governments” means a lottery which is authorised to be sold

in State(s) other than the organising State also; and

rule 2 of the Lotteries (Regulation) Rules, 2010.

(3) The value of supply of actionable claim in the form of chance to win in betting,gambling or horse racing in a race club shall be 100% of the face value of the bet or theamount paid into the totalisator.

Rule 32:Determination of value in respect of certain supplies.-

(1)Notwithstanding anythingcontained in the provisions of this Chapter, the value in respect of supplies specified belowshall, at the option of the supplier, be determined in the manner provided hereinafter.

(2) The value of supply of services in relation to the purchase or sale of foreign currency,including moneychanging, shall be determined by the supplier of services in the followingmanner, namely:-

(a) for a currency, when exchanged from, or to, Indian Rupees, the value shall beequal to the difference in the buying rate or the selling rate, as the case may be, andthe Reserve Bank of India reference rate for that currency at that time, multiplied bythe total units of currency:

Provided that in case where the Reserve Bank of India reference rate fora currency is not available, the value shall be one per cent. of the gross amount ofIndian Rupees provided or received by the person changing the money:

Provided further that in case where neither of the currencies exchangedis Indian Rupees, the value shall be equal to one per cent. of the lesser of the twoamounts the person changing the money would have received by converting any ofthe two currencies into Indian Rupee on that day at the reference rate provided by theReserve Bank of India.

Provided also that a person supplying the services may exercise theoption to ascertain the value in terms of clause (b) for a financial year and suchoption shall not be withdrawn during the remaining part of that financial year.

(b) at the option of the supplier of services, the value in relation to the supply offoreign currency, including money changing, shall be deemed to be-

(i) one per cent. of the gross amount of currency exchanged for an amount upto one lakh rupees, subject to a minimum amount of two hundred and fiftyrupees;

(ii) one thousand rupees and half of a per cent. of the gross amount ofcurrency exchanged for an amount exceeding one lakh rupees and up toten lakh rupees; and

(iii) five thousand and five hundred rupees and one tenth of a per cent. of thegross amount of currency exchanged for an amount exceeding ten lakhrupees, subject to a maximum amount of sixty thousand rupees.

(3) The value of the supply of services in relation to booking of tickets for travel by airprovided by an air travel agent shall be deemed to be an amount calculated at the rate of fivepercent. of the basic fare in the case of domestic bookings, and at the rate of ten per cent. Ofthe basic fare in the case of international bookings of passage for travel by air.

Explanation.-

For the purposes of this sub-rule, the expression “basic fare” means that partof the air fare on which commission is normally paid to the air travel agent by the airlines.

(4)The value of supply of services in relation to life insurance business shall be,-

(a) the gross premium charged from a policy holder reduced by the amount allocatedfor investment, or savings on behalf of the policy holder, if such an amount isintimated to the policy holder at the time of supply of service;

(b) in case of single premium annuity policies other than (a), ten per cent. of singlepremium charged from the policy holder; or

(c) in all other cases, twenty five per cent. of the premium charged from the policyholder in the first year and twelve and a half per cent. of the premium charged fromthe policy holder in subsequent years:

Provided that nothing contained in this sub-rule shall apply where the entirepremium paid by the policy holder is only towards the risk cover in life insurance.

(5) Where a taxable supply is provided by a person dealing in buying and selling of secondhand goods i.e., used goods as such or after such minor processing which does not changethe nature of the goods and where no input tax credit has been availed on the purchase ofsuch goods, the value of supply shall be the difference between the selling price and thepurchase price and where the value of such supply is negative, it shall be ignored:

Provided that the purchase value of goods repossessed from a defaulting borrower,who is not registered, for the purpose of recovery of a loan or debt shall be deemed to be thepurchase price of such goods by the defaulting borrower reduced by five percentage pointsfor every quarter or part thereof, between the date of purchase and the date of disposal by theperson making such repossession.

(6) The value of a token, or a voucher, or a coupon, or a stamp (other than postage stamp)which is redeemable against a supply of goods or services or both shall be equal to themoney value of the goods or services or both redeemable against such token, voucher,coupon, or stamp.

(7) The value of taxable services provided by such class of service providers as may benotified by the Government, on the recommendations of the Council, as referred to inparagraph 2 of Schedule I of the said Act between distinct persons as referred to in section25, where input tax credit is available, shall be deemed to be NIL.

Rule 33:Value of supply of services in case of pure agent. -

Notwithstanding anything containedin the provisions of this Chapter, the expenditure or costs incurred by a supplier as a pureagent of the recipient of supply shall be excluded from the value of supply, if all thefollowing conditions are satisfied, namely,-

(i) the supplier acts as a pure agent of the recipient of the supply, when he makes thepayment to the third party on authorisation by such recipient;

(ii) the payment made by the pure agent on behalf of the recipient of supply has beenseparately indicated in the invoice issued by the pure agent to the recipient ofservice; and

(iii) the supplies procured by the pure agent from the third party as a pure agent of

the recipient of supply are in addition to the services he supplies on his own account.

Explanation.-

For the purposes of this rule, the expression “pure agent” means a person

who-

(a) enters into a contractual agreement with the recipient of supply to act as his pureagent to incur expenditure or costs in the course of supply of goods or services orboth;

(b) neither intends to hold nor holds any title to the goods or services or both soprocured or supplied as pure agent of the recipient of supply;

(d) receives only the actual amount incurred to procure such goods or services inaddition to the amount received for supply he provides on his own account.

Rule 34: Rate of exchange of currency, other than Indian rupees, for determination ofvalue:

(1) The rate of exchange for determination of value of taxable goods shall be theapplicable rate of exchange as notified by the Board under section 14 of the Customs Act,1962 for the date of time of supply of such goods in terms of section 12 of the Act.

(2) The rate of exchange for determination of value of taxable services shall be theapplicable rate of exchange determined as per the generally accepted accounting principlesfor the date of time of supply of such services in terms of section 13 of the Act.

Rule 35:Value of supply inclusive of integrated tax, central tax, State tax, Union territorytax.-

Where the value of supply is inclusive of integrated tax or, as the case may be, centraltax, State tax, Union territory tax, the tax amount shall be determined in the followingmanner, namely,-

Tax amount = (Value inclusive of taxes X tax rate in % of IGST or, as the case may be,CGST, SGST or UTGST) ÷ (100+ sum of tax rates, as applicable, in %)

Explanation.-

For the purposes of the provisions of this Chapter, the expressions-

(a) “open market value” of a supply of goods or services or both means the full value inmoney, excluding the integrated tax, central tax, State tax, Union territory tax and thecess payable by a person in a transaction, where the supplier and the recipient of thesupply are not related and the price is the sole consideration, to obtain such supply at thesame time when the supply being valued is made;

(b) “supply of goods or services or both of like kind and quality” means any othersupply of goods or services or both made under similar circumstances that, in respect ofthe characteristics, quality, quantity, functional components, materials, and thereputation of the goods or services or both first mentioned, is the same as, or closely orsubstantially resembles, that supply of goods or services or both.