1. Valuation GOODS AND SERVICE TAX 22-07-17 Mohd. Irshad Ahmed
Chartered Accountant
Hyderabad

2. VALUATION Overview
There shall be levied a tax called CGST/SGST/IGST on the value determined under Section 15 - Section 9 (1) (levy section)
As per Section 15 – The value shall be the transaction value
Transaction value is the price actually paid or payable for the said supply of goods or services or both

3. Valuation continued... Transaction value
Price actually paid or payable
Supplier and the recipient of the supply are not related
Price is the sole consideration

4. Valuation continued... Related person
I. Persons shall be deemed to be “related persons” if––
Such persons are officers or directors of one another’s businesses;
Such persons are legally recognised partners in business;
Such persons are employer and employee;
Any person directly or indirectly owns, controls or holds twenty-five per cent or more of the outstanding voting stock or shares of both of them;
One of them directly or indirectly controls the other;
Both of them are directly or indirectly controlled by a third person;
Together they directly or indirectly control a third person; or
They are members of the same family;
II. Persons who are associated in the business of one another in that one is the sole agent or sole distributor or sole concessionaire, howsoever described, of the other, shall be deemed to be related.

5. Price is the sole consideration for the supply
Valuation continued...
Price is the sole consideration for the supply
Examples where price may not be a sole consideration
Manpower supply contract with a contractor. However, scholarship fees paid to the son of the contractor
Technical consultancy contract with a Director. However, rent free accommodation provided to a director
Services provided by an architect to the company, however architect provided similar services to another group company at a differential price

6. incidental expenses including commission and packing
Valuation continued...
Transaction value
INCLUSIONS
Any taxes, duties, cesses, fees and charges levied under any law except CGST/SGST/IGST
Any amount paid by recipient on behalf of supplier and not included in the price actually paid or payable
subsidies directly linked to the price excluding subsidies provided by the
CG/SG
incidental expenses including commission and packing
Interest or late fee or penalty for delayed payment of any consideration

7. Valuation continued... Transaction value
EXCLUSIONS
Any discount which is given before or at the time of supply if such discount has been duly recorded in the invoice
Any discount which is given after the supply, if such discount is as per the terms of agreement and input tax credit has been reversed

8. Valuation continued... Example
A develops a software for B. The total cost of developing the software is Rs. 37 lakhs. A paid profession tax on employee amounting to Rs. 1,20,000. B, deputes an employee for technical support and pays him Rs. 2,50,000 which is not included in Rs. 37 lakhs. A, also incurs certain incidental costs for B towards copyrights amounting to Rs. 50,000. SEZ developer provides subsidy linked to the price amounting to Rs. 1,00,000 which has been reduced from price. A, offers a discount of Rs. 75,000 to B before the issue of invoice. Analyse the value under Section 15 of the CGST Act, 2017

9. Valuation continued... Example
As per Section 15, the value of supply shall include:
Transaction value ,00,000
Any taxes paid ,20,000
Amounts paid by recipient - 2,50,000
Any incidental exp ,000
SEZ offers subsidy to A - 1,00,000
Less:
Discount given before invoice - (75,000)
The value for the purpose of Sec 15 will be Rs. 41,45,000

10. Valuation continued... Example - Discount
A sells textile goods to B for a price of Rs. 1,000 and GST paid on such supply is 10% i.e. Rs Subsequently, A offers discount of 10% i.e. 100 to B. Determine the value under Section 15, assuming such discount is allowed u/s 15
Supplier
Value
Output liability
Value of supply
1,000
100
Less: Discount
(100)
(10)
Net receivable
900 90
Recipient
Value
ITC
Inward supply
1,000
100
Discount 10%
(100)
(10)
Net price
900 90

11. If the consideration is not wholly in money
Valuation continued...
If the consideration is not wholly in money
Open market value of supply
Sum total of consideration in money + further amount in money equivalent to the consideration not in money
Value of supply of goods or services or both of like kind and quality
110% of the cost of production/manufacture/acquisition
Determined using reasonable means consistent with the principles and general provisions u/s 15 and rules

12. Valuation continued... DEFINITIONS
(a) “open market value” of a supply of goods or services or both means the full value in money, excluding the integrated tax, central tax, State tax, Union territory tax and the cess payable by a person in a transaction, where the supplier and the recipient of the supply are not related and price is the sole consideration, to obtain such supply at the same time when the supply being valued is made. (b) “supply of goods or services or both of like kind and quality” means any other supply of goods or services or both made under similar circumstances that, in respect of the characteristics, quality, quantity, functional components, materials, and reputation of the goods or services or both first mentioned, is the same as, or closely or substantially resembles, that supply of goods or services or both.

13. Valuation continued... Example
Where a new phone is supplied for Rs.20,000 along with the exchange of an old phone and if the price of the new phone without exchange is Rs.24,000, the open market value of the new phone is Rs 24,000 Where a laptop is supplied for Rs.40,000 along with a barter of printer that is manufactured by the recipient and the value of the printer known at the time of supply is Rs.4,000 but the open market value of the laptop is not known, the value of the supply of laptop is Rs.44,000.

14. Valuation continued...
Transactions between distinct or related persons other than through an agent
Open market value of supply
value of supply of goods or services or both of like kind and quality
110% of the cost of production/manufacture/acquisition
Determined using reasonable means consistent with the principles and general provisions u/s 15 and rules

15. Valuation continued... DEFINITIONS
Persons shall be deemed to be “related persons” if––
such persons are officers or directors of one another’s businesses;
such persons are legally recognised partners in business;
such persons are employer and employee;
Any person directly or indirectly owns, controls or holds twenty-five per cent or more of the outstanding voting stock or shares of both of them;
one of them directly or indirectly controls the other;
both of them are directly or indirectly controlled by a third person;
together they directly or indirectly control a third person; or
they are members of the same family;

16. Valuation continued... Example
A, a public limited company based in Telangana is engaged in production and manufacture of tiles. A, has branches in Kerala and Orissa. A, supplies consignment valued at Rs. 5,00,000 to it’s branch ‘B’ located in Kerala. Both A & B are distinct persons within the meaning of Section 25. The cost of manufacture of the said items is Rs. 4,90,000. There is no open value and there is no like kind and quality of goods. Analyse the Valuation of supply under Section 15 of the CGST Act, 2017 and the related rules

17. Valuation continued... Example
As per Rule 28 of the valuation rules the value of supply of goods between the distinct persons shall be the open market value or value of like kind and quality of goods, or 110% of cost of manufacture or value within the principles of Section 15.
As stated, there is no open value and nor value of like kind and quality of goods. Hence, the valuation shall be in accordance with Rule 30 & 31. i.e. 110% of manufacture or value within the principles of Section 15.
The cost of manufacture is Rs. 4,90,000. Hence the 110% of the manufacture will be Rs. 5,39,000. Accordingly, the value of supply of tiles will be Rs. 5,39,000 and not Rs. 5,00,000.

18. Valuation continued... Example
A, a public limited company based in Telangana is engaged in production and manufacture of tiles. A, has branches in Kerala and Orissa. A, supplies consignment valued at Rs. 5,00,000 to it’s branch ‘B’ located in Kerala. Both A & B are distinct persons within the meaning of Section 25. The cost of manufacture of the said items is Rs. 4,90,000. ‘B’ is eligible to take input tax credit There is no open value and there is no like kind and quality of goods. Analyse the Valuation of supply under Section 15 of the CGST Act, 2017 and the related rules

19. Valuation continued... Example
As per Rule 28 of the valuation rules the value of supply of goods between the distinct persons shall be the open market value or value of like kind and quality of goods, or 110% of cost of manufacture or value within the principles of Section 15. Where the recipient is eligible for full input tax credit, the value declared in the invoice shall be deemed to be open market value.
As stated, there is no open value and nor value of like kind and quality of goods. Hence, the valuation can be in accordance with Rule 30 & 31. i.e. 110% of manufacture or value within the principles of Section 15. However, since ‘B’ is eligible to take full input tax credit, the value declared in invoice i.e. Rs. 5,00,000 shall be deemed to be the value

20. Value of supply of goods made or received through agent
Valuation continued...
Value of supply of goods made or received through agent
Open market value of supply
At the option of the supplier, be ninety percent of the price charged for the supply of goods of like kind and quality by the recipient to his customer not being a related person
110% of the cost of production/manufacture/acquisition
Determined using reasonable means consistent with the principles and general provisions u/s 15 and rules

21. Valuation continued... Example
Where a principal supplies groundnut to his agent and the agent is supplying groundnuts of the like kind and quality in subsequent supplies at a price of Rs.5,000 per quintal on the day of supply. The open market value of such supply is Rs.4,550 per quintal. The value of the supply made by the principal shall be Rs.4,550 per quintal or where he exercises the option the value shall be 90% of the Rs.5,000 i.e. is Rs.4,500 per quintal.

22. Services in relation to
Valuation continued...
Determination of value in certain cases
Services in relation to
Value
Level 1
Level 2
Level 3
Purchase or sale of foreign currency
Difference between the buying or selling rate and the RBI reference rate multiplied by the total units of currency
If RBI reference is not available, the value shall be 1% of the gross amount of INR provided or received
If neither of the currencies exchanged is INR the value shall be 1% of the converted value of two currencies into INR at the reference rate
or at the option of the supplier of services, the value is deemed to be
1% of the gross amount of the currency exchanged for an amount upto 1 lakh rupees subject to a minimum of Rs. 250
Rs. 1,000 and half of a percent of the gross amount of the currency exchanged for an amount upto 1 lakh rupees and upto Rs. 10 lakhs
Rs. 5,500 and one tenth of a percent of the gross amount of the currency exchanged for an amount exceeding Rs. 10 lakhs subject to a maximum of Rs. 60k

23. Services in relation to
Valuation continued...
Determination of value in certain cases
Services in relation to
Value
Level 1
Level 2
Booking of tickets for travel by air provided by an air travel agent
5% of basic fare for domestic bookings and 10% of basic fare for international bookings NA
Life insurance business except where the entire premium paid is towards risk cover in life insurance
Gross premium charged less amount allocated for investment or saving
Single premium annuity policies, 10% of the single premium charged from the policy holder
In all other cases, 25% of the premium charged in first year and 12.5% premium charged in subsequent years
Where taxable supply is provided by a person dealing in buying and selling of second hand goods and no ITC has been availed on purchase of such goods, the value shall be difference between the selling price and the purchase price
However, in case goods mortgaged for a loan are repossessed, purchase value for the borrower shall be purchase price reduced by 5% points for every quarter or part thereof, between the date of purchase and the date of disposal by the person making such repossessed.

24. Services in relation to
Valuation continued...
Determination of value in certain cases
Services in relation to
Value
Level 1
Level 2
The value of a token, a voucher, or a coupon, or a stamp (other than a postage stamp) which is redeemable against a supply of goods or services or both shall be equal to the money value of goods or services or both redeemable against such token, voucher, coupon or stamp.
Life insurance business except where the entire premium paid is towards risk cover in life insurance
Gross premium charged less amount allocated for investment or saving
Single premium annuity policies, 10% of the single premium charged from the policy holder
In all other cases, 25% of the premium charged in first year and 12.5% premium charged in subsequent years
Where taxable supply is provided by a person dealing in buying and selling of second hand goods and no ITC has been availed on purchase of such goods, the value shall be difference between the selling price and the purchase price
However, in case goods mortgaged for a loan are repossessed, purchase value for the borrower shall be purchase price reduced by 5% points for every quarter or part thereof, between the date of purchase and the date of disposal by the person making such repossessed.

25. Value of supply of services in case of pure agent PURE AGENT
Valuation continued...
Value of supply of services in case of pure agent
PURE AGENT
The expenditure or cost incurred by a supplier as a pure agent of the recipient of supply shall be excluded from the value of supply, if all the following conditions are satisfied:
The supplier acts as a pure agent of the recipient of supply when he makes payment to the third on authorisation by such recipient.
The payment made by the pure agent on behalf of the recipient has been separately indicated in the invoice of the pure agent
The supplies procured by the pure agent from the third party on behalf of the recipient of supply are in addition to the services he supplies on his own account.

26. Valuation continued... Example
Corporate services firm A is engaged to handle the legal work pertaining to the incorporation of Company B. Other than its service fees, A also recovers from B, registration fee and approval fee for the name of the company paid to Registrar of the Companies. The fees charged by the Registrar of the companies registration and approval of the name are compulsorily levied on B. A is merely acting as a pure agent in the payment of those fees. Therefore, A’s recovery of such expenses is a disbursement and not part of the value of supply made by A to B.

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