1. GST Valuation Rules
By: CA Surender Gupta

2. Section 15 transaction value 15. Value of taxable supply
i.e
price actually paid or payable
supplier and the recipient of the supply are not related
price is the sole consideration
15. Value of taxable supply
(1) 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 the recipient of the supply are not related and the price is the sole consideration for the supply.

3. TV Includes 15(2)(a) As per 2(a) It is not a case of free supply
But an amount paid by the Recipient
shall be included ?:
Only goods or services or both?
How to identify and value?
(2) The transaction value under sub-section(1) shall include:
(a) 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 price actually paid or payable for the goods and/or services;

4. TV Includes 15(2)(b) It is a case of free/ subsidized supply
Directly or indirectly
by the recipient ?:
Only goods or services or both?
How to identify and value?
(b) the value, apportioned as appropriate, of such goods and/or services as are supplied 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 that such value has not been included in the price actually paid or payable;

5. TV Includes 15(2)(c) Royalties and licence fees related to the supply
recipient of supply must pay
as a condition of the said supply
(c) royalties and licence fees related to the supply of goods and/or services being valued that the recipient of supply must pay, either directly or indirectly, as a condition of the said supply, to the extent that such royalties and fees are not included in the price actually paid or payable;

6. TV Includes 15(2)(d) Levy of cess in addition to GST
Whether to be included or not
(d) any taxes, duties, fees and charges levied under any statute other than the SGST Act or the CGST Act or the IGST Act;

7. TV Includes 15(2)(e) Incidental expenses commission & packing
Any amount charged
For any activity is done at the time of, or before delivery
testing, inspection, pre-delivery charges etc. etc.
(e) incidental expenses, such as, commission and packing, charged by the supplier to the recipient of a supply, including any amount charged for anything done by the supplier in respect of the supply of goods and/or services at the time of, or before delivery of the goods or, as the case may be, supply of the services;

8. TV Includes 15(2)(f) Capital subsidy not to be included
(f) subsidies provided in any form or manner, linked to the supply;

9. TV Includes 15(2)(g) Reimbursement of Expenditure: Or
Cost incurred incurred by or on behalf of the supplier ?
Cost of stay in hotel / lodging etc
Taxes / statutory dues?
Expenses by C&F agents etc.
(g) 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;

10. TV Includes 15(2)(h) Include: Discount or incentive
Only post supply
Exclude:
If known in advance
at or before the time of supply
specifically linked to relevant invoices
(h) any discount or incentive that may be allowed after the supply has been effected:
Provided that such post- supply discount which is established as per the agreement and is known at or before the time of supply and specifically linked to relevant invoices shall not be included in the transaction value.

11. TV Excludes 15(3) Trade Discount or
Cash discount etc.
In the Course of normal trade
Recorded in the Invice
To be excluded
(3) The transaction value under sub-section (1) shall not include any discount allowed before or at the time of supply provided such discount is allowed in the course of normal trade practice and has been duly recorded in the invoice issued in respect of the supply.

12. Refer to Valuation Rules 15(4)
15(4)(iii)
Provides for rejection of TV
(4) The value of the supply of goods and/or services in the following situations which cannot be valued under sub- section (1), shall be determined in such manner as may be prescribed in the rules.
(i) the consideration, whether paid or payable, is not money, wholly or partly;
(ii) the supplier and the recipient of the supply are related;
(iii) there is reason to doubt the truth or accuracy of the transaction value declared by the supplier;
(iv) business transactions undertaken by a pure agent, money changer, insurer, air travel agent and distributor or selling agent of lottery;
(v) such other supplies as may be notified by the Central or a State Government in this behalf on the recommendation of the Council.

13. Valuation Rules – Rule 2(b)
Comparable Goods
identical or similar in
physical characteristics
quality & Reputation
perform the same functions
commercially interchangeable
supplied by the same person or by a different person
Rule 2. Definitions
(b) “goods of like kind and quality” means goods which are identical or similar in physical characteristics, quality and reputation as the goods being valued, and perform the same functions or are commercially interchangeable with the goods being valued and supplied by the same person or by a different person;

14. Valuation Rules – Rule2(b)
Comparable Services
identical or similar in
quality and reputation
supplied by the same person or by a different person
Rule 2. Definitions
(c) “services of like kind and quality” means services which are identical or similar in nature, quality and reputation as the services being valued and supplied by the same person or by a different person;

15. Methods of determination of value Rule 3 (1)
In general TV is to be accepted
Rule 4 to Rule 6 to be applied only after following the procedure prescribed in Rule 7
3. Methods of determination of value
(1) Subject to rule 7, the value of goods and/or services shall be the transaction value.

16. Methods of determination of value Rule 3 (2)
(2) The “transaction value” shall be the value determined in monetary terms.

17. Methods of determination of value Rule 3 (3)
One Invoice containing
Taxable supply
plus
Non taxable supply
3. Methods of determination of value
(3) Where the supply consists of both taxable and non-taxable supply, the taxable supply shall be deemed to be for such part of the monetary consideration as is attributable thereto.

18. Methods of determination of value Rule 3 (4) Related person
Transaction with
Related persons
TV to be accepted as it is
Before rejecting such value AO has to prove that relationship has influenced the price
3. Methods of determination of value
(4) The transaction value shall be accepted even where the supplier and recipient of supply are related, provided that the relationship has not influenced the price.

19. Related person Section 2(82)
(82) persons shall be deemed to be “related persons’’ if only -
(a) they are officers or directors of one another's businesses;
(b) they are legally recognized partners in business;
(c) they are employer and employee;
(d) any person directly or indirectly owns, controls or holds five per cent or more of the outstanding voting stock or shares of both of them;
(e) one of them directly or indirectly controls the other;
(f) both of them are directly or indirectly controlled by a third person;
(g) together they directly or indirectly control a third person; or
(h) they are members of the same family;
Explanation I. - The term "person" also includes legal persons.
Explanation 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.

20. Methods of determination of value Rule 3 (5)
Valuation in case of
Stock transfer
Sale through Agent
Sale through Depots
TV to be accepted always
3. Methods of determination of value
(5) Where goods are transferred from-
(a) one place of business to another place of the same business,
(b) the principal to an agent or from an agent to the principal,
whether or not situated in the same State, the value of such supply shall be the transaction value.

21. Methods of determination of value Rule 3 (6)
Rule 3 is General Rule
Rule 4 to Rule 6 to be applied in sequence
3. Methods of determination of value
(6) The value of supplies specified in sub-section (4) of section 15 of the Act shall be determined by proceeding sequentially through rules 4 to 6.

22. Determination of value of supply by comparison - Rule 4(1)
Where TV is not ascertainable u/r 3
value of goods and/or services of like kind and quality
supplied at or about the same time
Adjustments to be made – see Sub-Rule (2)
4. Determination of value of supply by comparison
(1) Where the value of a supply cannot be determined under rule 3, the value shall be determined on the basis of the transaction value of goods and/or services of like kind and quality supplied at or about the same time to other customers, adjusted in accordance with the provisions of sub-rule (2).

23. Determination of value of supply by comparison - Rule 4(4)
Type of adjustments to be made u/s 4(1)
Factors related to:
Time
Volume
Quality / Design
Freight / Insurance
4(2) In determining the value of goods and/or services under sub-rule (1), the proper officer shall make such adjustments as appear to him reasonable, taking into consideration the relevant factors, including-
(a) difference in the dates of supply,
(b) difference in commercial levels and quantity levels,
(c) difference in composition, quality and design between the goods and/or services being valued and the goods and/or services with which they are compared,
(d) difference in freight and insurance charges depending on the place of supply.

24. Computed value method Rule 5
Cost
plus
Design/ Brand charges
Profit
General Expenses
5. If the value cannot be determined under rule 4, it shall be based on a computed value which shall include the following:-
(a) the cost of production, manufacture or processing of the goods or, the cost of provision of the services;
(b) charges, if any, for the design or brand;
(c) an amount towards profit and general expenses equal to that usually reflected in supply of goods and/or services of the same class or kind as the goods and/or services being valued which are made by other suppliers.

25. Residual method - Rule 6 Best Judgement Assessment 6. Residual method
But cannot be based on
assumption or
presumptions
6. Residual method
Where the value of the goods and/or services cannot be determined under the provisions of rule 5, the value shall be determined using reasonable means consistent with the principles and general provisions of these rules.

26. Rejection of declared value Rule 7(1)(a)
Where AO has doubt
About truth/ accuracy
May aske the assesse
And
Where information received are not satisfactory Or
No information is received
(1)(a) When the proper officer has reason to doubt the truth or accuracy of the value declared in relation to any goods and/or services, he may ask the supplier to furnish further information, including documents or other evidence and if, after receiving such further information, or in the absence of any response from such supplier, the proper officer still has reasonable doubt about the truth or accuracy of the value so declared, it shall be deemed that the transaction value of such goods and/or services cannot be determined under the provisions of sub-rule (1) of rule 3.

27. Rejection of declared value Rule 7(1)(b)
Reasons to doubt
Comparable goods are supplied at Higher value
Subject supply is at Lower or higher value
Any mis-declaration about the goods or services
7(1)(b) The reasons to doubt the truth or accuracy of the value of the supply declared by the supplier shall include, but not be limited to the following:
(i) the significantly higher value at which goods and/or services of like kind or quality supplied at or about the same time in comparable quantities in a comparable commercial transaction were assessed;
(ii) the significantly lower or higher value of the supply of goods and/or services compared to the market value of goods and/or services of like kind and quality at the time of supply; or
(iii) any mis-declaration of goods and/or services in parameters such as description, quality, quantity, year of manufacture or production.

28. Rejection of declared value Rule 7(2)
Before rejection
Intimation must be in writing, mentioning the doubts
reasonable opportunity of being heard, to be provided
(2) The proper officer shall intimate the supplier in writing the grounds for doubting the truth or accuracy of the value declared in relation to the supply of goods and/or services by such supplier and provide a reasonable opportunity of being heard, before taking a final decision under sub-rule (1).

29. Rejection of declared value Rule 7(3)
Rule 4, 5 or 6
Are to be applied
Only if AO is not satisfied
7(3) If after hearing the supplier as aforesaid, the proper officer is, for reasons to be recorded in writing, not satisfied with the value declared, he shall proceed to determine the value in accordance with the provisions of rule 4 or rule 5 or rule 6, proceeding sequentially.

30. Rejection of declared value Rule 7 - Explanation
Rule 7 is merely:
Prescribes procedure
that
The manner in which
TV can be rejected
Valuation to be done only under Rule 3 or
Rule 4, Rule 5 or Rule 6
Explanation.- For removal of doubts, it is hereby declared that this rule by itself does not provide a method for determination of value. It provides a mechanism and procedure for rejection of declared value in cases where there is reasonable doubt that the declared value does not represent the transaction value.

31. Thanks….