Oct 12, 2017
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GST Valuation Rules overview of valuation rule under GST,2017

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Overview of GST valuation rule,2017

Under GST valuation rules , tax is payable on ad-valor-em basis i.e percentage of value of the supply of goods or services.

Section 15 of the CGST Act and Determination of Value of Supply, CGST Rules, 2017 contain provisions related to valuation of supply of goods or services made in different circumstances and to different persons.

Under GST India law, taxable value is the transaction value i.e. price actually paid or payable, provided the supplier & the recipient are not related and price is the sole consideration.

Important Definition under GST valuation rules:

Open market value:

The open market value has below important components,

  1. Value for a transaction when Supplier & recipient are not related will be taken
  2. In case of such transaction price should be sole consideration
  3. The comparable transaction should be at the same time
  4. The value will not include any taxes & cess.

Pure agent:

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

  1. Enters into a contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs in the course of supply of goods or services or both.
  2. Neither intends to hold nor holds any title to the goods or services or both so procured or provided as pure agent of the recipient of supply.
  3. Does not use for his own interest such goods or services so procured and
  4. Receives only the actual amount incurred to procure such goods or services.

GST Valuation Rules:

1: Value of supply of goods or services where the consideration is not wholly in money

2: Value of supply of goods or services or both between distinct or related persons, other than through an agent

3: Value of supply of goods or services made or received through agent

4:Value of supply of goods or services or both based on cost

5: Residual method for determination of value of supply of goods or service or both.

6: Determination of value in respect of certain supplies

7 : Expenditure incurred as Pure Agent excluded from value of Supply if all the following conditions are satisfies namely

8: Rate of exchange of currency, other than Indian rupees, for determination of value.

 

Rule 1: Value of supply of goods or services where the consideration is not wholly in money

The value of supply in case the consideration not wholly in money then the value shall determined as under,

    1. Open market Value of the goods / service supplied or
    2. If open market value not available in such case Money received plus money as equivalent to consideration not received
    3. In case value cannot be determined by abovementioned methods then value of supply of like kind & quality.
    4. In case the value cannot be determined on the basis of like kind & quality then the value as per rule 4 (Cost + 10%) & 5 (Residual value method) in sequential manner.


Rule2: Value of supply of goods or services or both between distinct or related persons, other than through an agent

Value in case of Distinct (having multiple registrations in different or within states) or Related person shall determined as under:

  1. Open market Value of the goods / service supplied*
  2. In case value cannot be determined by above mentioned methods then value of supply of like kind & quality.
  3. In case the value cannot be determined on the basis of like kind & quality then the value as per rule 4 (Cost +10%) & 5 (Residual value method) in sequential manner.

(*In case the recipient is eligible for full Input Tax Credit the Invoice value will deemed to open market value.)

 

Rule3: Value of supply of goods or services made or received through agent

Valuation in case of Supply through agent will be:

  1. Open Market Value
  2. 90% of value charged of goods of like kind & quality to unrelated customer by the agent where goods are intended for further supply at the option of supplier
  3. In case the value cannot be determined on the basis of above then the value as per rule 4 (Cost +10%) & 5 (Residual value method) in sequential manner.

 

Rule 4:Value of supply of goods or services or both based on cost

If value so not determined under preceding rules:

Value stated as 110% of Cost of Production

or

Cost of acquisition of such goods

or

Cost of provision of such services

 

Rule 5: Residual method for determination of value of supply of goods or services or both

If in case value not determined under rules 1 to 4. Then, Value it will determined using reasonable means consistent with the principles and general provisions of section 15. And these rules Supplier of service may opt for this rule by passing rule 4 (Cost + 10%).

Rule 6:Determination of value in respect of certain supplies

1.Determination of value in respect of certain supplies-

Valuation in the specified supplies should be under this rule over riding the rules & Act.

2. The value of supply of services in relation to purchase or sale of foreign currency, including money changing-

 a.Value of supply will be :

[Selling-Buying (with RBI reference rate at time)]

X

Total units of currency,

(If RBI reference rate for a currency is not available 1% of gross amount of INR provided / received)

b. At the option of supplier, value deemed tas:

1% of gross amount exchanged For amount up to INR 1 Lakh subject to minimum INR 250/-
INR 1,000/- +0.5% of gross amount exchanged For amount more than 1 Lakh up to 10 Lakhs
INR 5,000/- +0.1% of gross amount exchanged For amount exceeding 10 Lakhs subject to max Rs 60,000/-

(Note: Option to ascertain value in terms of clause (b) shall not withdrawn during the remaining part of that financial year)

3.The value of supply of services in relation to booking of tickets for travel by air provided by an air travel agent-

Value of supply of services in relation to booking of tickets

➢ For Domestic Booking – 5 % of Basic Fare

➢ For International Booking – 10 % of Basic Fare

“Basic fare” means that part of the air fare on which commission normally paid to the air travel agent by the airline.

4.The value of supply of services in relation to life insurance business-

Value of supply of services in relation to life insurance business shall be:

  1. The gross premium reduced by the amount allocated for investment or savings if such amount  intimated to the policy holder at the time of supply of service;
  2. In case of single premium annuity policies other than (a), 10% premium; or
  3. In all other cases, 25% of the premium in the first year and 12.5% of the premium charged in subsequent years.

If entire premium paid by the policy holder is only towards the risk cover in life insurance these provisions will not be applicable.

5. The Value of supply provided by a person dealing in buying and selling of second hand goods-

Value of supply provided by a person dealing in buying and selling of second hand goods if no Input Tax Credit availed shall determined as under :

➢ Difference between Selling price & Purchase price

➢ If difference stated negative then value not taken into consideration and ignored (taken as zero)

6. The Value of a token, or a voucher, or a coupon, or a stamp which is redeemable-

The value of a token, or a voucher, or a coupon, or a stamp which is redeemable shall be equal to the money value of the goods or services redeemable against such voucher.

7.The Value of taxable services provided by such class of service providers-

If Supply of goods or services or both between related persons or between distinct persons as specified in section 25. Then, when made in the course or furtherance of business stated valued NIL in case other than cases where no Input Tax Credit so available.

 

Rule 7 : Expenditure incurred as Pure Agent shall excluded from value of Supply if all the following conditions are satisfies namely:-

  1. Supplier act as pure agent to recipient. As and when he makes payment to third party for services procured as contract for supply made by third party.
  2. The recipient of supply uses the services so procured by the supplier service provider in his capacity as pure agent of the recipient of supply;
  3. Recipient of supply is liable to make payment to the third party;
  4. the recipient of supply authorises the supplier to make payment on his behalf;
  5. Recipient of supply knows that services for which payment has made by supplier shall provided by third party.
  6. The payment made by the supplier on behalf of the recipient of supply maintain separately indicated in invoice issued by supplier to the recipient of service.
  7. Supplier recovers from the recipient of supply only such amount  paid by him to the third party; and
  8. Services procured by the supplier from the third party as a pure agent of the recipient of supply are in addition to the supply he provides on his own account.

Rule 8: Rate of exchange of currency, other than Indian rupees, for determination of value.

The rate of exchange for determination of value of taxable goods or services or both shall be the reference rate for that currency. And as determined by the RBI on the date when point of taxation.

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Renuka is a Final Year LL.B. student at Siddharth College of Law. She has done her Bachelors in Banking & Insurance and has also completed her Masters in Business Management . She likes to participate in legal workshops and Moot Courts. Besides her interest in law, she has a keen aptitude for legal research and is good at putting her analysis into words.

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