Introduction
Value of Supply under GST: Goods and Services Tax (GST) has brought about a significant shift in indirect taxation, prompting numerous inquiries from businesses. Among the crucial questions is understanding the value of supply under GST and what elements constitute the taxable supply value for GST calculation. In simple terms, the value of supply refers to the amount a seller aims to collect for the goods and services they provide. It is the sum received from the buyer, representing the value of the transaction. However, in situations where parties are related or transactions involve barter or exchange, determining the value of supply becomes complex.
According to GST law, the value on which GST is levied is determined by the ‘transactional value,’ mirroring the price at which unrelated parties would normally transact in the business realm.
While the definition of “Value of supply” provides a basic understanding, the complexities arise in various transaction types, making it challenging to ascertain the true “Transaction Value” for GST computation. Let’s simplify this by exploring typical cases and transaction components that influence the value of supply, along with their treatments under GST regulations. Understanding these intricacies is essential for businesses to ensure compliance and accurate GST calculations in their transactions.
Treatment of Taxes, Duties, Cesses, Fees and Charges
Any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than CGST/ SGST/UTGST/ IGST/ Compensation cess shall be added to the value of supply. TCS (Tax, Cess & Surcharge) will be added in the invoice to collect it from the customer, but no GST will be charged on TCS.
Supplies Made by Recipient on Behalf of Supplier
The transaction value will include the amount which the supplier is so liable to pay but it has been paid by the recipient of supply on behalf of the supplier.
Moulds and Dies Owned by OEM that are Sent on FOC to a Component Manufacturer
1. Moulds and dies owned by the original equipment manufacturer (OEM) which are provided to a component manufacturer (the two not being related persons or distinct persons) on FOC (Free on Cost) basis does not constitute a supply as there is no consideration involved. Further, since the moulds and dies are provided on FOC basis by the OEM to the component manufacturer in the course or furtherance of his business, there is no requirement for reversal of input tax credit availed on such moulds and dies by the OEM.
2. It is further clarified that while calculating the value of the supply made by the component manufacturer, the value of moulds and dies provided by the OEM to the component manufacturer on FOC basis shall not be added to the value of such supply because the cost of moulds/dies was not incurred by the component manufacturer and thus, does not merit inclusion in the value of supply.
3. However, if the contract between OEM and component manufacturer was for supply of components made by using the moulds/dies belonging to the component manufacturer, but the same was supplied by the OEM to the component manufacturer on FOC basis, the amortized cost of such moulds/dies shall be added to the value of the components. In such cases, the OEM will be required to reverse the credit availed on such moulds/ dies, as the same will not be considered to be provided by OEM to the component manufacturer in the course or furtherance of the former’s business.
Treatment of Commission and Packing Charges
The transaction value will include commission and packing charges charged by the supplier to the recipient of supply and including any amount charged by the supplier for anything done in respect of supply either at the time or before delivery of goods or services.
Interest/Late fee/Penalty Charged by Agent from Buyer
It is specifically provided under GST law that interest or late fee or penalty for delay in payment of any consideration for supply will form part of the value of supply. In case, invoice is raised by an agent in the name of the principal/dealer, any interest/late fee/penalty charged by the agent from the buyer for delayed payment of consideration shall not form part of value of taxable supply.
In case, the invoice is raised by the agent in his own name, then any interest charged by that agent from the buyer for delayed payment of consideration will form part of value of taxable supply. Example-Penal interest charged by the banker for delay in payment of dues is subject to GST.
Donations or Subsidies linked to a Transaction
(i) Levy of GST on display of name plates of donor in premises of charitable organization: When the name of the donor is displayed in donation recipient institution’s premises, in such a manner, which can be said to be an expression of gratitude and public recognition of donor’s act of philanthropy and not aimed at giving publicity to the donor in such manner that it would be an advertising or promotion of his business, then it can be said that, there is no supply of service for a consideration in the form of donation.
(ii) Subsidy directly linked to the price (other than Govt. Subsidies): Subsidy provided in any form or manner linked to the supply will be included in the transaction value.
Treatment of Discount
| Nature of Discount | Treatment in GST |
| If the discount is given before or at the time of supply, and that is recorded in the invoice | Can be claimed as deduction from transaction value |
| If the discount is given after supply, but agreed upon before or at the time of supply, and can be specifically linked to relevant invoices. | Can be claimed as deduction from transaction value |
| If the discount is given after supply, and not known at the time of supply | Cannot be claimed as deduction from transaction value |
Any Cash back offer (if the same is mentioned on the invoice), Buy more save more offer (i.e., Staggered discount) and Periodic / Year ending discount (in terms of an agreement entered into at or before the time of supply) are allowed as deduction from sale value and ITC is not required to be reversed in such cases. But, any Secondary Discount (i.e., offered after the supply is already over) is not allowed as deduction from value of Supply.
Monthly Subscription/Contribution Charged by a RWA from its Members
| Annual turnover of RWA | Monthly maintenance charge |
Whether exempt? |
| More than Rs.20 lakhs | More than Rs.7,500 | No |
| Up to Rs.7,500 | Yes | |
| Up to Rs.20 lakhs | More than Rs.7,500 | Yes |
| Up to Rs.7,500 | Yes |
Supply of service by RWA (unincorporated body or a non-profit entity registered under any law) to its own members by way of reimbursement of charges or share of contribution up to an amount of Rs.7, 500 per month per member for providing services and goods for the common use of its members in a housing society or a residential complex are exempt from GST. If the aggregate turnover of a RWA does not exceed Rs.20 Lakh in a financial year, it shall not be required to take registration and pay GST even if the amount of maintenance charges exceeds Rs.7500/- per month per member.
RWAs are entitled to take ITC of GST paid by them on capital goods (generators, water pumps, lawn furniture etc.), goods (taps, pipes, other sanitary/ hardware fillings etc.) and input services such as repair and maintenance services.
A person who owns two or more residential apartments in a housing society or a residential complex shall be a member of the RWA for each residential apartment owned by him separately. The ceiling of Rs.7, 500/- per month per member shall be applied separately for each residential apartment owned by him.
The exemption from GST on maintenance charges charged by a RWA from residents is available only if such charges do not exceed Rs.7, 500/- per month per member. In case the charges exceed Rs.7, 500/- per month per member, the entire amount is taxable.
Rule 27-Value of Supply When the Consideration is not Wholly in Money
(a) Open market value of such supply;
(b) Sum total of consideration equal to money (if such amount is known at the time of supply), provided (a) not applicable;
(c) Value of supply of like kind and quality, if (a) and (b) not applicable.
(d) Based on cost as per rule 30, if not, as per residual method as per rule 31, in that order, provided (a) to (c) not applicable.
Notes:
(a) Open market value- Value in money (excluding IGST, CGST, SGST, UTGST and CESS) payable by a person in a transaction, where the supplier and the recipient are not related and price is the sole consideration.
(b) Sum total of consideration equal to money- The value of consideration which is in non-monetary terms shall be determined in monetary terms and that value shall be added to the value in monetary terms in determination of value of supply.
(c) Value of supply of like kind and quality- Factors facilitates to determine value of supply of like kind and quality are, Goods or services of same kind and quality, Identical or Similar nature, Similar circumstances etc.
(d) Value based on rule 30- Value shall be 110% of the cost of production or manufacture or the cost of acquisition of such goods or the cost of provision of such services. CAS-4 enumerates various costs to be included in determining the cost of production of goods. CAS-4 principles are also applicable for determining the cost of supply of service. Thus, cost of acquisition will include cost of transportation, any local taxes, insurance, other expenditure like commission, fee and so on paid on procurement of goods. However, GST element will not be considered for the purpose of determining the cost of acquisition.
(e) Value based on rule 31 (residual method)- This rule means to say that, where the value of supply of goods or services or both cannot be determined under rule 27 to rule 30 of the CGST Rules, 2017, efforts should be made by proper officer to determine the value by using his best judgment assessment.
Rule 28-Value of Supply Between Distinct/Related Persons other than through an Agent
(a) Open market value of such supply
(b) Value of supply of like kind and quality, if (a) is not applicable
(c) Value as determined by application of rule 30 or rule 31, in that order, if (a) and (b) is not applicable.
Provided that where the goods are intended for further supply as such by the recipient, the value shall, at the option of the supplier, be an amount equivalent to 90% of the price charged on the supply of goods of like kind and quality by the recipient to his customer not being a related person. Provided further that where the recipient is eligible for full input tax credit, the value declared in the invoice shall be deemed to be the open market value of goods or services.
Rule 29-Value of Supply of Goods made or received to/from an Agent
(a) be the open market value of the goods being supplied, or at the option of the supplier, be 90% 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, where the goods are intended for further supply by the said recipient;
(b) Where the value of a supply is not determinable under clause (a), the same shall be determined by application of Rule 30 or Rule 31 of Chapter IV of the CGST Rules 2017 in that order.
Rule 31A- Value of Supply in case of Lottery, Betting, Gambling, and Horse Racing
| SUPPLY | VALUE |
| Supply of lottery run by State Government (OR) authorized by State Government | Higher of (a) 100/128 of the face value of ticket (OR) (b) 100/128 of the price as notified in the official Gazette by the organizing State. |
| Supply of actionable claim in the form of chance to win in betting, gambling or horse racing in a race club | 100% of the face value of the bet or the amount paid into totalizator |
Rule 32(5)- Buying and Selling of Second-Hand Goods
Where a taxable supply is provided by a person dealing in buying and selling of second-hand goods i.e., used goods as such or after such minor processing which does not change the nature of the goods and where no input tax credit has been availed on the purchase of such goods, the value of supply shall be the difference between the selling price and the purchase price. Where the value of such supply is negative, tax will not be payable. If ITC is availed on purchase of such goods, sale value (i.e., transaction value) shall be the value of supply.
In case of sale of used/second hand goods repossessed from a defaulting borrower (who is not registered), for the purpose of recovery of a loan/debt, value of supply shall be the purchase price of such goods by the defaulting borrower reduced by 5% for every quarter or part thereof, between the date of purchase and the date of disposal by the person making such repossession.
In case of a registered second-hand goods dealer, value of supply is the sale value (i.e. transaction value). Here the dealer is eligible to claim input tax credit of the tax paid on purchase of the used goods.
Rule 32(6) – Redeemable Voucher/Coupons/Stamp (Other than Postage Stamp)
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 the money value of the goods or services or both redeemable against such token, voucher, coupon, or stamp. If a customer purchases goods of more value than the voucher and pays cash for the rest, value of supply of the voucher will be the value of voucher redeemed in that transaction.
Time of supply is as follows:
(i) If the supply is identifiable at that point, Time of supply is the “Date of issue of voucher”.
(ii) If the supply is not identifiable at that point, Time of supply is the “Date of redemption of voucher”.
Rule 32(7)-Value of Service provided by one Distinct Person to another Distinct Person
The value of services provided by one distinct person to another distinct person, for the furtherance of business is exempted.
Rule 33-Value of Supply of Services in case of Pure Agent
Pure Agent means a person who:
(a) Enters into a contractual agreement with the recipient of supply to act on their behalf and incur expenditure in the course of supply of goods or services;
(b) Neither intends to hold nor holds any title to the goods or services procured on behalf of the recipient of supply;
(c) Does not use the goods or services so procured, for his own interest; and
(d) Receives only the actual amount incurred to procure such goods or services.
The expenditure incurred by a supplier as a pure agent of the recipient shall be excluded as the value of supply, if all the following conditions are satisfied:
(i) The supplier acts as a pure agent of the recipient, when he makes the payment to the third party on authorization by such recipient;
(ii) The payment made by the pure agent on behalf of the recipient has been separately indicated in the invoice issued by the pure agent to the recipient; and
(iii) The supplies procured by the pure agent from the third party as a pure agent of the recipient are in addition to the services he supplies on his own account.
Airport levies under GST
Passenger Service Fee (PSF) or User Development Fee (UDF) levied by airport operator for services provided to passengers, are collected by the air lines as an agent and is not a consideration for any service provided by the airlines. Airlines may act as a pure agent for the supply of airport services in accordance with rule 33 of the CGST Rules, 2017.
The airport operators (like Mumbai International Airport Ltd., or Airport Authority of India or Delhi International Airport Ltd. etc.) shall pay GST on the PSF and UDF collected by them from the passengers through the airlines.
Collection charges paid by the airport operator to airlines are a consideration for the services provided by the airlines to the airport operator and airlines shall be liable to pay GST on the same under forward charge. ITC of the same will be available with the airport operator.
Rule 34-Rate of Exchange of Currency (other than INR) for determination of value
The rate of exchange for determination of value of taxable services shall be the applicable rate of exchange determined for the date of supply as per the notification by CBEC.
Rule 35-Value of Supply inclusive of Integrated tax, Central tax, State tax, and UT tax
Transaction value=Value inclusive of GST*100/ (100+GST rate)
Tax Amount=Value inclusive of GST/ (100+GST Rate) * GST Rate
GST Provisions for Real Estate Sector (from 1.4.2019)
| New Tax Rate from1.4.2019 | Eligible housing projects | Conditions |
| 1% | New affordable housing projects & Ongoing affordable housing projects opting for new rate | 1. No ITC available
2. 80% of inputs/input services should be procured from registered dealer. 3. Otherwise 18% (28% in case of cement) tax payable on RCM. |
| 5% | Ongoing or new housing projects other than affordable housing & Other projects having commercial carpet area up-to 15% of total carpet area |
Note:
Affordable housing scheme- Houses having area of 60 Sqm in metros/90 Sqm in non-metros and value up-to Rs.45 lakhs.
The supply of TDR (Transfer of Development Right), FSI (Floor Space Index), and Long-term lease of land by a land owner to a developer shall be exempted subject to the condition that the constructed flats are sold before issuance of completion certificate and tax is paid on them. Exemption of TDR, FSI, and long-term lease shall be withdrawn in case of flats sold after issue of completion certificate, but such withdrawal shall be limited to 1% of value in case of affordable houses and 5% of value in case of other than affordable houses.
The liability to pay tax on TDR, FSI, and long-term lease is on the builder under RCM. The date on which builder shall be liable to pay tax on TDR, FSI, long term lease of land under RCM in respect of flats sold after completion certificate is being shifted to date of issue of completion certificate. The liability of builder to pay tax on construction of houses given to land owner in a JDA (Joint Development Agreement) is also being shifted to the date of completion.
GST Rate on Construction Supplies
| Housing Projects | Affordable Housing | 1% without ITC/8% with ITC |
| Other housing projects | 5% without ITC/12% with ITC | |
| Other Projects | 12% with ITC |
Note:
(i) Tax is chargeable on consideration excluding the value of land.
(ii) Residential Real Estate Project” means a “Real Estate Project” in which the carpet area of the commercial apartments is not more than 15 percent of the total carpet area of all the apartments in the project.
(iii) Allotment of Flats to either the land owner or other customers after completion certificate is not supply of goods or services. Hence, GST does not arise.
(iv) Transfer of ownership/ sale of land by the land owner to developer is not a supply of goods or services. So, tax does not arise.
Part of SKO retained for producing LAB and rest returned to Refinery
GST will be payable by the refinery only on the net quantity of SKO (Superior Kerosene Oil) retained for manufacture of LAB (Linear Alkyl Benzene) and the refinery will be liable to pay GST on the returned quantity of SKO when the same is supplied by it to any other person.
Inter-state movement of conveyance, carrying goods/passengers or for repairs & maintenance
It is hereby clarified that the inter-state movement of goods like movement of various modes of conveyance may not be treated as supply and consequently IGST will not be payable on such supply. However, applicable CGST/SGST/IGST, as the case may be, shall be leviable on repairs and maintenance done for such conveyance.
Treatment of Inter-State Movement of Specified Goods
Inter-state movement of goods like rigs, tools, spares and goods on wheel like cranes, not being in the course of furtherance of supply of such goods, does not constitute a supply. This clarification gives major compliance relief to industry as there is frequent inter-state movement of such kind of goods during providing services to customers or for the purposes of getting such goods repaired or refurbished or for any self-use. Service provided using such goods would in any case attract applicable tax.
ITC on Inter-state supply of Aircraft engines, Parts & Accessories
It is being clarified that credit of GST paid on aircraft engines, parts & accessories will be available for discharging GST on inter-state supply of such aircraft engines, parts & accessories by way of inter-state stock transfers between distinct persons as specified in section 25 of the CGST Act.
Supply of Used Vehicles/Seized, Confiscated, Old or Used Goods/Waste & Scrap by Govt
Intra-State and inter-State supply of used vehicles, seized and confiscated goods, old and used goods, waste and scrap made by the Central Government, State Government, Union territory or a local authority is a taxable supply under GST. Such supply to any registered person would be subject to GST on reverse charge basis. And such supply to an unregistered person is also a taxable supply under GST but tax is payable by the government on forward charge basis.
Treatment of Sales Promotion Schemes
1. Free samples and gifts:
Since the consideration is an important element of the definition supply, therefore the samples which are supplied free of cost, without any consideration, do not qualify as “supply” under GST, except where the activity falls within the ambit of Schedule I of the said Act.
Further, clause (h) of sub-section (5) of section 17 of the said Act clarified that input tax credit shall not be available to the supplier on the inputs, input services and capital goods to the extent they are used in relation to the gifts or free samples. However, where the activity of distribution of gifts or free samples falls within the scope of “supply” as per Schedule I of the said Act, the supplier would be eligible to avail of the ITC.
2. Buy one get one free offer:
It may appear at first glance that in case of offers like “Buy One, Get One Free”, one item is being “supplied free of cost” without any consideration. In fact, it is not an individual supply of free goods but a case of two or more individual supplies where a single price is being charged for the entire supply. Taxability of such supply will be dependent upon as to whether the supply is a composite supply or a mixed supply and the rate of tax shall be determined as per section 8 of the said Act. And, ITC shall be available to the supplier in relation to such supply.
3. Discounts including ‘Buy more, save more’ offers:
Discounts offered by the suppliers to customers including staggered discount under „Buy more, save more scheme and post supply/volume discounts established before or at the time of supply shall be excluded to determine the value of supply provided they satisfy the parameters laid down in sub-section (3) of section 15 of the said Act, including the reversal of ITC by the recipient of the supply as is attributable to the discount. Further, the supplier shall be entitled to avail the ITC for such inputs, input services and capital goods used in relation to the supply.
4. Secondary Discounts:
Value of supply shall not include any discount by way of issuance of credit note(s), except in cases where the provisions contained in clause (b) of sub-section (3) of section 15 of the said Act are satisfied. There is no impact on availability or otherwise of lTC in the hands of supplier.
Follow the Link to access the material of CBIC on “Value of Supply”-https://old.cbic.gov.in/resources//htdocs-cbec/gst/Valution_in_GST_new.pdf
You may also Like to Read the Article “Scope of Supply Under GST”–https://anptaxcorp.com/scope-of-supply-under-gst/
Composite Supply & Mixed Supply Under GST Act 2017: A Clear Comprehension