Value of Supply

Requesting visitors to kindly watch this video for a quick understanding about Value of Supply.

What is Value of Supply? [Section 15 of the CGST Act, 2017]

GST can be applied and collected only when the amount of is known. We all know there are many expenses when it comes to making goods or providing services. Moreover, the supplier also acquires his margin (profit) on every supply. When all this is added, we get the final amount which such goods / services can be sold. This is called value of supply. In short, it is the amount that a seller would collect for the goods and services supplied by him which is the taxable value i.e. price on which tax is payable by the buyer.

Let us understand Value of Supply in detail

While computing value of supply, there are certain inclusions and exclusions. Inclusions are those elements which are included in the value of supply whereas exclusions are the elements which are agreed to be deducted while computing the value of supply. 

I. Transaction Value [Section 15 (1)]

An amount paid or payable for a transaction is called transaction value. This is amount which is charged by the seller which excludes GST. This means, the amount of GST depends on the transaction value. This concept is applicable only when the supplier and the receiver are not related persons. 

II. Compulsory Inclusions [Section 15 (2)]

While computing the value of supply, the following elements must be considered:

• Any taxes, fees, charges levied under any law other than GST law. [S 15(2)(a)]

• Any amount that the supplier is liable to pay which has been incurred by the recipient and is not included in the price. [S 15(2)(b)]

• Incidental expenses like commission, inspection, packing and freight incurred by the supplier. [S 15(2)(c)]

• Interest or late fees or penalty for delayed payment. [S 15 (2) (d)]

• Direct subsidies (except government subsidies) are required to be added to the price (if not already added) to arrive at the taxable value. [S 15 (2) (e)]

III. Exclusions [Section 15 (3)]

• Discounts like trade discount, quantity discount etc. are part of the normal trade and commerce. Therefore, pre-supply discounts i.e. discounts recorded in the invoice have been allowed to be excluded while determining the taxable value. 

• Discounts provided after the supply can also be excluded while determining the taxable value, provided two conditions are met, namely - (a) discount is established in terms of a pre supply agreement between the supplier & the recipient and such discount is linked to relevant invoices and (b) excess input tax credit availed by the receiver due to the discount is reversed.

When value cannot be determined as per the provisions [Chapter IV of CGST Rules]

I. Value of taxable supply where the consideration is not wholly in money (Rule 27)

• Open market value

• If the open market value is not available, then the sum total of consideration in money and any further amount in money as is equivalent to the consideration not in money.

• If the value of supply is not determinable as per above points then, the value of supply of goods or services of similar kind and quality.

• If the value of supply is not determinable as per above points then the value of supply of goods or services will be calculated as per rules 30, that means the consideration in money plus money equivalent of the non money consideration plus 10% mark up or

• As per rule 31 other reasonable methods.

II. Value of taxable supply where supply between distinct or related persons other than agent ( Rule 28)

• Open market value.

• If the open market value is not available then the value of supply of goods or services of similar kind and quality.

• If the value of supply is not determinable as per above points then the value of supply of goods or services will be calculated as per rules 30 or 31.

However if the goods are as such supplied by the recipient then the supplier has an option to take 90% of the price charged by the recipient from his unrelated customers as value of goods.

III. Value of taxable supply where supply made through an agent (Rule 29)

• Open market value of goods.

• Or supplier has an option to take 90% of the price charged for the supply of goods of similar kind and quality by the recipient from his unrelated customers as value of goods.

• If the value of supply is not determinable as per above points then the value of supply of goods or services will be calculated as per rules 30 or 31.

IV. Value of supply as per (Rule 30)

• Cost of production

• Cost of acquisition

• Cost of provision of such service

However service provider has an option to take rule 31 by passing rule 30.

V. Value of supply as per (Rule 31)

• Reasonable means with the principles and general provisions of section 15 and the provisions of the chapters.