Value of Supply

Unit 2: Levy & Collection of GST

Background
• When tax is determined as a percentage of value (expressed in
monetary terms), it is called as ad-valorem basis.
• GST is payable on ad-valorem basis.
• GST shall be levied on the basis of taxable supply of goods, services
determined u/s 15.
VALUE OF SUPPLY
Section 15(1) : Value of Taxable
Supply
The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or
payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not
related and the price is the sole consideration for the supply.
VALUE OF SUPPLY = Transaction Value + Certain Elements (u/s 15(2))
• Transaction Value: Includes any amount which the supplier is liable to pay but which has been incurred by the
recipient of the supply.
• Related Persons:
(i) Officers or directors of one another’s business
(ii) legally recognised partners in business
(iii) employer & employee
(iv) owns, controls or holds 25% or more of the outstanding voting stock or shares
(v) one of them directly or indirectly controls the other
(vi) both are directly or indirectly controlled by the third person
(vii) together they directly or indirectly control a third person
(viii) Members of the same family
Section 15(2): Inclusions in
Transaction Value
The taxable value includes certain elements in addition to price actually paid or payable for
the supply, these ingredients are:
• (i) Any taxes, duties, cesses, fees & charges except GST
• (ii) Any payments made to third parties by the recipients on behalf of the supplier in relaation to
the supply
• (iii) The incidental expenses, such as commission and packing, charged by the supplier or
anything else done by the supplier in relation to the supply at the time of or before the delivery of
goods or supply of services
• (iv) Interest, late fee and penalty for delayed payment of any consideration for any supply
• (v) Any subsidy directly linked to the price excluding subsidies provoded by the government
(Central/State)
Section 15(2): Exclusion of Discount from Transaction Value

The value of the supply shall not include any discount which is given:
(a) BEFORE OR AT THE TIME OF SUPPLY, if such discount has been duly recorded in the invoice
issued in respect of such supply; and
(b) AFTER THE SUPPLY HAS BEEN AFFECTED, if:
(a) Such discount is established in terms of an agreement entered into at or before the
time of such supply and specifically linked to relevant invoices; and
(b) Input Tax Credit as is attributable to the discount on the basis of the document issued
by the supplier has been reversed by the recipient of the supply
QUESTION
Section 15(4): Where Section 15(1) is
not applicable
• Valuation Principles in CGST Rules, 2017
 Rule 27
• Applicable in the following cases:
1. Barter transaction
2. Exchange transaction
3. Permanent transfer or disposal of business assets where input tax credit has been availed on such
assets
METHODOLOGY OF VALUATION:
The following methods are laid down under Rule 27:
(a) The open market value of such supply;
(b) If open market value of the supply is not known, the consideration in money plus the money
equivalent of the non-money consideration, if such amount is known at the time of supply;
(c) If the value cannot be determined under the previous two clauses, the value of supply of goods
and/or services of like kind and quality;
(d) Finally, if the value is not ascertainable by using above methods, then:
FIRST Rule 30 is to be applied (Cost based valuation)*
THEN Rule 31 (Best Judgment method) is used, if rule 30 is not feasible.
Rule 28
• The rule 28 is applicable in the following cases:
(1) When the supply is between distinct persons or
(2) Where the supplier and recipient are related
Note: These cases do not cover supplies made through an agent.

Rule 28 prescribes that in the above cases, the value of the supply shall
be the open market value of such supply.
However, if the open market value is not available, then the value of
“like kind and quality” shall be used.
If this method fails, then the value is determined by the application of
rule 30 or rule 31 in that order.
Further Supply by the Recipient
• i) The first proviso to rule 28 provides 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 for the supply of
goods of like kind and quality by the recipient to his customer not being a related
person.
• ii) The second proviso to this rule provides 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 the goods or services.
QUESTION
 Rule 29
• When the supply is made or received through an agent, RULE 29 is applicable.
Note: This Rule cannot be applied in case of services.
CASE 1: Where open market value is available: The value of supply of goods
between the principal and his agent shall be any one of the following:
a) The open market value of goods being supplied.
OR
b) 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.
CASE 2: Where Open market value is NOT available: The value determined
by applying Rule 30 or 31 in that order.
Rule 30
• Where the value of a supply of goods or services or both is not
determinable by any of the preceding rules of this Chapter, the 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.

EXAMPLE: Suppose X and Y are related parties and X sold goods to Y. The market value of ‘Like
and Kind Goods’ is not available. The cost of production to X was ₹2,50,000 as per Cost Accounting
Standard 4. In this case, rule 30 will be applicable and the value of supply will be 110% of cost of
production ₹2,75,000 (₹2,50,000 plus 10%)
Rule 31
Residual Method for Determination of Value of Supply of Goods or
Services or Both [Rule 31]
• Where the value of supply of goods or services or both cannot be
determined under rules 27 to 30, the same shall be determined using
reasonable means consistent with the principles and the general
provisions of section 15 and the provisions of Chapter IV of CGST
Rules, 2017.
• The first proviso provides that in the case of the supply of services, the
supplier may opt for this rule 31 directly, ignoring rule 30.
Rule 31A: Value of supply in case of lottery,
betting, gambling and horse racing
1. Case of lottery: Higher of the following amounts to be deemed as
the value of supply of lottery:
a) 100/128 of the face value of the ticket
b) 100/128 of the price as notified in the Official Gazette by the
Organising State
2. Case of betting, gambling & horse racing: 100% of the face value of
the bet or the amount paid into the totalisator.
(Totalisator is a computer device that pools the wagers/ bets (after deduction of charges & statutory
taxes) of various persons placing the bet & also divides the total wager amount to be distributed to
the winning persons.)
SECTION 15(5): Value of Notified
Supplies
Rule 32(2): Services in relation to purchase or
sale of foreign currency, including money changing

There are TWO OPTIONS given under Rule 32(2):

OPTION 1:
On the basis of RBI Reference Rate (Clause (a) of Rule 32(2))

OPTION 2:
On the basis of Gross amount of currency exchanged (Clause (b) of Rule 32(2))
Option 1: RBI Reference Rate
(A) For a currency, when exchanged from, or to, Indian Rupees (INR)
Value of supply = (Difference between RBI Reference Rate & Actual
Rate) * Total Units
Option 1: RBI Reference Rate
(B) Where the RBI reference rate for a currency is not available
Value of supply = 1% of Indian rupees provided or received
(C) Where neither of the currencies exchanged is Indian rupee
Value of supply:
OPTION 2: On the basis of Gross amount of
currency exchanged (Clause (b) of Rule 32(2))
• At the option of supplier of services, the value in relation to supply of
foreign currency, including money changing, shall be deemed to be
the following:
Question
Rule 32(3): The value of the supply of services in
relation to booking of tickets for travel by air provided by
an air travel agent
THANK YOU!
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