GST Valuation Rules Explained

WELCOME WELCOME to the Session on to the Session on VALUATION IN GST VALUATION IN GST 04 04th th December 2021 December 2021 Presentation by Presentation by . K. Sinha Sinha , , [M.Sc., LL.M.(M.U.)] Lawyer and Consultant Lawyer and Consultant Mr. A Mr. A. K.

VALUE OF SUPPLY Section -15 of CGST Act, 2017 Rule- 27 to 35 of CGST Rules, 2017 [Ch IV]

VALUATION of Taxable Supply S.15 (for goods & services both) S.15(1) : GST payable on Transaction Value , which is price actually paid/payable, where supplier and the recipient are not related; and the price is the Sole Consideration Otherwise- As per Rules 27 to 35 [CGST Rules 2017, Ch-IV ] Valuation Rules Resorted to when- i. Flow of non-monetary extra consideration ii. Parties are related (price influenced) iii. Doubtful transaction value iv. Business transaction by specific suppliers. [Non- monetary; RD;PA; Lottery/betting; MLAVUP]

TV Includes- Taxes other than GST T E L I S D Expenditure by recipient Late fee/interest Incidental expenses Subsidies (non-Govt) Discounts allowed after supply

Inclusions- [S.15(2)] (a) duty/tax/cess/fee charged under other laws [BCD on import; C.Ex. Duty on manufactured tobacco; property tax charge on rent bill; local body entertainment tax on cinema ticket] (b) Suppliers liability incurred by recipient, and not included in the price. [freight paid by recipient in FOR contract; selling commission paid by recipient (not buying commission paid on his own account. But does not cover free inputs/services supplied by recipient, which is not the liability of supplier)] [As per second proviso to R-37(1) inserted wef 13.6.18, such amt will be deemed to have been paid to supplier, so that recipient need not reverse proportionate credit u/s16(2)] (c) Incidental expenses incurred before supply- (including packing, commission) and any amt charged for anything done by the supplier in relation to the supply charged/paid at/before supply. [packing, commission, testing, installation, design charges, fumigation charges if billed to the recipient] Note- Outward freight charged is part of value, and same rate as on goods will apply as the FOR contract is a composite contract. Showing / charging it separately at 5% in the invoice is not correct as the supplier is not a GTA.

Inclusions- [S.15(2)] (d) Late fee/interest/penalty for delayed payment of consideration. [goods valued 1 lakh sold on one-month credit, failing which 18% annual i.e 1.5% monthly interest. Payment received after two months. Taxable value will be 1 lakh + 1500/-. However will not be added if it is waived by supplier]. Note- one view is that normal interest should not be exigible to GST as it is within agreed terms and is also an exempted supply. Delayed refer to delay beyond agreed terms; and the meaning of interest should be gathered from its associate words. (d) Non-govt i.e. private subsidy directly linked to price (includible in the value of subsidy receiver). [(1)Geometry box of Rs 75 sold at Rs 25 to Govt-School- students. Rest Rs 50/- given by a company from its CSR fund as subsidy. GST payable on Rs 75/-. The same subsidy, if given by Govt, GST will be paid on Rs 25 only. (2) Lion s club gives subsidy to Pvt Management College for poor students reducing their fee from 4 lakh to 1 lakh. Taxable value is 4 lakh.] Ponny Sugar (Erode) Ltd v. DCTO (2005 SC) held that transport charges (subsidy) incurred by sugar mill owner for bringing sugar cane to mill are includible in taxable turnover. Neyveli Lignite V. CTO (2001 SC) followed in EID Parry Vs ACCT (2002 SC) held that subsidy received from GOI under Fertilizer (Control) Order is not part of taxable turnover, and is de hors the contract of sale with buyer. Note- Govt subsidy is not a consideration as per S.2(31).

Exclusions [S.15(3)] (a) Invoice recorded Pre/at supply discounts. [Company gives to distributor 40% discount on list price. GST payable only on 60% value.] (b) Invoice linked post-supply discounts established by contract before/at supply [if proportionate credit attributable to the discount is reversed by recipient]. [Orient Fan Ltd is selling fans (MRP 10000/-) exclusively through its distributors across India. It sells the fans to the distributor at Rs 7000/- per fan. The company dispatches stock to its distributors for every quarter. The company has a declared policy to offer a discount of 10% per fan in a particular quarter, if in the preceding quarter the distributor sells more than 500 fans. The company appoints a Distributor on 1st April and dispatches 750 fans on 8th April for the quarter-1 (April to June) at Rs 7000/- per fan. The distributor places purchase order for 1000 fans for next quarter-2 (July to Sept), which is dispatched by the Orient company on 10th June (i.e. 20 days ahead of the quarter-1 end) at Rs.7000/- per fan. By 30th June (end of quarter-1) the distributor succeeds to sell 550 fans, and therefore, as per the company s declared policy, becomes entitled for 10 % discount on the stock (of 1000 fans at Rs 7000/- per fan) of next quarter, which is already supplied to him on 10th June. Thus taxable value = 1000 x (7000- 700) = Post-supply discount not known at the time of supply can not be reduced from value- [Apart from list price standard discount (which is reducible from value), the Shoe company gives incentive discount to dealers to push their unsold stock] UltraTech Cement Ltd (2018 AAR Mah) Post supply ad hoc discounts not eligible. Maya Appliances Pvt Ltd Vs ACCT (2018) SC All regular trade discounts allowed. They may be strategically not disclosable.

Reimbursements [Note- S.15(2)(b) says supplier s liability in relation to supply incurred by recipient is part of supplier s value] Reimbursements are of two types:- 1. Expenses necessary for making the supply. Thus, they are within the scope of contracted supply, and are thus liability of the supplier. Supplier s liability is supplier s value. Therefore, such reimbursements are part of VOS. Eg. Travel expenses by market survey service provider. OPE by professionals. [Note:- One can argue that I have to pay tax only on service provided by me, and not by others. Here travel / transport service is provided by others] 2. Expenses which are outside the scope of supply contracted. Since they are not within the scope of supply contract, they are not the supplier s liability. Such exporters if made by supplier and then reimbursed by recipient are not part of VOS. Eg. Port charges incurred by CHA. Air ticket charges incurred by travel agency. Advertisement fee incurred by advertising agency.

Types of Discounts: 1. Special discount or rebate:- It is contingent upon the future purchase. Not allowed if not established according to any agreement. 2. Bonus discount:- To those who purchase more than the stipulated number. Not decided a the time of supply, rather negotiated subsequently. 3. Incentive / commission:- generally accounted for in the financials as discount. Will not be considered in GST as discount, as it is given in the form of incentive without reducing the sale price. 4. Remission:- The reduction allowed from the sale price to the purchaser, to compensate him for the general fall in prices. It will not be a discount being post supply and not being part of any agreement. 5. Compensation:- In the form of rate difference or trade discount. E.g. a dealer has to sell 500 tyres to final customer at Rs 900/- against the original purchase price of Rs. 1000. The difference of Rs. 100/- is to be compensated to the dealer by the manufacturer.

Circular 112 dt 3.10.19 [Circular 92/19 dt 7.3.19 (which clarified free sample/gift; buy one get one free; buy more save more & Secondary discount) was modified by 105/24/2019 dt 28.6.19; and 105/24/2019 was withdrawn by this Cir 112/2019]. The withdrawn Circular 105/19 had clarified treatment of secondary or post-sales discounts as under: Clarification on treatment of secondary or post-sales discounts under GST 1. It is clarified that if the post-sale discount is given by the supplier of goods to the dealer without any further obligation or action required at the dealer s end, then the post sales discount given by the said supplier will be related to the original supply of goods and it would not be included in the value of supply. 2. if the additional discount given by the supplier of goods to the dealer is the post-sale incentive requiring the dealer to do some act like undertaking special sales drive, advertisement campaign, exhibition etc., then such transaction would be a separate transaction and the additional discount will be the consideration for undertaking such activity and the dealer being supplier of services, would be required to charge applicable GST on the value of such additional discount and the supplier of goods, being recipient of services, will be eligible to claim input tax credit of the GST so charged by the dealer. 3. If the additional discount is given by the supplier of goods to the dealer to offer a special reduced price by the dealer to the customer to augment the sales volume, then such additional discount would represent the consideration flowing from the supplier of goods to the dealer for the supply made by dealer to the customer and this additional discount as consideration, payable by any person (supplier of goods in this case) would be liable to be added to the consideration payable by the customer, for the purpose of arriving value of supply, in the hands of the dealer. The customer, if registered, would be eligible to claim ITC of the tax charged by the dealer only to the extent of the tax paid by the said customer to the dealer.

Circular 92/19 dt 7.3.19 (which clarified free sample/gift; buy one get one free; buy more save more & Secondary discount):- [A] Free sample / gift:- No supply if outside Sch-I. No GST, but reverse ITC due to blocked u/s.17(5)(h). However, it is supply if within Sch-I. Then pay GST & don t reverse ITC. [B] Free quantity along with taxable supplies:- actually not free but the cost included. They are multiple supplies for a single price. GST Rate will be as per mixed / composite nature. Car with insurance is composite; car with cooler is mixed; but car with villa or flat with registration ? [C] Staggered discount (Quantity / volume / lifting discount) :- allowed only if established before / at supply. [D] Secondary discounts:- Non allowed as not pre-known.

Circular 102/21/19 dt 28.6.19 [Penal interest on EMI default] Additional / penal interest levied on the overdue loan / advances would not be liable to GST in terms of Sl. No. 27 of n/n 12/2017. It does not fall within 5(e) of Sch II It is additional value of the original supply i.e. extending deposit, loans or advances the consideration of which is in the form of interest, and so, exempted (other than interest involved in credit card services) Only penal interest recovered in terms of supply of taxable goods or services would be liable to GST in terms of Section 15 of CGST Act. Refers 2(zk) of n/n 12/17 CTR dt 28.6.17 (sr 27) Circular 88/07/19 dt 01.02.19 [Job worker not to include value of moulds etc] Job worker will pay GST on job charges if he is liable to be registered. Value of moulds, dies, jigs etc provided by Principal may not be included in the value of job work services provided its value has been factored in the price for the supply of such services by the job worker. Circular 88/07/19 dt 01.02.19 [FOC supply by OEM to Component manufacturer] Value of moulds / dies provided by the OEM to the component manufacturer on FOC basis shall not be added to the value of supply made by component manufacturer. [S.15(2)(b)]. However, if as per the contract the moulds / dies were the liability of the component manufacturer then amortized cost of moulds / dies will be added to the VOS i.e. job-charges.

Circular 73/47/2018-GST dt 5.11.2018 (para 2) DCA gives two services (i) agency service to sellers of goods and/or recipient & (ii) loan service to buyer. If DCA is not a Sch-I/para3 agent (i.e. he is mere commission agent), then loan service given by him to buyer is an independent supply. Accordingly, the value of such loan service i.e. the interest being charged by DCA on loan will not be added to the seller s value of goods. Further, as per n/n 12/2017 CTR loan service is exempted. However, where DCA is a sch-I/para3 agent (i.e. consignment agent like, who issues invoice in his own name but on behalf of the principal) then following activities take place: 1) Supply of goods by seller to DCA 2) Further supply of goods by DCA to buyer 3) Supply of agency service by DCA to seller and / or buyer 4) Loan service by DCA to buyer. Then the loan service does not constitute an independent supply, and is subsumed in the supply of goods by the DCA to the buyer. In such cases interest charged on such short term transaction based loan / credit will be added to the value of goods supplied by DCA to the buyer / recipient as per S.15(2)(d)

Circular 72/46/2018-GST dt 26.10.2018 [Return of time-expired goods by RD, URD, composition payer] Return of time-expired goods to be treated as fresh supply. If person returning is registered person (other than composition payer) may at his option return the goods by treating it as fresh supply by issuing one invoice showing the same value and GST on which he had initially received the goods. There wholesaler / manufacturer will take credit on such returned supply. If the person returning is a composition payer, he will return on bill of supply, and will pay GST at composition rate. No ITC will be available to recipient of returned goods. If the person returning is unregistered, he will return on any commercial document without charging any tax. Return by Credit note:- Wholesaler / retailer will return expired goods on a delivery challan, and the manufacturer / wholesaler may issue S.34(1) credit note. He may also claim liability reduction by uploading this credit note provided it is not time barred (i.e. beyond next FY s 20th October) and the person returning has either not availed any ITC, or if availed, has reversed it. After receiving the returned goods if the manufacturer destroys it, then he will reverse the ITC attributable to the manufacture of such goods.

S.15- defines and prescribes Transaction Value. Specifies inclusions and exclusions thereof [TELISD] . Refers to Valuation Rules 27 to 35 in deserving cases; also enables to notify valuation method. (eg. 2/3rd presumptive value for builders) R-27- when consideration is not wholly in money [OKLD] R-28- Supply between related (expln to S.15) or Distinct (S.25) persons. [OLD] [If to be further supplied as such, then option of 90% of recipient s sale price of like goods. If full ITC available to recipient, then value declared on invoice is deemed to be omv] GKB Lens (P) Ltd AAR WB 30.5.18:- Applicant who is reseller and importer of Sunglasses, frames, lenses etc sending from his west Bengal head office to his branches across India can chose 2nd proviso over the 1st, and can thus value the suppies on the costprice instead of 90% of MRP. 2nd proviso applies on both situations i.e. when further removed as such and when full ITC on invoice is available to the recipient. Circular 47/21/2018-GST dt 8.6.18:- Moulds / dies sent by OEM (original equipment manufacturer) to job worker free of cost does not constitute a supply as they are not distinct or related persons. The OEM need not reverse the ITC on it. Also, the job worker will not include cost of mould / dies in the value of components manufactured as it is not his cost. However, if as per the contract, job worker was required to make the components using his own dies and then the OEM supplies such moulds free of cost, then the OEM will reverse the ITC as the clearance of moulds by him will not be in the course of furtherance of his business. Also the job worker will include amortized cost of the moulds n the value of the equipments manufactured by him for the OEM.

R-29- Supply between Principal & Agent. [O/D] [ie either omv or agents intended selling price] R-30, 31- Cost Construction (110% COP) & Best Judgment (consistent with principles & provisions of s.15 and the valuation rules) methods of determining Transaction Value. [for services, computed method can be ignored] R-31A- Lottery [100/112 or 100/128 of FV of ticket, or its notified price, whichever higher, for State run and State authorized lottery respectively. However now wef 1.3.20, rate on all lottery is 28% u/RCM (u/any chapter) and so Value=100/128 of FV or its notified price, whichever higher. Lottery service falls under 999694, but considered as goods in GST. No provision in GST for unsold lottery tickets.], Betting, Gambling, Horse racing [100% bet value or amt paid into the totalisator] R-32, 33- Special manner of valuation for specific cases (at supplier s option). [MLAVUP- Money changer(2); Life insurance(4); Air-travel agent(3); Voucher(6); Used goods(5); Pure agent(R-33)] R-34- Exchange rate in FC transactions. [CBEC notified u/Cus Act] R-35- Tax amt when value is cum-duty-price [tax% / (100+tax%) X cum-duty price] Note- the rule applies only if the value does include GST; it does not say that value is deemed to be inclusive of GST. Thus, in case of RCM the amt charged by supplier cannot be taken as inclusive of GST. The applicability of the contrary view in Maruti Udyog 2002 ruling and the pursuant Circular 803/36/2004-CX dt 27.12.2004 in GST regime needs to be examined.

Example for Rule 27:- [taken from the book authored by Dr Bangar] Mr S supplied goods X to Mr. R for consideration of Rs. 5,00,000 (excluding taxes). Mr R also gave some material to Mr. S as consideration for such supply whose value was Rs 20,000/- (excluding taxes). Mr. S has supplied the same goods to another person at price of Rs 5,71,200/- (including GST @ 12%. (a)Determine the value of supply. (b) what if price of Rs 5,71,200/- is not available (c) what if OMV is also not available, but at the time of supply of goods by Mr S, identical goods have been supplied at value of Rs 5,25,000/- (excluding taxes). Ans:- (a) 1st option is OMV (i.e. another arm s length transaction of Mr. S) will be value of supply. i.e. 5,71,200 X 12/112 = 5,10,000. (b) If OMV not available, 2nd option is known money equivalent . Thus, 5,00,000 + 20,000/- is value of supply. (c) In case money value of extra-consideration also is not available, then 3rd option is like of comparable supply i.e. arm s length transaction of some other person. Thus, 5,25,000/- is the value of supply.

Example for Rule 29:- [taken from the book authored by Dr Bangar] Value of supply in case of supply through agents:- Home Appliances Ltd (Faridabad) has 15 agents across the State of Haryana (except Faridabad). The stock of vacuum cleaners is dispatched on Just-In-Time basis from Home Appliances ltd. to the locations of the agents, based on receipt of orders from various dealers, on a fortnightly basis. Home Appliances Ltd is also engaged in the wholesale supply of vacuum cleaners in Faridabad. An agent places an order for dispatch of 20 vacuum cleaners on 10.12.17. Home Appliances Ltd. had sold 20 vaccum cleaners to a retailer in Faridabad on 8.12.2017 for Rs. 1,30,000. The agent effects the sale of the 20 units to a dealer who would effect the sales on MRP basis (i.e., @Rs 7000/unit). Ans. Either the open market value, or 90% of the price charged by the recipient of the intended supply to its customers, at the option of the supplier. Thus, the value of the supply by the Home Appliances Ltd to its agent would be either Rs1,30,000 or Rs1,26,000 (i.e. 90% x 7000 x 20), based on the option chosen by Home Appliances Ltd.

Open Market Value means the full money value (excluding GST/CC) to obtain such supply at the same time in arm s length transaction. This is the arm s length price. It is not comparable price ie price in another comparable supply at a close proximity in time. This provision does not provide the manner of adjustments to be made to overcome the effect of those disqualifying circumstances present but simply states that OMV shall be the value of supply. [as per Explanation (a) to Rule 35] [i.e. Full money value (-) GST for proximate arm s length supply] supply of G/S of like kind and quality means any other G/S supply under similar circumstances (i/r/o the characteristics, quantity, quality, functional components, materials, and reputation of the G/S is the same or closely / substantially resembling).

Warranty replacement of parts:- involves Free supply of goods (parts) by company (OEM) to end customer, though through the dealer. Here, though the dealer delivers the goods to customer, but actually he supplies service to the company. Accordingly, no GST on such free replacement (as it is FOC supply to non-related person. Moreover, cost of replaced part is already included in original supply of machine or so) & GST on service value charged by the dealer to the company. [also, FAQ dt 19.8.17:- No ITC reversal for warranty replacements. Physician samples given by company to doctors through sales representatives:- involves two supplies one by doctor to patient (which is exempt); and another by company to doctor which is FOC supply to non-related person, and hence no GST (however ITC reversible). [even if it is established that there is additional consideration flowing from doctor to the company ?]

Rules 27 Additional consideration >OMV, >Money + known money equivalent; >like supply, >Money + determined money equivalent (by R-30/31). [OKLD] 28 Between non-agent R - D >OMV (inv value is deemed omv if full credit admissible); 90% of recipient s arm length selling price (if further sale as such); >like supply, >Money + determined money equivalent (by R-30/31). [I90LD] 29 Between P A >OMV or 90% of the agent s arm length sale price of like goods; >Determined value by R-30/31 ie. Computed/Residuary [I/90LD] 30 Computed method 110% of COP/COM/COA 31 Residuary method >Using reasonable means consistent with accounting principles and GST valuation provisions. >service supplier may choose residuary skipping the computed method 32, 33 Overriding provision for - [MLAVUP] - money changer; Life insurance; Air travel agent; voucher; used goods; pure agent.

Rules (i) OPTION 1- Margin option sale/purchase of Foreign currency including money changing (a)FC INR ie Rupee conversion >[Difference of bying/selling rate & RBI reference rate] X number of units exchanged. >If RBI reference rate not available, then 1% of gross INR value of transaction Rule-32(2) (b) FC FC, ie Non-rupee conversion >1% of lesser of rupee equivalents of FCs OPTION-2- fixed amount option >INR 250 or 1% of gross currency exchanged utpo INR 1 lakh >INR 1000 + 0.5% of gross currency exchanged upto Rs 10 lakh after that. >INR 60,000 or (INT 5500 + 0.1% of gross currency exchanged aftere10 lakh) lower of the two.

5% of Basic Fare (Domestic) 10% of Basic Fare (International) (ii) Air travel agent Gross premium charged from a policy holder (-) Amt allocated for investment / savings on his behalf, if intimated to him at the time of supply of service. (iii) Life insurance Rule 32(4) 10% of Single premium charged from the policy holder (for single premium annuity policies other than above) In all other cases:- (25% of premium charged in Year 1) + (12.5% of premium charged in subsequent years)

[selling price purchase price] ie margin scheme Negative difference will be ignored. (iv) Used goods Rule 32(5) Full supply value, if purchased from RD and credit availed. Purchase value when goods Repossessed for Debt-recovery from defaulting borrower If the defaulting borrower is URD- then purchase value will be [Purchase price in the hands of such borrower (-) depreciation from the date of purchase and the date of disposal by the person making such repossession]

(v) Voucher, coupon etc. Rule 32(6) [money value of G/S redeemable against such voucher etc ] 33 Pure agent Rule 33 Cost / expenditure made by supplier as pure agent of recipient will be excluded from the value of supply Conditions for qualifying as pure agent- Contractual arrangement to act as pure agent Not holding/ intending to hold any titile to G/S procured as pure agent. Recovers only actual amount incurred. Conditions for exclusion from supply value- Provider paid to third party on authorization Expenses are separately shown in invoice Supplies procured as pure agent are in addition to the supply of provider on his own account

34 Exchange of FC CBEC notified exchange rate for that currency at TOS. 35 Tax inclusive value Rule 35 Value determinable by back calculation. 2 Expalantions -OMV means full money value (excluding GST/Cess) in a transaction between non related parties with price as sole consideration. -Like supply means made under similar circumstances i/r/o characteristics, quality, quantity, functional components, materials and the reputation of the goods and/or services.

a. b. c. d. e. Pure agent Money changer Insurer Air travel agent Buyer / seller of second hand goods

Valuation Rules 27 to 35 Rule 27- Value of supply of G/S where consideration is not wholly in money- open market value. If not available, add money equivalent of the additional consideration. Rule 28- Value of G/S supply between related and distinct persons: Open market value If not available, take value of like kind and quality If not determinable by these, then computed method & Residuary method sequentially.

Rule 29- Value of supply of goods made or received through an agent- Open market value or, at the instance of supplier, 90% of value of like kind/quality that the agent charges to his customers. If not determinable, then resort to computed and residuary method. Rule 30- Value based on Cost (Computed method)- 110% of Cost of production/acquisition/service provision.

Rule 31- Residuary method (Best judgment method)- Using reasonable means consistent with principles and general provisions for valuation u/s 15, and Rules. Note- Service supplier may opt for best judgment method disregarding the computed method.

Rule 32- Valuation of certain Specific Supplies: 1. Sale / purchase of foreign currency including money changing- If conversion to / from INR [exchange rate RBI reference rate] X total units of currency] 1% of gross amount of Indian rupees provided or received by the money changer. If RBI reference rate not available, then Optional Composition Scheme:- Alternatively, changer may opt for the whole year as below:- Gross amt of currency exchanged Up to 1 lakh (minimum 250/-) 1 to 10 lakh Above 10 lakh Value of supply 1% Rs.1000 + 0.5% Rs. 5500 + 0.1%

Air ticket booking (Composition Scheme) 5% of basic fare (in case of domestic booking) 10% of basic fare (in case of international booking) Life Insurance Service supply (Composition Scheme) [Gross premium amt allocated for investment/savings] In case of single premium annuity policies > 10% of premium charged. In all other cases > 25% of premium charged If entire premium is only for risk cover > 100%

Buying / selling second hand goods : MARGIN SCHEME Margin Scheme [if resold as such + no ITC availed on purchase] i.e. [selling price purchase price] If this comes negative > will be ignored. Press release dt 15.7.17 says- margin scheme applies on all taxable persons dealing in second hand goods, including old and used empty bottles. Demerit of Margin Scheme- purchase price of second hand goods dealer gets revealed to his buyer, which he would never like to. No RCM on purchase of old goods from URD [Notfn 10/17 CTR 28.6.17 exempts it] Press release 78/2017 dt 13.7.17 expresses similar view for situation when an individual sales old jewellery to the registered jeweller. Tax rate reduced w.e.f. 25.1.18 for margin Scheme:- Notfn 8/18 CTR 25.1.18 & 1/17 CC dt 28.6.17 (amended on 25.1.18) as :- [if no ITC was availed] 18 % IGST + no cess on used and old vehicles with specified capacity and size 12% IGST + no cess on used and old vehicles of other categories. Same rate applies where the old used vehicle was the part of business assets of the person. Then, the margin will be the consideration received for supply of old used vehicle and its depreciated value.

Voucher/coupon/token redeemable against G/S supply [money value of G/S redeemable against voucher etc ] Supplier as a Pure Agent of recipient- Cost / expenditure made by supplier as pure agent of recipient will be excluded from the value of supply. Eg. i. Outward transport charges paid on behalf of recipient. ii. Entry tax amount paid by C&F Agent, Customs Brokers or Transporter on behalf of owner of goods or Principal. iii. Customs duty, dock dues, demurrage, transport charges etc paid by Customs broker on behalf of client. iv. Special inspection arrangement as per specific requirement of recipient. v. Advertisement charges paid by advertising agency to newspaper on behalf of clients. vi. Ticket charges paid by Travel Agent to railways or airlines and recovered from his customer. Conditions are:- a) The supplier acts as a pure agent of the recipient of the supply, when he makes payment to the third party on authorization by such recipient. b) The payment made by supplier on behalf of recipient has been separately indicated in the invoice issued by the supplier to the recipient. c) The supplies procured by the pure agent from third party are in addition to the services supplied by him.

AAR (Maharashtra) in Zaver Shankarlal Bhanusali 2018 GST is applicable on the compensation for alternate accommodation to be paid to the tenant of the old building by the developer / owner in the event of delay in handing over possession of the new premises.

CBIC Circulars on Valuation

CBIC Circular 47/21/2018-GST dt 8.6.18- Free supplies made by Principal (OEM) to component manufacturere and amortized cost of patterns, tools, dies etc are not includible in value of components, unless it is the contractual liability of the component manufacturer. Also, ITC not to be reversed by OEM. New insertion second proviso to Rule 37(1) wef 13.6.18- amt of supplier s liability paid by the recipient on behalf of supplier will be deemed to have been paid to supplier, so that recipient need not reverse proportionate credit u/s16(2)] Circular 112/19 dt 3.10.19 withdrew Circular 105/19 dt 28.6.19 which clarified on post sale discounts and secondary discounts. Circular 92/11/2019-GST dt 7.3.19:- Promotional Items:- ITC of input / CG / services not available to the extent they are used in relation to the gifts or free samples distributed without consideration. However, where gifts / free samples fall within the scope of supply as per Sch I, the supplier would be eligible to avail ITC. FAQ dt 19.8.17:- No ITC reversal for warranty replacements. Circular no 102/21/2019-GST dated 28th June 2019 has released a clarification on the matter of penal interest, nullifying the ruling of AAR in case of Bajaj Finance Limited. . [drawn clear distinction between the implication of GST on interest including penal interest charged by a supplier of goods and services where the supplier has extended a credit facility to the buyer and the implication of GST on interest collected by a finance Company where the principal supply is supply of services of extending loan or deposit.

Circular 48/22/2018-GST dt 14.6.18 (1) Moulds / dies sent by OEM (original equipment manufacturer) to job worker free of cost does not constitute a supply, as they are not distinct or related persons. Also, cost of dies/moulds will also not be included in the job worker s supply value (job charges), as it is not his cost. However, if as per the contract, job worker was required to make the components using his own dies/moulds, and then if OEM supplies such moulds free of cost then it is service provider s liability incurred by the recipient (i.e. OEM); and accordingly, amortized value of mould will be included in job charges. Also, the Principal (i.e. OEM who sent free mould to JW) will reverse the credit taken on the mould, as the clearance of such mould by him (which was not his liability) will not be in the course or furtherance of his business. (2) Car servicing involving supply of goods:- case to case basis; on the particular facts. If value of goods and services supplied are shown separately on invoice, separate rates as goods and services will apply.

Penal Interest on EMI Default:- Circular no 102/21/2019- GST dt 28.6.2019 GST on additional / penal interest on delayed charges in case of late payment of EMI (Equated monthly instalment):- It does not fall within para 5(e) of Sch-II (i.e. it is not tolerating act / situation) It is additional value of the original supply i.e. extending deposit, lone or advances , the consideration of which is in the form of interest and so exempted under sr. number 27 of N/N 12/2017 CTR dt 28.6.2017 (other than interest involved in credit card service) The financial institution levying the interest and penal or additional interest would not be liable to tax, which is not the case when supplier of goods is charging the same.

Illustrations given in Circular no 102/21/2019-GST dt 28.6.2019 on penal interest:- CASE 1: AMC Mart sells refrigerator to the customer XYZ having price INR 40,000/-. Further AMC Mart provides an option to XYZ to pay the amount for refrigerator under an instalment of INR 10000/- monthly over a period of 5 months. Further if XYZ make default in payment of instalment of loan then in such case an additional amount of penal charges amounting to INR 500/- pm shall also be collected from XYZ. Further AMC Mart will raise a separate invoice for recovery of interest amount as embedded in monthly instalments as well as for the amount of penal interest. As per the provisions of sub-clause (d) of sub-section (2) of section 15 of the CGST Act, the amount of penal interest is to be included in the value of supply. The transaction between AMC Mart and XYZ is for supply of taxable goods i.e. Refrigerator. Accordingly, the original amount of interest as well as penal interest would be taxable as it would be included in the value of the Refrigerator, irrespective of the manner of invoicing. CASE 2: If in the above case refrigerator is being sold by AMC Mart and XYZ has the option to avail the loan from AZB financers. XYZ shall repay the amount of loan in 5 monthly instalments of INR 5000 each. Further an additional amount of INR 500 as penal interest will be recovered from XYZ in case there is default in payment of due instalments. The additional / penal interest is charged for a transaction between XYZ and M/s AZB financers and the same is getting covered under Sl. No. 27 of notification No. 12/2017-Central Tax (Rate) dated 28.06.2017. Accordingly, in this case the penalinterest charged thereon on a transaction between XYZ and M/s AZB financers would not be subject to GST, as the same would be covered under notification No. 12/2017-Central Tax (Rate) dated 28.06.2017. The value of supply of refrigerator by AMC Mart to XYZ would be INR. 40,000/- for the purpose of levy of GST. It is also important to note that if AZB financers also collects some charges or fee form XYZ then such charges or fee for extending loan or deposit shall not be considered as interest under as defined in notification No. 12/2017- Central Tax (Rate) dated 28.06.2017, and accordingly will not be exempt.

Dispute prone Practical aspects of valuation

Dispute prone Practical aspects of valuation Free distribution of bought out promotional items:- divergent views. Some treat it as free gift attracting blocked credit, while some say it is not free and its value is factored in the price of main product of the business. Penal interest- is additional value of original supply, and not separate service of tolerating act/situation. Reimbursement- expenses necessary for making the supply, and expenses outside the supply contracted. Discounts- Pre-supply discounts and pre-known post-supply discounts are excludible from VOS. Amortized cost FOC supplies Valuation of export goods- FOB or CIF? On the shipping bill, mandatorily, the FOB value of the goods is mentioned. However, as per GST law, IGST is required to be paid on the transaction value of the goods. Therefore, if a person (exporter) has agreed to deliver the goods to another party which includes all freight expenses also, then that becomes the transaction value. Moreover, even if the exporter can bifurcate the value of the goods and the freight portion or other ancillary expense like insurance, etc., on the invoice, still as per Section 15, all incidental expenses which are charged by the supplier from the buyer before the delivery of the goods are liable to be added in the transaction value. Thus, on this count also, the amount of freight or insurance is liable to be added in the transaction value. For ITC refund, lower of the FOB and CIF is taken.

Dispute prone Practical aspects of valuation EWB- Can officer do valuation? OMV of tolerance service OMV of land development- presumptive value of 1/3rd of gross amount charged. Valuation of employees canteen services:- Cost+ method? Hardware comes through customs; software comes directly. Proviso to S.5(1) IGST Vs intangible goods or composite supply Sale of used capital goods (business asset):- Valuation?:- As per Section 18(6) read with Rule 44(6), the registered person supplying credit-availed Capital goods / plant & machinery will pay an amount equal to residuary credit or tax on transaction value, whichever higher.

FOB Value Vs. CIF Value for paying GST on export There were different apprehensions among the traders with regard to under which law valuation for export of goods has to be done viz. whether under GST Act or under Customs Act. Understanding this, the CBIC issued a 15.03.2018 which clarifies that valuation has to be strictly followed under GST Act only. The relevant extracts of the circular are as follows. circular No.37/11/2018-GST dated 9. Discrepancy between values of GST invoice and shipping bill/bill of export: It has been brought to the notice of the Board that in certain cases, where the refund of unutilized input tax credit on account of export of goods is claimed and the value declared in the tax invoice is different from the export value declared in the corresponding shipping bill under the Customs Act, refund claims are not being processed. The matter has been examined and it is clarified that the zero rated supply of goods is effected under the provisions of the GST laws. An exporter, at the time of supply of goods declares that the goods are for export and the same is done under an invoice issued under rule 46 of the CGST Rules. The value recorded in the GST invoice should normally be the transaction value as determined under section 15 of the CGST Act read with the rules made thereunder. The same transaction value should normally be recorded in the corresponding shipping bill / bill of export. 9.1 During the processing of the refund claim, the value of the goods declared in the GST invoice and the value in the corresponding shipping bill / bill of export should be examined and the lower of the two values should be sanctioned as refund.

Margin Scheme in GST Normally GST is charged on the transaction value of the goods. However, in respect of second hand goods, a person dealing is such goods may be allowed to pay tax on the margin, i.e. the difference between the value at which the goods are supplied and the price at which the goods are purchased. If there is no margin, no GST is charged for such supply. The purpose of the scheme is to avoid double taxation as the goods, having once borne the incidence of tax, re-enter the supply and the economic supply chain. Valuation of Second Hand Goods As per Rule 32(5) of the CGST Rules, 2017, 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 and where the value of such supply is negative, it shall be ignored. The proviso to the above rule further provides that in case of the purchase value of goods repossessed from an unregistered defaulting borrower, for the purpose of recovery of a loan or debt shall be deemed to be the purchase price of such goods by the defaulting borrower reduced by five percentage points for every quarter or part thereof, between the date of purchase and the date of disposal by the person making such repossession. In this regard, Notification No. 10/2017-Central Tax (Rate) New Delhi, dated 28th June, 2017 exempts intra-State supplies of second hand goods received by a registered person, dealing in buying and selling of second hand goods and who pays the central tax on the value of outward supply of such second hand goods as determined under sub-rule (5) of rule 32 of the CGST Rules, 2017, from any unregistered supplier, from the whole of the central tax levied under the CGST Act, 2017. Similar exemptions are also there in respective SGST Acts. Illustration : For instance, a company say M/s. First Source Ltd, which deals in buying and selling of second hand cars, purchases a second hand Maruti Celerio Car of March, 2014 make (Original price Rs. 5 lakh) for Rs. 3 lakhs from an unregistered person and sells the same after minor furbishing in July, 2017 for Rs. 3,50,000/-. The supply of the car to the company for Rs. 3 lakh shall be exempted and the supply of the same by the company to its customer for Rs. 3.5 lakh shall be taxed and GST shall be levied. The value for GST purpose shall be Rs. 50000/-, i.e. the difference between the selling and the purchase price of the company. In case any other value is added byway of repair, refurbishing, reconditioning, etc., the same shall also be added to the value of goods and be part of the margin. If margin scheme is opted for a transaction of second hand goods, the person selling the car to the company shall not issue any taxable invoice and the company purchasing the car shall not claim any ITC.

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