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Value of Taxable Supply [ Section 15(1) to Section 15(5) ] - GST Ready Reckoner - GSTExtract Value of Taxable Supply Value of Supply Value of Supply Every fiscal statue makes provision for determination of value as tax is normally payable on ad-valorem basis. In GST also, tax is payable on ad-valorem basis i.e. percentage of value of the supply of goods or services. Section 15 of the CGST Act and Rule 27 to Rule 35 of CGST Rules, 2017 ( Chapter IV - Determination of Value of Supply), contain provisions related to valuation of supply of goods or services made in different circumstances and to different persons. Section 15 of CGST Act 2017 define the 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. [ Section 15(1) of CGST Act ] Explanation of Section 15 of CGST Act provides meaning of Related person Meaning of Transaction Value Transaction value define in the, Section 4(1)(a) of the Central Excise Act where under this Act, the duty of excise is chargeable on any excisable goods with reference to their value, then, on each removal of the goods, such value shall be transaction value . provided that where the goods are sold by the assessee, for delivery at the time and place of the removal, the assessee and the buyer of the goods are not related and the price is the sole consideration for the sale, be the transaction value. Transaction value shall included value of scrap/by-products retained by the job worker cost of waste/scrap shall be included in the value of goods manufactured by the job worker. Whenever the conversion charges get reduced by the cost of wastage /scrap, it should be included in the value of goods manufactured. [ General Engineering works VS CCE (2005 (3) TMI 17 - SUPREME COURT) ]. While determining the value of job-work, by-product retained would also be regarded as consideration for supply of milling services and GST would be levied. It is immaterial whether some of the by-product is exempt form GST. [ SRI KANAKADURGA RICE AND FLOUR MILL[2020 (11) TMI 72 - APPELLATE AUTHORITY , A. P. ] Example : Mr. X located in Manipal purchases 10,000 ink pens worth ₹ 4,00,000 from LMP Wholesalers located in Bhopal. Mr. X s wife is an employee in LMP Wholesalers. The price of each ink pen in the open market is ₹ 52. The supplier additionally charges ₹ 5,000 for delivering the goods to the recipient s place of business. Ans. Mr. X and LMP Wholesalers would not be treated as related persons merely because the spouse of the recipient is an employee of the supplier . Therefore, the transaction value will be accepted as the value of the supply. The transaction value includes incidental expenses incurred by the supplier in respect of the supply up to the time of delivery of goods to the recipient. This means, the transaction value will be: ₹ 4,05,000 (i.e., 4,000,000 + 5,000). [Section 15(1) read with section 15(2)] Section 15(2) of CGST Act 2017 the transaction value of supply shall include - Clause (a) any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than this Act, the State Goods and Services Tax Act, the Union Territory Goods and Services Tax Act and the Goods and Services Tax (Compensation to States) Act, if charged separately by the supplier. CBIC vide Circular No. 76/50/2018 GST dated 31.12.2018 (amended vide corrigendum dated 7.03.2019) has clarified that for the purpose of determination of value of supply under GST, tax collected at source (TCS) under the provisions of the Income Tax Act, 1961 would not be includible as it is an interim levy not having the character of tax. For Example Excise duty, Basic custom duty, Duty levied by local authorities, ESI, EPF on contract labour, Goods transit insurance etc. Clause (b) any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods or services or both. Any amount paid by the recipient , which are obligation to pay, shall be included in the value of supply. This clause cannot cover free inputs or services supplied by recipient as only amount paid by recipient on behalf of supplier is includible. Important clarification Notification As per Circular No. 47/21/2018 dated 08 Jun 2018, It is 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 to be incurred by the component manufacturer and thus, does not merit inclusion in the value of supply in terms of section 15(2)(b) of the CGST Act, 2017 . 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 have been supplied by the OEM to the component manufacturer on FOC basis, the amortised 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. R reimbursement of expenses are included in the value of supply if it directly related to supply of services. Refer the following cases The applicant charged separately for diesel, in addition to fixed monthly charges, for hiring DG set. it was held the consideration for reimbursement of expenses as cost of the diesel for running of the DG Set is nothing but the additional consideration for the renting of DG Set and attracts CGST @ 18%.[ IN RE: M/S. GOODWILL AUTO'S 2021 (8) TMI 355 - AAR, KARNATAKA] The valuation of taxable services include reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing to provide a taxable service. [ UNION OF INDIA AND ANR. VERSUS M/S. INTERCONTINENTAL CONSULTANTS AND TECHNOCRATS PVT. LTD. 2018 (3) TMI 357 - SUPREME COURT] The Contractee are recovering the cost of the materials that are used/consumed in the services provided to them by the applicant from the R.A. Bills issued, such cost recovered is to be included in the taxable value of the supply.[ M/S. GVS PROJECTS (P) LTD 2019 (1) TMI 1671 - AAR, ANDHRA PRADESH] Whether GST is applicable on reimbursement of electricity charges received by real estate companies, malls, airport operators etc. from their lessees/occupants. [ Circular No. 206/18/2023-GST dated 31.10.2023 ] It is clarified that whenever electricity is being supplied bundled with renting of immovable property and/or maintenance of premises, as the case may be, it forms a part of composite supply and shall be taxed accordingly. The principal supply is renting of immovable property and/or maintenance of premise, as the case may be, and the supply of electricity is an ancillary supply as the case may be. Even if electricity is billed separately, the supplies will constitute a composite supply and therefore, the rate of the principal supply i.e., GST rate on renting of immovable property and/or maintenance of premise, as the case may be, would be applicable. However, where the electricity is supplied by the Real Estate Owners, Resident Welfare Associations (RWAs), Real Estate Developers etc., as a pure agent, it will not form part of value of their supply. Further, where they charge for electricity on actual basis that is, they charge the same amount for electricity from their lessees or occupants as charged by the State Electricity Boards or DISCOMs from them, they will be deemed to be acting as pure agent for this supply. For Examples If the ownership in the goods passes at the destination of buyer, then freight on insurance is liable to be included in the value of supply even if paid by the recipient. Demurrage charges paid by the purchaser on behalf odf supplier shall be included in the value of supply. Clause (c) incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services, supply of services are includible in value. Development charges like design and tooling are includible in value these are necessary concomitant of final sale price. [ M/S. TATA JOHNSON CONTROLS AUTOMOTIVE LIMITED, VERSUS THE STATE OF MAHARASHTRA ,2017 (8) TMI 344 - BOMBAY HIGH COURT ] The expenses like weighment, loading in factory, inspection, testing before supply will be includable in value. design charges incurred before supply will also be includable. For Example Estate agent recovers cost of advertisement for the owner of immovable property who is selling the same. Freight, insurance handling charge like loading and unloading bailment charges C F expenses. Commission: This may be paid to an agent and recovered from the buyer of the goods / services; this is part of the value of the supply. Packing, if charged by the supplier to the recipient, is similarly part of the value of the supply. Inspection or certification charges is another element that may be added to the value, if billed to the recipient of supply. Installation and testing charges at the recipient s site will also be added, being an amount charged for something done by the supplier in respect of the supply at the time of making the supply. Clause (d) interest or late fee or penalty for delayed payment of any consideration for any supply; and Time of supply for such interest/ late fee/ penalty is the date when such amount is received by the supplier. Further, since such charges are an addition in the value of supply, same rate of tax as applicable on the main supply of goods / service are applicable on such charges as well. Important Circular Notification GST should not be leviable on normal interest payable by recipient as per agreed terms of contract. this is also justifiable from that interest is exempt supply as per Notification No. 12/2017- Central Tax (Rate) dated 28 Jun 2017 . GST on penal interest is charged on EMI clarified in the Circular No. 102/21/2019-GST dated 28 Jun 2019 has been follows:- If the seller himself grant EMI instalment - In this case if the seller charge penal interest, it will be part of value of goods as per section 15(2)(d). If loan is provided by finance company directly to the buyer - If loan granted by finance company or bank to buyer, the seller of goods is out of the box of sale is made. in case, the interest (including penal interest) is exempt under Sr. no. 27 of Notification No. 12/2017- Central Tax (Rate) dated 28 Jun 2017 . Important Case laws It was held that distribution and supply of electricity is exempt, but delayed payment surcharge is not a separate services. it is included in value of supply and it is also exempt. [ M/S MADHYA PRADESH POORVA KSHETRA VIDYUT VITARAN COMPANY LIMITED VERSUS COMMISSIONER OF CGST CENTRAL EXCISE, MADHYA PRADESH , 2022 (4) TMI 773 - CESTAT NEW DELHI ] A Stock broker, who is engaged in business of purchasing and selling of share on behalf of client on stock exchange platform, is not liable to GST on delayed payment charges collect form client. [ SPFL SECURITIES LTD. 2019 (8) TMI 32 - AAAR, U.P. ] Clause (e) subsidies directly linked to the price excluding subsidies provided by the Central Government and State Governments. This clause would cover all such payment, which are received by the supplier in respect of a supply of goods /services from any person, other than from recipient of supply. however payment/subsidies received from the central government and state government. For Example The selling price of laptop 45,000/-. for laptop sold to student in government school, the company use CSR fund to pay seller ₹ 25,000/-, so that student will paid only ₹20,000/- the value of laptop will be ₹45,000/-, an this is non-government subsidy. so in that case subsidy provided by company from CSR fund is included in the value of supply of services will be included. In the above example, if subsidy is paid by the central government or state government, then subsidy of ₹ 25,000/- will not become a part of value of supply. Explanation .-For the purposes of this sub-section, the amount of subsidy shall be included in the value of supply of the supplier who receives the subsidy. Section 15(3) of CGST Act 2017 (Read with the value of the supply shall not include any discount which is given- (a) before or at the time of the supply if such discount has been duly recorded in the invoice issued in respect of such supply; and (b) after the supply has been effected, if- (i) 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 (ii) input tax credit as is attributable to the discount on the basis of document issued by the supplier has been reversed by the recipient of the supply. For detail discussion read chapter Discount or incentive given before or at the time of supply Section 15(4) of CGST Act 2017 where the value of the supply of goods or services or both cannot be determined under section 15(1), the same shall be determined in such manner as may be prescribed. (see the definition of prescribed ), which means as stipulated in the rules for valuation, Rules 27 to 31 of the CGST Rules provide the mechanism to determine value in all such scenarios. Example : Arya purchases a Samsung television set costing 85,000 from an electronic shop, in exchange of her existing TV set. After an hour of bargaining, the shop manager agrees to accept ₹ 78,000 instead of his quote of ₹ 81,000, as he would still be in a profitable position (the old TV can be sold for ₹ 8,000). Ans. Where the price is not the sole consideration for the supply, the open market value would be the value of the supply. Therefore, ₹ 85,000 would be the value of the supply. Section 15(5) of CGST Act 2017 the value of such supplies as may be notified by the Government on the recommendations of the Council shall be determined in such manner as may be prescribed. As per Notification No. 49/2023 Central Tax Dated 29th September 2023 (w.e.f. 1st day of October, 2023) under section 15(5) of the CGST Act, 2017 , the Government, on the recommendations of the Council, notifies the following supplies under the said sub-section, namely: (i) supply of online money gaming; (ii) supply of online gaming, other than online money gaming; and (iii) supply of actionable claims in casinos. Example : Prestige Appliances Ltd. (Bangalore) has 10 agents located across the State of Karnataka (except Bangalore). The stock of chimneys is dispatched on just-in-time basis from Prestige Appliances Ltd. to the locations of the agents, based on receipt of orders from various dealers, on a weekly basis. Prestige Appliances Ltd. is also engaged in the wholesale supply of chimneys in Bangalore. An agent places an order for dispatch of 30 chimneys on 22-Sep-2017. Prestige had sold 30 chimneys to a retailer in Bangalore on 18-Sep-2017 for ₹ 2,80,000. The agent effects the sale of the 30 units to a dealer who would affect the sales on MRP basis (i.e., @ ₹ 10,000/unit). Ans. The law deems the supplies between the principal and agent to be supplies for the purpose of GST. Therefore, the transfer of goods by the principal (Prestige) to its agent for him to effect sales on behalf of the principal would be deemed to be a supply although made without consideration . The value would be 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 Prestige to its agent would be either ₹ 2,80,000, or 2,70,000 (i.e., 90%*10,000 * 30), based on the option chosen by Prestige. (Sec 15(5) Read With Section 15(4))
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