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TMI BlogAnnexure 10: Check list for Key points for value of supply and details of value of supplyX X X X Extracts X X X X X X X X Extracts X X X X ..... e credit notes issued for supplies made? Price circular Contract/Agreement 6 Whether there are supporting documents for the debit notes issued for supplies made? 7 Whether terms of contract detail any consideration flowing from the third party? Contract/Agreement 8 Whether the taxpayer has engaged in any supplies to related persons as defined in section 15? If so, check whether there is significant variation in the value in comparison to similar transactions with unrelated buyers. List of related persons Inter-unit movement check through delivery challan. 9 Whether the taxpayer has made any supplies where money is not the sole consideration? 10 Whether any exchange offer or scheme has been offered by the taxpayer? Exchange offers during festive months. Value of supply The GST is applied on the value of supply of goods and services. The consideration may be in money or in other forms. Buyer can also pay for his inward supply with non- monetary considerations by giving the seller other goods or services in exchange. There may be a situation when there is no consideration at all. Then what will be the val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... controls or holds twenty-five per cent. or more of the outstanding voting stock or shares of both of them; (v) one of them directly or indirectly controls the other; (vi) both of them are directly or indirectly controlled by a third person; (vii) together they directly or indirectly control a third person; or (viii) they are members of the same family; Where persons are related, price determined under section 15(1) is irrelevant and is subject to verification under section 15(4) by reference to the rules applicable. Price is the sole consideration It is important then to understand the term 'price is the sole consideration'. If there is any consideration not in money, the money actually paid cannot be taken as the basis of valuation. Any additional consideration received apart from the monetary consideration shall also be considered to arrive at the actual transaction value. In fact, the consideration can be both monetary and non-monetary which is well defined in Section 2(31) of the CGST / SGST Act. There is an important clause in the provisions of valuation - "any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e price of the car originally supplied and therefore tax has already been paid by the car company at the time of selling of the car. Now, the question arises then what is the role of the service centre here? In fact, the service centre delivers the part and rendered service to the customer but 'supplies' it to the car company. Hence, there is another supply involved here between the service provider and the car company which is taxable supply in GST. [Reference: Mohd. Ekram Khan's decision of SC in 144 STC 542. As such, warranty involves two supplies and neither of which are free from tax. One is tax pre-paid and another is currently taxed though not involving the end customer]. Interest, late fee or penalty for delayed payment are also part of supply value- All these special charges are linked to an underlying original supply, therefore, shall be part of supply value. So many questions may arise - what will be the time of supply for these special charges? Whether the rate of tax of original supply will be applied for the special charges also? Whether all such special charges are liable to GST? It is better to explain it with an example - Example: A contractee awarded a contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ply will not include discount, provided: * It is allowed before supply, or * It is allowed after supply, provided that it is established in agreement linked to specific supplies and corresponding credit is reversed by the recipient. Example: M/s. A of Kolkata supplied 10 pcs of i-Phone to M/s. B of Kolkata on 20.09.2019 where basic price of such phones is Rs. 10 lakh. A discount of Rs. 1 lakh is offered and courier charges of Rs.1000.00 is charged at the time of supply. What is the value of supply in the above transaction if the tax rate of such i-phones is 12%? As per the conditions, 50% payment was made at the time of delivery and further condition was that if balance payment is made within 20.10.2019 then 10% further discount on basic price will be allowed. If such payment is made in time, whether this discount will also be deducted from the supply value? In this example, courier charges are to be added to the value of supply as incidental charges and discount is to be deducted as it is offered at the time of supply. Hence, taxable value will be Rs. 9,01,000/-. GST @ 12% is to be added to Rs. 9,01,000/- to get the value of supply i.e. Rs. 10,09,120/-. If 50% of the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en of Rs. 5,00,000/-. If the price of the new car without exchange is Rs. 9,00,000/-, then the open market value of the new car is Rs. 9,00,000/-. (b) If the open market value of the new car is not known, and the price of the old car is Rs. 4,00,000/- at the time of supply, then the value of supply of the new car will be Rs. 9,00,000/-. (c) A customized air conditioning unit whose open market value is not available is installed at an office wherein the consideration is paid in the form of money of Rs. 40,000 and an old air conditioning unit whose price is not available at the time of supply. A similar air conditioning unit in terms of characteristics, quality, functional components, materials and reputation etc. has been installed by the company at another client's premises for Rs. 60,000/-. Since, the value of goods of like kind and quality is available, the value of Rs. 60,000/- will be taken under Rule 27. (d) value determined by rule 30 or rule 31. 2. Where supply is made between related persons with or without consideration and distinct persons without consideration - Rule 28 The value of supply under this rule will be: (a) Open market value: Example: A cell phone deale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case where the invoice is issued by the del credere agent then it would fall under the ambit of an agent. 4. Value of supply based on cost - Rule 30 This rule is applicable for valuation of supply of goods and services, only where the other methods of valuation do not apply. It provides that the value will be 'cost plus 10%'. Example: Suppose ABC Limited is a manufacturer of office furniture. Say, the cost of manufacturing a chair is Rs. 4,000/-. Similar chair in the open market is valued at Rs. 4,500. These chairs are supplied to a furniture showroom at the rate Rs. 3,000 and balance in non-monetary consideration. Now since the open market value is available Rs. 4,500 will be considered for valuation of supply. However, if Open Market Value is not available, the value of supply as per cost method will be 110% of the cost of manufacturing i.e. Rs. 4,000*110% = Rs. 4,400. 5. Residual method of valuation - Rule 31 As per the residual method, where the value of supply of goods or services or both cannot be determined under the cost method, the same shall be determined using reasonable means consistent with the principles and general provisions of the GST law. Unitary met ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en buying-selling rate and the RBI reference rate. Where reference rate is not available, 1% of gross Indian Rupee provided/received. And where the conversion is not into Indian Rupees, then 1% of the lesser of the Indian Rupee equivalent of each currency exchanged. Example: Suppose a company M/s Thomas Cook Ltd, a money changer, converts 1000 Euro into rupees @90 per Euro. The RBI reference rate for Euro is Rs. 88. So, the value of supply shall be = (90-88) * 1000 = Rs. 2000/-. For currency exchange ≤ Rs.1 L: 1% or Rs.250/- which one is higher. For currency exchange >Rs.1Lbut ≤ 10L 0.5% of exchanged amount exceeding 1 L plus Rs.1000/- For currency exchange >Rs.10L: 0.1% of exchanged amount exceeding 1 L plus Rs.5500/- but maximum Rs.60000/- Example: Suppose a money exchanger received Singapore Dollar and provided Indian Rs. 5,00,000/-. The value of supply shall be (4,00,000*0.5%) +1000 =Rs. 3000/- (b) Value of service in relation to air travel agents: 5% of basic fare in case of domestic booking and 10% of basic fare in case of international booking of passengers by air. Commission to the travel agent may flow from passenger or airline or any other person and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... import of a consignment. The clearance of goods would also require taking of transporter service. Mr. A also authorizes Mr. B to incur expenditure on his behalf for procuring the transporter service and agrees to reimburse such expenses. In this scenario, Mr. B is providing custom broker service to Mr. A, which is principal to principal basis and the transportation services procured by Mr. B on behalf of Mr. A is a pure agent service and expenses incurred by Mr. B on transportation shall not form part of the value of the Customs broker service. 9. Rate of exchange of foreign currency - Rule 34 Any transactions undertaken in foreign currency must be converted into INR and the rate of such exchange is as follows: (a) For determination of the value of taxable goods the rate of exchange shall be the applicable one as notified by the Board under section 14 of the Customs Act, 1962. (b) for determination of the value of taxable services rate of exchange shall be the applicable one determined as per the generally accepted accounting principles for the date of time of supply of such services in terms of section 13 of the Act. 10. Value of supply inclusive of integrated tax, central ..... X X X X Extracts X X X X X X X X Extracts X X X X
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