As per Section 15 of the Model GST Law the supply of goods and services shall be taxable to GST at the transaction value subject to Rule 7 of GST Valuation Rules 2016. Section 15(4) provides for various situations where the valuation rules shall be applied:
(i) the consideration, whether paid or payable, is not money, wholly or partly;
(ii) the supplier and the recipient of the supply are related;
(iii) there is reason to doubt the truth or accuracy of the transaction value declared by the supplier;
(iv) business transactions undertaken by a pure agent, money changer, insurer, air travel agent and distributor or selling agent of lottery;
(v) such other supplies as may be notified by the Central or a State Government in this behalf on the recommendation of the Council.
Transaction value shall be the value determined in monetary terms for the taxable supplies. Where the supply consists of both taxable and non-taxable supply, the taxable supply shall be deemed to be for such part of the monetary consideration as is attributable thereto.
It has been explicitly provided that in case of related parties also, transaction value shall be accepted, provided that the relationship has not influenced the price. Hence the arm length pricing has to be followed.
Where the goods are transferred from (a) one place of business to another place of the same business, (b) the principal to an agent or from an agent to the principal, whether or not situated in the same state, the value of such supply shall be transaction value.
As per Rule 7 of valuation rules where the proper officer has reason to doubt the truth or accuracy of the value declared in relation to any goods and/or services, he may ask the supplier to furnish the further information. Even upon the submission of this further information the proper officer has reasonable doubt on the truth and the accuracy of the value declared, it shall be deemed that the value cannot be determined at transaction value and hence value shall be adopted as per the GST Valuation Rules 2016.The reasons for the doubt of the proper officer shall be intimated to the taxpayer in writing and an opportunity shall be given before enforcing the valuation rules. The various incidents where the proper officer may have a reasonable doubt are following:
(i) the significantly higher value at which goods and/or services of like kind or quality supplied at or about the same time in comparable quantities in a comparable commercial transaction were assessed;
(ii) the significantly lower or higher value of the supply of goods and/or services compared to the market value of goods and/or services of like kind and quality at the time of supply; or
(iii) any mis-declaration of goods and/or services in parameters such as description, quality, quantity, year of manufacture or production.
In such a case where the transaction value has been rejected the following methods shall be adopted by the proper officer:
|S. No.||Method||Rule No.||Description|
|1.||Comparison Method||4||Transaction value of goods/services of like kind and quality supplied at or about the same time to other customers adjusted with factors like:(a) Difference in dates of supply;
(b) Difference in commercial levels and quantity levels;
(c) Difference in character of goods/services;
(d) Difference in other expenses relating to place of supply
|2.||Computed Value Method||5||This method shall be imposed only where Rule 4 could not be applied. Under this method the complete cost of the goods/services including the profit margins shall be deemed to be the value of goods/services.|
|3.||Residual Method||6||Where both Rule 4 and Rule 5 fail to apply the value shall be determined using the reasonable means consistent with the principles and general provisions of these rules.|
Valuation in case of Special Cases:
|1.||Pure Agent||8(1)||Transaction value shall be adopted excluding the expenditures and cost incurred by the service provider (SP) as a pure agent of the recipient (SR) of services, provided all the following conditions are fulfilled:i) SP acts as pure agent when making payment to third party,
ii) The Beneficiary should be Service Recipient,
iii) SR is liable to make payment to third party,
iv) SR authorize SP to make payment on his behalf,
v) The fact of payment should be known to SR,
vi) The amount paid on behalf of SR should be separately indicated in invoice,
vii) SP recovers the amount from SR paid by him to third party; and
viii) The goods procured from third party is in addition to the services provided by SP on his own account.
|2.||Money Changer||8(2)||a) For currency exchanged in INR:(Buying/Selling Rate – RBI reference rate) X Total Units of currency exchanged
Where the Reference Rate is not available the valuation shall be at 1% of the Gross Amount of Indian Rupees Provided or received by person exchanging the money.
b) For currency NOT Exchanged in INR:
1% of the lesser of the two amounts the person changing the money would have received by converting any two currencies into Indian Rupee on that day at the reference rate provided by RBI. In such case reference rate is a must.