Taxmann' GST How to Meet Your Obligations (Set of 2 Vols.)

Contents DIVISION ONE BASIC CONCEPTS

PAGE

CHAPTER 1 INTRODUCTION & BASIC CONCEPT

3

CHAPTER 2 CONSTITUTIONAL AMENDMENT

61

CHAPTER 3 FRAMEWORK OF GST LAWS

69

DIVISION TWO LEVY OF GST - KEY ASPECTS CHAPTER 4 MEANING AND SCOPE OF SUPPLY

77

CHAPTER 5

165

DEEMED SUPPLIES CHAPTER 6

184

LEVY OF GST CHAPTER 7

189

MEANING OF GOODS I-7

CONTENTS

I-8 PAGE

CHAPTER 8 MEANING OF SCOPE OF SERVICE

204

CHAPTER 9 INTER-STATE v. INTRA-STATE SUPPLIES

208

CHAPTER 10 TAXABLE PERSON

219

CHAPTER 11 COMPOSITION LEVY

232

CHAPTER 12 REVERSE CHARGE MECHANISM

260

CHAPTER 13 DEFINITION, CLASSIFICATION AND RATE OF TAX

336

CHAPTER 14 COMPOSITE & MIXED SUPPLIES

356

CHAPTER 15 PLACE OF SUPPLY

364

CHAPTER 16 TIME OF SUPPLY AND CHANGE IN RATE OF TAX

494

CHAPTER 17 VALUE OF SUPPLY

520

CHAPTER 18 NON-TAXABLE SUPPLIES

564

CHAPTER 19 EXEMPTIONS

590

I-9

CONTENTS PAGE

CHAPTER 20 REFUND OF TAXES

1037

CHAPTER 21 DEDUCTION OF TAX AT SOURCE

1126

CHAPTER 22 COLLECTION OF TAX AT SOURCE

1140

CHAPTER 23 LEVY OF INTEREST

1153

CHAPTER 24 OTHER LEVIES GST (COMPENSATION TO STATES) ACT & CESS

1161

DIVISION THREE INPUT TAX CREDIT CHAPTER 25 INTRODUCTION TO INPUT TAX CREDIT

1171

CHAPTER 26 INPUT INCLUDING BLOCK CREDIT

1176

CHAPTER 27 INPUT SERVICE

1239

CHAPTER 28 CAPITAL GOODS

1252

CHAPTER 29 UTILIZATION OF INPUT TAX CREDIT

1267

CONTENTS

I-10 PAGE

CHAPTER 30 CONDITIONS, TIME LIMIT, DOCUMENTS FOR AVAILMENT OF CREDIT AND REFLECTION IN RETURN

1292

CHAPTER 31 COMMON INPUTS AND INPUT SERVICES FOR EXEMPTED AND TAXABLE SUPPLIES

1343

CHAPTER 32 REMOVAL OF INPUT, CAPITAL GOODS AND WASTE INCLUDING FOR JOB-WORK

1376

CHAPTER 33 INPUT SERVICE DISTRIBUTOR

1378

CHAPTER 34 MATCHING OF CREDIT AND BLACKLISTING OF DEALER

1396

CHAPTER 35 RECOVERY OF INPUT TAX CREDIT

1399

CHAPTER 36 MISCELLANEOUS PROVISIONS

1416

DIVISION FOUR EXPORT AND IMPORT OF GOODS AND SERVICES CHAPTER 37 EXPORT OF GOODS

1435

CHAPTER 38 EXPORT OF SERVICE

1484

I-11

CONTENTS PAGE

CHAPTER 39 EXPORT INCENTIVE

1505

CHAPTER 40 IMPORT OF GOODS

1512

CHAPTER 41 IMPORT OF SERVICES

1515

CHAPTER 42 DEEMED EXPORTS INCLUDING EOU, STP

1525

CHAPTER 43 SPECIAL ECONOMIC ZONE

1537

CHAPTER 44 MANUFACTURE AND OTHER OPERATIONS IN WAREHOUSE (MOOWR SCHEME)

1565*

CHAPTER 45 SALE BY DUTY FREE SHOPS AND BONDED WAREHOUSE SALES

1576*

CHAPTER 46 HIGH SEA SALES

1580*

DIVISION FIVE SPECIAL SCENARIOS CHAPTER 47 TRANSACTION WITH RELATED PARTY/DISTINCT PERSON

1585*

CHAPTER 48 JOB WORK * See Volume 2.

1596*

CONTENTS

I-12 PAGE

CHAPTER 49 PRINCIPAL & AGENT

1615*

CHAPTER 50 SUPPLIES MADE VIA E-COMMERCE OPERATOR

1620*

CHAPTER 51 ONLINE DATABASE AND ACCESS RETRIEVAL SERVICES

1636*

CHAPTER 52 ONLINE GAMING

1648*

CHAPTER 53 CORPORATE GUARANTEE

1658*

CHAPTER 54 SALE OF BUSINESS, MERGERS AND ACQUISITIONS

1668*

CHAPTER 55 TAXATION OF VOUCHER

1680*

CHAPTER 56 DISCOUNT AND INCENTIVES

1684*

CHAPTER 57 TAXATION OF INTERMEDIARY

1690*

CHAPTER 58 TAXATION OF ACTIONABLE CLAIM

1699*

CHAPTER 58A SCHEME OF WAIVER OF INTEREST OR PENALTY

* See Volume 2.

1701*

I-13

CONTENTS PAGE

DIVISION SIX TRANSITIONAL PROVISIONS CHAPTER 59 TRANSITIONAL CREDITS

1707*

CHAPTER 60 OTHER TRANSITIONAL PROVISIONS

1756*

CHAPTER 61 IMPACT ON CONTINUING CONTRACT

1771*

CHAPTER 62 ANTI-PROFITEERING MEASURE

1776*

CHAPTER 63 REPEAL & SAVING OF ERSTWHILE LAWS

1807*

DIVISION SEVEN GST COMPLIANCES CHAPTER 64 REGISTRATION

1815*

CHAPTER 65 DOCUMENTATION (TAX INVOICES, BILL OF SUPPLY, DEBIT AND CREDIT NOTES)

1863*

CHAPTER 66 ELECTRONIC WAY BILL

1912*

CHAPTER 67 PROCEDURE AND RECORDS FOR INPUT TAX CREDIT * See Volume 2.

1945*

CONTENTS

I-14 PAGE

CHAPTER 68 PAYMENT OF TAX AND INTEREST - COMPUTATION OF TAX LIABILITY

1951*

CHAPTER 69 RETURNS & RECONCILIATIONS

1970*

CHAPTER 70 SPECIAL COMPLIANCES FOR SELECTED CATEGORIES OF PRODUCTS [E.G. TOBACCO MANUFACTURERS]

2065*

CHAPTER 71 GST PRACTITIONER SCHEME

2074*

DIVISION EIGHT ADMINISTRATION, ASSESSMENTS, AUDITS & INVESTIGATION CHAPTER 72 CLASS AND POWER OF OFFICERS

2085*

CHAPTER 73 ASSESSMENT

2092*

CHAPTER 74 SCRUTINY OF RETURN

2105*

CHAPTER 75 AUDITS

2109*

CHAPTER 76 SPECIAL AUDITS

2127*

CHAPTER 77 DEMAND, RECOVERY AND ADJUDICATION * See Volume 2.

2135*

I-15

CONTENTS PAGE

CHAPTER 78 INSPECTION, SEARCH & SEIZURE

2196*

CHAPTER 79 PROVISIONAL ATTACHMENT

2211*

CHAPTER 80 RESIDUAL MATTERS

2219*

DIVISION NINE PENALTIES AND PROSECUTION CHAPTER 81 PENALTIES, CONFISCATION & FINES

2239*

CHAPTER 82 ARREST, PROSECUTION AND CONFISCATION

2283*

DIVISION TEN DISPUTE RESOLUTION (APPEALS, ADVANCE RULINGS AND AMNESTY SCHEME) CHAPTER 83 APPEALS – GENERAL PROVISIONS, TIME LIMIT, CONDONATION OF DELAY, PRE-DEPOSIT, DEPARTMENTAL APPEALS AND POWER OF REVISIONARY AUTHORITY

2309*

CHAPTER 84 APPEAL TO APPELLATE AUTHORITY

2399*

CHAPTER 85 APPEAL TO GST APPELLATE TRIBUNAL – PROCEDURE, ORDER, POWERS AND LIMITATION * See Volume 2.

2411*

CONTENTS

I-16 PAGE

CHAPTER 86 APPEAL BEFORE HIGH COURT

2492*

CHAPTER 87 APPEAL BEFORE SUPREME COURT

2504*

CHAPTER 88

2511*

ADVANCE RULING CHAPTER 89 GST AMNESTY SCHEME

2526* 2529*

SUBJECT INDEX

APPENDICES CENTRAL GOODS AND SERVICES TAX ACT, 2017

2573*

INTEGRATED GOODS AND SERVICES TAX ACT, 2017

2819*

UNION TERRITORY GOODS AND SERVICES TAX ACT, 2017

2861*

GOODS AND SERVICES TAX (COMPENSATION TO STATES) ACT, 2017

2895*

CENTRAL GOODS AND SERVICES TAX RULES, 2017

2915*

INTEGRATED GOODS AND SERVICES TAX RULES, 2017

3123*

* See Volume 2.

17

Value of Supply

17.1 Introduction Every fiscal statute levying tax on goods or services makes provision for determination of value. The tax is normally payable on ad valorem basis i.e. percentage of value of supply of goods or services. The supply of goods or services is made in different circumstances and to different persons - may be related or unrelated. Provision relating to determination of value of each of the circumstances is made in the fiscal statute and the rules made thereunder.

Determination of correct amount of value has always caused lot of litigation not only in Central Excise, Customs but also under Service Tax, VAT. The major provisions relating to valuation are based on Customs (Determination of Value of Imported Goods) Rules, 2007. The Customs Valuation Rules are based on Customs Valuation provisions published by World Trade Organization (WTO). The note for interpreting the provisions are also published by WTO. Section 15 makes provision for the purpose of determining the transaction value of supply of goods or services in different circumstances. These provisions are discussed below:

17.2 Statutory Provisions Section 15 makes provision for determination of value of taxable supply.

Sub-section (5) of section 15 empowers the Government to make rules for determination of value in the circumstances specified therein. Provisions of section 15 and the rules made thereunder are as follows: These provisions are discussed below: (a) Determination of transaction value (Refer para 17.3) (b) Meaning of related person (Refer para 17.4) (c) Transaction value includes value of items specified in section 15(2) (Refer para 17.5) (d) Deduction of discounts (Refer para 17.6) (e) Determination of Transaction value under rules (Refer para 17.7) (f) Exemption from payment of IGST on Royalty and License Fees included in value under The Customs Act (Refer para 17.8) 520

521

CH. 17 : VALUE OF SUPPLY

Para 17.3

(g) Clarification under GST (Refer para 17.9) (h) Meaning of ‘Consideration’ as per Contract Act (Refer para 17.10) Each of the above is discussed in subsequent paras.

17.3 Determination of transaction value Section 15(1) provides that the value of supply of goods or services shall be the transaction value. The provision can be divided into (a) Price actually paid or payable for the supply of goods and services (Refer para 17.3-1) (b) Recipient of supply is not a related person (Refer para 17.4) (c) Price is the sole consideration for supply (Refer para 17.3-2) (d) Consideration (Refer para 17.3-3) These are discussed below: 17.3-1 Price actually paid or payable Section 4 of Central Excise Act, 1944 provides for determination of value where the duty of excise is chargeable on any excisable goods with reference to value.

It provides that the value shall be transaction value for delivery at the time and place of removal. The transaction value has been defined in section 4(3)(d) as follows: ‘(d) “transaction value” means the price actually paid or payable for the goods, when sold, and includes in addition to the amount charged as price, any amount that the buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in connection with the sale, whether payable at the time of the sale or at any other time, including, but not limited to, any amount charged for, or to make provision for, advertising or publicity, marketing and selling organization expenses, storage, outward handling, servicing, warranty, commission or any other matter; but does not include the amount of duty of excise, sales tax and other taxes, if any, actually paid or actually payable on such goods.’

It will be evident from this definition that phrase ‘actually paid or payable’ has been used in the definition of transaction value given in section 4(3)(d) of Central Excise Act. The said definition of ‘transaction value’ has been interpreted by Hon’ble Supreme Court in following cases:

Purolator India Ltd. 2015 (323) E.L.T. 227 (SC) - The court observed as follows: ‘18. It can be seen that section 4 as amended introduces the concept of “transaction value” so that on each removal of excisable goods, the “transaction value” of such goods becomes determinable. Whereas previously, the value of such excisable goods was the price at which such goods were ordinarily sold in the course of wholesale trade, post amendment each transaction is looked at by itself. However,

Para 17.3

DIV. 2 : LEVY OF GST - KEY ASPECTS

522

“transaction value” as defined in sub-clause (3)(d) of section 4 has to be read along with the expression “for delivery at the time and place of removal”. It is clear, therefore, that what is paramount is that the value of the excisable goods even on the basis of “transaction value” has only to be at the time of removal, that is, the time of clearance of the goods from the appellant’s factory or depot as the case may be.

The expression “actually paid or payable for the goods, when sold” only means that whatever is agreed to as the price for the goods forms the basis of value, whether such price has been paid, has been paid in part, or has not been paid at all. The basis of “transaction value” is therefore the agreed contractual price. Further, the expression “when sold” is not meant to indicate the time at which such goods are sold, but is meant to indicate that goods are the subject matter of an agreement of sale. Once this becomes clear, what the learned counsel for the assessee has argued must necessarily be accepted inasmuch as cash discount is something which is “known” at or prior to the clearance of the goods, being contained in the agreement of sale between the assessee and its buyers, and must therefore be deducted from the sale price in order to arrive at the value of excisable goods “at the time of removal”.’

Super Synotex (India) Ltd. 2014 (301) E.L.T. 273 (SC) - The court observed as follows: ‘22. It is evincible from the language employed in the aforesaid circular that set-off is to be taken into account for calculating the amount of sales tax permissible for arriving at the “transaction value” under Section 4 of the Act because the set-off does not change the rate of sales tax payable/chargeable, but a lower amount is in fact paid due to set-off of the sales tax paid on the input. Thus, if sales tax was not paid on the input, full amount is payable and has to be excluded for arriving at the “transaction value”. That is not the factual matrix in the present case. The assessee in the present case has paid only 25% and retained 75% of the amount which was collected as sales tax.

75% of the amount collected was retained and became the profit or the effective cost paid to the assessee by the purchaser. The amount payable as sales tax was only 25% of the normal sales tax. Purpose and objective in defining “transaction value” or value in relation to excisable goods is obvious. The price or cost paid to the manufacturer constitutes the assessable value on which excise duty is payable.

It is also obvious that the excise duty payable has to be excluded while calculating transaction value for levy of excise duty. Sales tax or VAT or turnover tax is payable or paid to the State Government on the transaction, which is regarded as sale, i.e., for transfer of title in the manufactured goods. The amount paid or payable to the State Government towards sales tax, VAT, etc. is excluded because it is not an amount paid to the manufacturer towards the price, but

523

CH. 17 : VALUE OF SUPPLY

Para 17.3

an amount paid or payable to the State Government for the sale transaction, i.e., transfer of title from the manufacturer to a third party. Accordingly, the amount paid to the State Government is only excludible from the transaction value. What is not payable or to be paid as sales tax/VAT, should not be charged from the third party/ customer, but if it is charged and is not payable or paid, it is a part and should not be excluded from the transaction value. This is the position after the amendment, for as per the amended provision the words “transaction value” mean payment made on actual basis or actually paid by the assessee. The words that gain signification are “actually paid”. The situation after 1-7-2000 does not cover a situation which was covered under the circular dated 12-3-1998. Be that as it may, the clear legislative intent, as it seems to us, is on “actually paid”. The question of “actually payable” does not arise in this case.’

It will be observed from the above that the amount actually paid or payable shall be determined based on the contract entered into between the supplier and recipient of goods or services. The contract will indicate the amount payable by the recipient for the supply of goods or services. This can be explained by an example.

Example. Chartered Accountant ‘A’ has entered into contract for conducting audit of Company ‘X’. The contract specifies the amount for audit fee and in addition also provides that car of Chartered Accountant ‘A’ would be refurbished

by Company X. Thus the price payable for the service of auditing is not only the amount paid to Chartered Accountant ‘A’ as audit fees but will also include the expenditure incurred by Company X on refurbishing the car of Chartered Accountant ‘A’. Thus, the contract forms the basis for determining the amount actually paid or payable.

The ratio of above referred judgments will be very helpful in interpreting the words “actually paid or payable” in determining transaction value under section 15 of GST Act. Factors to be considered while determining the transaction value The following factors shall always be considered while determining the value of supply: 17.3-1a NEXUS BETWEEN THE AMOUNT RECEIVED AND SUPPLY MADE - Section 15(1) provides that transaction value shall be the price actually paid or payable for the supply of goods or services. It clearly means that there should be nexus between the supply of goods or services and the amount received by the supplier of goods or services. This view that nexus between the amount received and the supply shall be established to consider the amount as value of supply is also supported by judgments rendered in the context of section 67 of Chapter V of Finance Act, 1994. The said section makes provision for determination of value for taxable services rendered. Section 67(1) reads as follows:

Para 17.3

DIV. 2 : LEVY OF GST - KEY ASPECTS

524

“67. (1) Subject to the provisions of this Chapter, where service tax is chargeable on any taxable service with reference to its value, then such value shall, — (i) in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him; (ii) in a case where the provision of service is for a consideration not wholly or partly consisting of money, be such amount in money as, with the addition of service tax charged, is equivalent to the consideration; (iii) in a case where the provision of service is for a consideration which is not ascertainable, be the amount as may be determined in the prescribed manner. and the explanation defines ‘consideration’ as follows: (a) “consideration” includes— i. any amount that is payable for the taxable services provided or to be provided; ii. any reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing to provide a taxable service, except in such circumstances, and subject to such conditions, as may be prescribed; iii. any amount retained by the lottery distributor or selling agent from gross sale amount of lottery ticket in addition to the fee or commission, if any, or, as the case may be, the discount received, that is to say, the difference in the face value of lottery ticket and the price at which the distributor or selling agent gets such ticket.”

It is evident from clause (i) of section 67(1) that this section also makes provisions for determining value of taxable services provided. It also provides that value shall be for the taxable services rendered. In this context, the Hon’ble Tribunal in the following cases has held that there should be nexus between the amount received and the taxable service rendered. In case there is no nexus between the supply of goods and services, and the amount received, the amount cannot be considered as value of taxable service. The observation of Supreme Court in the case of Bayana builders reported in 2018(10) G.S.T.L 118(S.C) reproduced below substantiate the same.

‘12. On a reading of the above definition, it is clear that both prior and after amendment, the value on which service tax is payable has to satisfy the following ingredients : a. Service tax is payable on the gross amount charged :- the words “gross amount” only refers to the entire contract value between the service provider and the service recipient. The word “gross” is only meant to indicate that it is the total amount charged without deduction of any expenses. Merely by use of the word “gross” the Department does not get any jurisdiction to go beyond the contract value to arrive at the

525

CH. 17 : VALUE OF SUPPLY

Para 17.3

value of taxable services. Further, by the use of the word “charged”, it is clear that the same refers to the amount billed by the service provider to the service receiver. Therefore, in terms of Section 67, unless an amount is charged by the service provider to the service recipient, it does not enter into the equation for determining the value on which service tax is payable. b. The amount charged should be for “for such service provided” : Section 67 clearly indicates that the gross amount charged by the service provider has to be for the service provided. Therefore, it is not any amount charged which can become the basis of value on which service tax becomes payable but the amount charged has to be necessarily a consideration for the service provided which is taxable under the Act. By using the words “for such service provided” the Act has provided for a nexus between the amount charged and the service provided. Therefore, any amount charged which has no nexus with the taxable service and is not a consideration for the service provided does not become part of the value which is taxable under Section 67. The cost of free supply goods provided by the service recipient to the service provider is neither an amount “charged” by the service provider nor can it be regarded as a consideration for the service provided by the service provider. In fact, it has no nexus whatsoever with the taxable services for which value is sought to be determined’ Honourable Supreme Court in case of Intercontinental reported in 2018 (10) G.S.T.L 401 (S.C) in Para 24 observed as follows: “24. In this hue, the expression ‘such’ occurring in Section 67 of the Act assumes importance. In other words, valuation of taxable services for charging service tax, the authorities are to find what is the gross amount charged for providing ‘such’ taxable services. As a fortiori, any other amount which is calculated not for providing such taxable service cannot a part of that valuation as that amount is not calculated for providing such ‘taxable service’. That according to us is the plain meaning which is to be attached to Section 67 (unamended, i.e., prior to May 1, 2006) or after its amendment, with effect from, May 1, 2006. Once this interpretation is to be given to Section 67, it hardly needs to be emphasised that Rule 5 of the Rules went much beyond the mandate of Section 67. We, therefore, find that High Court was right in interpreting Sections 66 and 67 to say that in the valuation of taxable service, the value of taxable service shall be the gross amount charged by the service provider ‘for such service’ and the valuation of tax service cannot be anything more or less than the consideration paid as quid pro qua for rendering such a service.”

17.3-1b NATURE OF SUPPLY MADE - The contract between the supplier and recipient of services or goods will invariably indicate the obligation of the supplier of goods or services. The amount having nexus with the supply required to be made can only be considered as transaction value. This has been explained below by example.

Example - X Company is engaged in doing job work for Y Company. Y supplies raw and packing material to X Company and specifies the process required to

Para 17.3

DIV. 2 : LEVY OF GST - KEY ASPECTS

526

be performed on the raw and packing material. X Company has agreed to supply services (in the form of labour) for the purpose of performing the activities specified by Y Company. Therefore, the amount received by X Company towards supply of his services can only be considered as value of supply. Value of raw and packing material cannot be included in the value of supply made by the job worker.

This aspect must be considered while determining the value of goods or services supplied. It may be mentioned that as per the provisions contained in section 4 of Central Excise Act, the value of raw and packing material was also required to be added in the assessable value for the purpose of payment of excise duty. The incidence of tax in case of excise duty was on manufacture of goods. The value of manufactured goods is required to be determined under Central Excise Act. Therefore, the value of input required for manufacture of goods was required to be included in the value of goods manufactured. The incidence of tax under GST is not on manufacture of goods but on supply of goods or services. Hence, first and foremost step to determine the value is to identify the goods or services supplied under the contract. Thereafter the value of that supply is required to be computed.

17.3-1c DIFFERENCE BETWEEN OLD PROVISION AND NEW PROVISION - The provisions under section 4 of Central Excise Act provide for determination of value for delivery at the time and place of removal. The VAT under VAT Act is payable on the value upto the time of transfer of property in goods. Any expenses incurred thereafter will not form part of value. Thus there is always dispute whether freight and insurance in transit incurred on sale for delivery of goods to the buyer would be included in the value of goods for the purpose of payment of excise duty or VAT. There will be no such dispute under GST as the entire value of goods including freight and insurance is required to be included in the value of supply of goods.

17.3-2 Price is the sole consideration for sale Section 15(1) further provides that price should be the sole consideration for supply. If any additional consideration, whether in monetary or non-monetary terms, is received, the value of such consideration shall be added to the consideration to arrive at the transaction value. Interpretative Notes provides that payment made directly or indirectly by the recipient to supplier will constitute the price actually paid or payable. Example of indirect payment is settlement by the buyer whether in whole or in part of debt owned by the seller. This can be elaborated by an example. Mr. X makes supply of ` 2 lakhs to Mr. Y. The contract provides that Mr. Y will pay ` 50,000 to Mr. X and ` 1,50,000 to Mr. Z to settle the debt of Mr. X. In this case, the price of ` 50,000 is not the sole consideration for sale. The amount of ` 1,50,000 payable by Mr. Y to Mr. Z is part of consideration for supply of goods. Therefore, GST will be payable on the entire amount of ` 2 lakhs and not only on ` 50,000.

If the price is not the sole consideration for sale, some additional consideration will flow in one form or other to the supplier of goods or services. Normally,

527

CH. 17 : VALUE OF SUPPLY

Para 17.3

the contract will specify the nature of financial flow back from recipient to the supplier. If the contract does not specify the flow of consideration in any form, it can be concluded that the price is the sole consideration for supply. The appellate authorities in the following judgments have observed to this effect.

Rumi Herbals Pvt. Ltd. 2008 (222) ELT 518 “10. We find that the fact of a Director being common in the two firms does not make the assessee and RMLM related persons. A couple of deposits each less than rupees two lakhs made in the account of RMLM were returned to RUMI. The sale price to RMLM was lower on account of cost of transportation and cost of advertisement materials which the assessee did not have to incur when they sold the goods to RMLM. RUMI did not pay overriding commission to sub-dealers (and added to assessable value) for clearances to dealers in the South unlike in the case of dealers operating under wholesale buyers in other regions. The department had no evidence of financial flow back between RUMI and RMLM. We do not find any material to substantiate a finding that RUMI and RMLM are related persons. Therefore the demands arising out of requantification of the value of clearances treating the sale price of RMLM as basis of assessable value is not sustainable. In the circumstances, we set aside the impugned order as not sustainable and allow the appeal filed by M/s. Rumi Herbals (P.) Ltd.”

Jeypore Sugars Co. Ltd. 2000 (124) ELT 845 “10. We have carefully considered the rival submissions and records of the case. We find that in view of the fact that the Orderin-Original has not clearly recorded any finding as to how the there was a financial flow back from the buyer to the seller or as to how the price for such a large quantity contracted to be delivered over a specified period is artificially depressed price, and also in view of the fact that the judgment cited above have not been considered at all in the said order, therefore, the order before us is found to be in error of principles of natural justice.

Since the matter lies in a short compass and since on consideration of the judgments cited, we are in agreement that mere relationship shall not affect the assessable value and hence the appellants have demonstrated that they have prima facie a very strong case, therefore, we order waiver of pre-deposit and stay of the recovery of the entire amounts involved and proceed to consider the appeal itself. On consideration, we find that the Ld. Commissioner has not discussed the plethora of judgments cited before him and therefore, the Orderin-Original impugned is set aside and the matter remanded for de novo consideration by said Commissioner. During this de novo proceedings, he shall give effective opportunity of hearing to the present appellants and pass a reasoned and speaking order after due

Para 17.5

DIV. 2 : LEVY OF GST - KEY ASPECTS

528

consideration of the decisions noted above. The appeal succeeds by way of remand accordingly.”

17.3-3 Consideration The meaning and scope of consideration as given in section 2(31) is discussed in Chapter 4.

17.4 Meaning of related person Refer Chapter 47

17.5 Transaction value includes value of items specified in section 15(2) Section 15 specifically provides that transaction value shall include items which are specified in clauses (a) to (e) of sub-section (2). The nature of payment stipulated in clauses (a) to (e) of sub-section (2) are discussed below: 17.5-1 Payment of Taxes Clause (a) provides that any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than (CGST/SGST/UTGST/Compensation Cess) Act shall be added to the value of supply. This can be explained by example.

Example 1 - Very often, in the rent contract, the tenant is required to pay local tax either directly to the local body or the owner of the premise. Such local tax may form part of consideration for the supply of renting service. It may be mentioned that Chapter V of Finance Act, 1994 makes special provision for exclusion of local taxes from the value of services.

Example 2 - Power to levy entertainment tax by local authorities is contained in the Constitution. Even after the 122nd Constitutional amendment, the power to levy entertainment tax is still available with local bodies. The tickets purchased in any entertainment event will include the tax amount also. Normally, the tax amount should not form part of value of supply of goods or services. But, in view of specific provision in clause (a) of section 15(2), it appears that local body taxes included in the ticket will also form part of transaction value.

It is specifically provided that the amount of CGST/SGST/UTGST/Compensation Cess, shall be excluded if charged separately by the supplier.

17.5-1a CLARIFICATION BY CBEC - The Association of National Exchanges Member of India (ANMI) had sought clarification on various issues of GST. One of the issue related is inclusion of STT and Stamp Duty in transaction value in view of the provisions of Section 15(2)(a) of the GST Act. The Department of Revenue, CBEC, GST Policy Wing has vide Office Memorandum dated 5-9-2017 issued from F. No. 349/40/2017-GST has clarified as follows: Issue: Clarifications regarding applicability of GST on Securities Transaction Tax and Stamp Duty

529

Para 17.5

CH. 17 : VALUE OF SUPPLY

Comment: The Central Board of Excise and Customs (CBEC) had earlier issued Clarification F. No. 187/107/2010-CX-4 dated 17th September, 2010 (Annexure A) clarifying that in the case of stock broking services, the liability for stamp duty and the securities transaction tax (STT) is that of the purchaser or seller of the securities and not of the stock broker. The stock broker collects and deposits the same on behalf of the purchaser and seller that is in the capacity of a pure agent. Therefore, Service Tax is not payable on STT and Stamp Duty. In the light of the fact that even under the GST regime, the rationale for excluding the Stamp Duty and STT component, recovered by a stock broker from the client (seller/buyer), from the levy of GST, remains valid, GST is not payable by the Stock Broker on these recoveries and as long as the conditions of pure agent as provided in Rule 33 of the CGST Rules are met.

17.5-1b TAX COLLECTED AT SOURCE - As per the provisions contained in section 206C of the Income-tax Act, 1961 - 2015, the person being a seller at the time of recovering the amount from the buyer in cash or by cheque or by any mode, collects from the buyer of any goods specified below and a sum equal to the percentage of value of goods specified against the goods. The said table is reproduced below: Sr. No.

Nature of Goods

Percentage

(1)

(2)

(3)

(i)

Alcoholic Liquor for human consumption

One per cent

(ii)

Tendu Leaves

Five per cent

(iii)

Timber obtained under a forest lease

Two and one-half per cent

(iv)

Timber obtained by any mode other than Two and one-half per cent under a forest lease

(v)

Any other forest produces not being timber Two and one-half per cent or tendu leaves

(vi)

Scrap

One per cent

(vii)

Minerals, being coal or lignite or iron ore

One per cent

There was a dispute whether such amount collected by the seller which is deposited by him with the Government, will form part of the value of taxable supply u/s 15 of the GST Act. The CBIC vide Q. No. 5 of the Circular No. 76/50/2018 - GST has clarified that such amount recovered from the buyer will be included in the value of taxable service.

NEEDS RE-CONSIDERATION - Section 15(2) of the GST Act provides that

the value of taxable supply shall include taxes, duties, cess, fees and charges levied under any law for the time being in force, if the charges are separately recovered by the supplier. The charges can be included in the value of supply when these taxes, duties, cess, etc. have nexus with supply of goods. The respective law under which such charges are levied shall levy the tax, duties, etc. for supply of such goods.

Para 17.5

DIV. 2 : LEVY OF GST - KEY ASPECTS

530

CORRIGENDUM - The clarification given vide Circular No. 76/50/2018 –

GST reproduced above has been reviewed. The Government has issued corrigendum vide letter issued from File No. 20/16/04/2018 – GST dated 07/03/2019 that the tax collected at source will not be included in the value of taxable supply as it is an interim levy not having the character of tax. Thus, the clarification reproduced above is nullified.

However, in this case, the amount is recovered u/s 206C of the Income-tax Act and the buyer receives the credit under the Income-tax Act. Thus, these taxes are paid for the income against the income tax payable by the buyer. Thus, these taxes are in respect of the income of the buyer and not in respect of the supplier of goods. Therefore, it is felt that the value of TCS collected under the Income-tax Act cannot be included in the value of taxable service.

17.5-2 Amount paid by recipient on behalf of supplier Clause (b) provides that the transaction value will include the amount which the supplier is so liable to pay but it has been paid by the recipient of supply.

Therefore, it is not included in the price actually paid or payable. This can be explained by following example: Assume that Mr. A has placed order for supply of product Z to Mr. B. As per the contract, Mr. B is required to deliver the goods i.e. product Z in the premises of Mr. A. Mr. B hires transporter for transportation for delivery of goods. The lorry receipt indicate that the freight is payable by Mr. A. In this case, Mr. B was required to make the payment to the transporter as it is obligation of Mr. B to deliver the goods to the premises of Mr. A. As against Mr. B making the payment to transporter, the payment is made by Mr. A. Therefore, such payment will form part of transaction value of product Z. Thus, in a contract, the obligation undertaken by the supplier for making supply of goods needs to be determined. All the expenses in respect of such obligation must be incurred by the supplier. In case any amount has been incurred by the recipient of supply in connection with the supply, the same will be included in the transaction value.

17.5-3 Inclusion of commission and packing charges Clause (c) of section 15(2) provides that transaction value will include commission and packing charges charged by the supplier to the recipient of supply and transaction value to include any amount charged by the supplier for anything done in respect of supply either at the time or before delivery of goods or services. Thus incidental expenses incurred for supply of goods or services are also required to be included in the transaction value. This clause can be explained by following example : Example 1 - X Company appoints agent Y to procure orders. Y procures order from A for supply of 100 kg. of B goods at a price of ` 10 per kg. X supplies the goods to A and charge him only ` 9.50 per kg. with the instruction that 50 paise shall be directly paid to Y by him. Payment by A to Y is in connection with the

531

CH. 17 : VALUE OF SUPPLY

Para 17.5

supply of goods made by X to A. Therefore 50 paise will be considered as part of transaction value for the purpose of section 15 and GST will be payable on the commission amount paid by A to Y. Example 2 - It is often seen whenever the person intends to gift any article to other person, he requests the supplier to pack the goods in a particular packing to give beautiful look to the gift. The amount for the special packing is separately paid by the recipient to the supplier. As per clause (c) the cost of such packing will be included in the value of goods being supplied even if the cost of packing is separately paid by the recipient.

This section further provides that payment may be made for anything done in respect of supply either at the time or before delivery of the goods. Thus even if the amount has nexus with the activity carried out before delivery of goods, the same would form part of transaction value. This is explained by following example : Example - Very often when the company intends to dispose of plant and machinery in installed condition, they advertise sale of plant and machinery on ‘as is where is basis’. It means that the person intending to buy the plant and machinery shall quote the price considering the fact that the machinery will have to be dismantled before being transported. The buyer may appoint any person for dismantling of machinery and pay him directly. The amount for sale of plant and machinery is paid to the seller. In this case, the cost of dismantling the machinery which is paid to third party will also form part of the value of supply of plant and machinery. The cost of dismantling the machinery has nexus to the activity before supply of goods. As per clause (c) that amount will also form part of value of supply.

17.5-4 Subsidy linked to supply Clause (e) describes subsidy provided in any form or manner linked to the supply will also be included in the transaction value. This clause does not require that the subsidy shall be provided by Government. Subsidy provided by any person in any form will be considered as part of transaction value. It also does not specify that the subsidy shall be provided by the recipient of supply. However, the subsidy shall have link to the supply being made. This has been explained by following example : Example 1 - Government gives subsidy on supply of cooking gas cylinders to poor families. Now-a-days, the subsidy is directly transferred to the account of the poor family. The company making supply of gas cylinder sells the goods at a fixed price and not at the subsidized rate. The amount of subsidy is directly credited to the account of poor family and not received by company making the supply. Therefore, such subsidy will not be considered as part of transaction value as it is not received by the person making the supply.

Clause (e) specifically provides that subsidy shall be linked to the supply.

17.5-4a SUBSIDY BY CENTRAL GOVERNMENT/STATE GOVERNMENT - Very often in order to ensure the availability of specified commodity at a cheaper price, the

Para 17.5

DIV. 2 : LEVY OF GST - KEY ASPECTS

532

Government offers subsidy to the manufacturer on sale of product. The supplier is asked to supply the goods or services at a reduced price. The supplier is paid the subsidy amount directly by the Government. The quantum of subsidy is notified by the Government. For example, the Government gives subsidy for sale items used as fertilizer like sale of Urea. The Government provides subsidy on sale. The manufacturer recovers sale of goods at the specified rate from the customer. The subsidy is not provided by the buyer of goods, but is provided by the Central Government as per the scheme. Therefore, this will not form part of value of supply as it is specifically specified that such subsidy provided by the Central or State Government will not form part of the transaction value.

As regards inclusion of incentive paid by MeitY to acquiring banks in transaction value kindly refer para 17.9 17.5-5 Interest or late fee or penalty It is specifically provided in clause (d) of sub-section 15(2) that interest or late fee or penalty for delay in payment of any consideration for supply will form part of the value of supply. The GST will be payable on the same. For example, say M/s. X has supplied goods to M/s. Y on a credit period of thirty days. The contract provides that the interest will be charged at the rate of 18% for the delay in making payment of supply. It is specifically provided that such interest will form part of the consideration of supply and GST will be payable on the same.

This provision is likely to cause a lot of litigation. In most cases, the supplier is unable to recover the interest although it is mentioned in the contract. Normally in a settlement of receiving of amount with any recipient, the interest is waived by the supplier. Sometimes even the interest may not be charged even if the contract may provide for it, in order to maintain excellent relationship with the customer.

17.5-5a INTEREST COLLECTED BY STOCK BROKER ON LOANS - The stock broker is required to make payment to the stock exchange on the settlement day or on daily basis on behalf of their customers. Sometimes, the customers do not make payment in time to the stock broker but the stock broker makes payment to the stock exchange. The stock broker extends temporary loan to the customer and recover the amount along with interest. In the earlier FAQ it was clarified that interest collected by stock broker would be liable to GST. The said clarification has been revised and new clarification issued is reproduced below. As per the clarification, the interest is exempt from payment of GST. Sr. No.

Question

Answer

80.

Is GST leviable on interest/delayed payment charges charged to clients for debit for settlement obligations/ margin trading facility?

Any interest/delayed payment charges charged for delay in payment of brokerage amount/settlement obligations/ margin trading facility shall not be leviable to GST since settlement obligations/margin trading facilities are transactions which are in the nature of extending loans or advances and are covered by Entry No. 27 of notification No.12/2017- Central Tax (Rate) dated 28th June, 2017. (Amended as on 27-12-2018)

GST HOW TO MEET YOUR OBLIGATIONS (SET OF 2 VOLS.) AUTHOR PUBLISHER DATE OF PUBLICATION EDITION ISBN NO NO. OF PAGES BINDING TYPE

: : : : : : :

S.S. GUPTA TAXMANN OCTOBER 2024 15TH EDITION 9789364552622 3178 PAPERBACK

Rs. 7,295

DESCRIPTION Taxmann's flagship commentary, GST How to Meet Your Obligations, is a comprehensive 2-volume analysis of India's Goods and Services Tax (GST). Over 2,500 pages offer detailed insights into every aspect of GST law, covering Acts, Rules, Notifications, and Clarifications. Key areas such as levy, exemptions, input tax credit, exports/imports, and dispute resolution are clearly explained with illustrations and examples. This guide is indispensable for understanding GST complexities, supported by case laws and judicial rulings.

This commentary is ideal for tax professionals and consultants seeking compliance guidance, business owners and financial managers aiming for smooth GST adherence, departmental officers needing an authoritative reference, and legal practitioners and courts requiring clarity on legal provisions and case law interpretation.

The Present Publication is the 15th Edition, amended by the Finance (No. 2) Act, 2024, enforced w.e.f. 27th September & 1st November, 2024. It covers the recommendations of the 54th GST Council Meeting and is authored by S.S. Gupta, with the following noteworthy features:

Direct Taxes Manual | Set of 3 Volumes

• [Exhaustive Commentary] In-depth analysis spread over eighty-nine chapters, covering all key aspects of GST, from levy to compliance • [Interlinked Statutory Contents] Cross-references between laws, rules, and notifications, providing a holistic understanding of interconnected GST provisions • [Judicial Precedents & Case Laws] Practical insights with rulings from Tribunals, High Courts, and the Supreme Court • [Illustrations & Practical Examples] Complex concepts are clarified through practical examples and illustrations • [Simple & Lucid Language] Written in accessible language, making GST laws understandable to a wide audience The two volumes are systematically arranged, progressing from fundamental GST principles to advanced topics, special scenarios, transitional provisions, and dispute resolution, ensuring a logical flow for readers.

BUY NOW