VALUE OF SUPPLY
Question 187: What is the relevance for ascertaining value of supply?
: Value of supply is the figure upon which tax is levied and collected. What forms part of the value and what does not form part of the value of supply is required to be ascertained for correct levy of tax.
Past History of Taxation is full of instances wherein there have been in numerous disputes in ascertaining the value upon which tax would be levied and collected. The ongoing fight between the assessee and the tax regime of whether service tax would form part of the value of sales price for the levy of sales tax is an example of why guidelines for valuation are required to be precise and clear about what to include and what not to include.
Question 188: What is Value of Supply?
: Value of Supply in common terms is nothing but the amount paid by the recipient of supply to the supplier as consideration for supply.
Example: A goes to shop of B and purchases television. He pays amount of ` 20,000 as consideration for TV Purchased. Let’s decode the transaction between A and B:
(a) Supply of Television by B to A
(b) B
(c) A
(d) ` 20,000
(e) A pays to B towards Value of Supply
(f) A is paying ` 20,000 as consideration to B for supply of Television
Question 189: How value of Supply is to be arrived at? Section 15(1) of CGST Act, 2017
: Value of Supply is the transaction value which would be the price actually paid/payable for the supply of goods or services or both. However, such value would be acceptable only when—
(a) Supplier and the recipient are not related, and
(b) Price is the sole consideration for the supply.
Question 190: What is meant by Price actually paid or payable ?
: The words “price actually paid or payable” mean amount which has been paid or which is payable by the recipient to the supplier as consideration towards the supply of goods or services or both.
Question 191: Who are related persons under GST?
: Explanation to section 15 of CGST Act, 2017 defines related persons. It also provides a list where persons would be deemed to be related persons on satisfaction of any of the conditions as provided below:
relation
Holding
Control of Business
relationship of Sole Agent, Sole Distributor
Explanation 1
(a) T
(b) They are legally recognized partners in business
(c) They are employer and employee
(d) They are members of the same family
(a) A of the outstanding voting stock or shares of both of them
(a) One of them directly or indirectly controls the other
(b) Both of them are directly or indirectly controlled by a third person
(c) Together they directly or indirectly control a third person
Persons who are associated in the business of one another in that one is the sole agent or sole distributor or sole concessionaire, howsoever described, of the other, shall be deemed to be related.
The term person includes legal persons.
Question 192: What is the rationale behind providing twin conditions as described above?
: Thumb rule is, if supplier or recipient of goods or services are not related and price is the sole consideration, then transaction value as agreed between them would be value of supply of goods or services.
These two conditions i.e. two parties are not related and price is the sole consideration, have been incorporated in the law to nullify the impact of the arrangements which yield a price below the normal price because of concessional or manipulative considerations. Such concessions or manipulative considerations cannot ever be equated to fair market value or arms length price.
Thus, the rationale is to find that if the twin conditions are satisfied then the transaction value between supplier and recipient of the goods or services, would be the value of supply as agreed upon by them.
However, if the twin conditions are not satisfied, then rules would be notified to identify and quantify factors which had a direct impact on the arms length price of supply. Such rules would be used to find out the fair market value or the arms length price of the goods or services.
In the above example, as A and B were unrelated persons, the transaction value of ` 20,000 between them was treated as the value of supply.
Now consider that A is relative of B and he comes to shop for purchase of television. B because of A being his relative, reduces the price of television and supplies Television for ` 15,000.
The law lays down the condition that in case transaction of supply takes place between two related parties, the value of supply between them would always be worked out by alternative mechanism and value of supply as agreed by them would be cross verified with the value of supply of similar goods or similar kind between two unrelated parties.
In this transaction when the value of the television is compared with that of the television sold to a non-related party, there is a reduction of ` 5,000. This reduction is only on account of B being relative of A. Thus, in this case transaction value between A and B would not be treated as the value of supply. Alternate mechanism would be brought in place to ascertain what would have been the value of television, if the same had taken place between two unrelated parties and the value thus arrived would be replaced and treated as value of supply for levy of tax.
Had B charged ` 20,000, then alternative mechanism would also have yielded the same results that fair market value of the television is ` 20,000 and the value of supply would not have been changed but would have remained the same at ` 20,000.
or conjunctively?
: The twin conditions specified in the law i.e. supplier and the recipient are not related persons and price is the sole consideration should be satisfied conjunctively. It cannot be a case where one of the
conditions is satisfied and other one is not. Thus if both conditions are satisfied, then only price actually paid/ payable for the supply of goods or services by the recipient to the supplier would be treated as value of supply.
: If the above twin conditions are not satisfied then resort would have to be had to the Valuation Rules.
Question 195: How Valuation of Supply would be made as per section 15(4), read with Valuation Rules?
: Valuation of supply of goods or services or both made under section 15(4), read with Valuation Rules would be as follows:
(
(
a) Value of supply of goods or services where the consideration is not wholly in money.
b) Value of supply of goods or services or both between distinct or related persons, other than through an agent.
(
c) Value of supply of goods made or received through an agent.
(
d) Value of supply of goods or services or both based on cost.
(
e) Residual method for determination of value of supply of goods or services or both.
Question 196: How value of supply would be determined where consideration for supply of goods or services or both is discharged by
a
b : Let’s take an example to arrive at the value of supply
(
a) If the open market value of the goods or services supplied by the supplier is known then open market value of the goods or services supplied would be the value of supply.
A new phone is supplied for ` 20,000 along with the exchange of an old phone. However, if we know that value of the phone in money terms without exchange offer is ` 24,000, the value of supply of new phone would be ` 24,000.
(
b) If open market value of the goods or services is not available, then value of supply can be the sum total of
(i) Consideration in money and
(ii) any such further amount in money as is equivalent to the consideration not in money if such amount is known at the time of supply.
Where a laptop is supplied against a barter of printer that is manufactured by the recipient and the value of the printer known at the time of supply is ` 40,000 but the open market value of the laptop is not known, the value of the supply of laptop would be ` 40,000 i.e. value of printer supplied in barter.
(
c) If the value of supply cannot be determined under any of the two methods above, value of supply would be value of goods or services or both of like kind and quality.
Where a laptop is supplied in a complete barter of printer without any payment of consideration in money. Further, neither value of printer nor value of laptop is known at the time of supply.
Then open market value of similar laptop with similar features would be treated as value of supply. Supposedly, open market value of similar laptop with similar features is ` 44,000. Therefore, value of the supply of laptop is ` 44,000.
(
d) If value is not determinable under any of the three methods above, value of supply would be sum total of consideration in money and such further amount in money that is equivalent to consideration not in money as determined by application of Rule 30 or Rule 31 of Central Goods and Services Tax Rules, 2017 in that order.
Question 197: How value of supply to be arrived at in case of supply of goods or services between related persons?
: Let’s understand it with an example wherein A who is brother of B, comes to the shop of B. He selects goods worth ` 50,000 from the shop. The following would be the steps to find out the value of supply between A and B:
(
a) If the open market value of the goods or services supplied by the supplier is known then open market value of the goods or services supplied would be the value of supply.
A who is brother of B, comes to the shop of B. He selects goods worth ` 50,000 on the shop and asks how much he has to pay for it. B asks A to pay ` 40,000. In this transaction, as B is brother of A, A has charged lesser price from B. Thus, the open market price in the given case would be ` 50,000
(
b) If open market value is not available, it will be the value of supply of goods or services of like kind and quality.
A who is brother of B, comes to the shop of B. Supposedly, goods selected by him on such goods. B asks A to pay ` 40,000. In this transaction, as B is brother of A and the open market value is not available, price of goods with similar features would be the value of supply of the goods. Supposedly, similar goods are available for ` 45,000 in the market, therefore value of supply would be ` 45,000
(
c) If value is not determinable under either of the two methods above, value of supply would be the value as determined by application of Rule 30 or Rule 31 of Central Goods and Services Tax Rules, 2017, in that order.
(
d) Where the goods are intended for further supply as such by the recipient, the value at the option of the supplier, be an amount equivalent to ninety per cent of the price charged for the supply of goods of like kind and quality by the recipient to his customers not being his related person.
(e) If the recipient is eligible for full input tax credit, the value declared in the invoice shall be deemed to be open market value of the goods or services.
(
f) Vide Amendment made to Rule 28, with effect from 26th October 2023, it has been provided that Notwithstanding anything contained in sub-rule (1), the value of supply of services by a supplier to a recipient who is a related person located in India, by way of providing corporate guarantee to any banking company or financial institution on behalf of the said recipient, shall be deemed to be one per cent of the amount of such guarantee offered per annum, or the actual consideration, whichever is higher. Further where the recipient is eligible for full input tax credit, the value declared in the invoice shall be deemed to be the value of said supply of services.
to know that goods transferred from Rajasthan to its branch in Gujarat can be valued in terms of the Cost Price under the Second Proviso to Rule 28 of CGST Rules, 2017, instead of 90% of MRP as required under the First Proviso of the same Rule?
Yes, X Limited has the option of not supplying goods to its branches under the First Proviso of Rule 28 and is eligible to value these goods by applying the terms of the Second Proviso to Rule 28 of CGST Rules, 2017. The expression “where the recipient is eligible for full input tax credit”, as used in the Second Proviso to Rule 28 of CGST Rules, 2017, means that the recipient will be eligible to take full input tax credit of the amount of tax paid by the supplier as mentioned in the respective invoice or any other document valid under section 16(2)(a) of CGST Act, 2017.
Question 198A: What would be the values of supply, in case of import of services by a registered person in India from a related person located outside India, the tax is required to be paid by the registered person in India under reverse charge mechanism.
In such cases, the registered person in India is required to issue self-invoice under section 31(3) (f) of CGST Act and pay tax on reverse charge basis. Therefore, it was clarified vide Circular No. 210/4/2024 Dated 26th June 2024 that in cases where the foreign affiliate is providing certain services to the related domestic entity, and where full input tax credit is available to the said related domestic entity, the value of such supply of services declared in the invoice by the said related domestic entity may be deemed as open market value in terms of second proviso to rule 28(1) of CGST Rules. Further, in cases where full input tax credit is available to the recipient, if the invoice is not issued by the related domestic entity with respect to any service provided by the foreign affiliate to it, the value of such services may be deemed to be declared as Nil, and may be deemed as open market value in terms of second proviso to rule 28(1) of CGST Rules.
July 2024
a.
recipient, was taxable even before the insertion of sub-rule (2) in rule 28 of CGST Rules with effect from 26th October 2023. Rule 28(2) of CGST Rules is only for determination of the value of the taxable supply of providing corporate guarantee to any banking company or regarding the taxability of the said supply itself. Prior to the insertion of the said sub-rule, i.e., before 26th October 2023, the valuation of service of providing corporate guarantee to of the said recipient, was to be done as per the provisions of Rule 28 of CGST Rules, as it existed then.
Therefore, in respect of supply of services of providing corporate guarantee between related persons, in respect of corporate guarantee issued or renewed before 26th October 2023, the valuation of the said supply is to be done in accordance with Rule 28, as it existed during that time. However, if the corporate guarantee is issued or renewed on or after 26th October 2023, then the valuation of the said supply will be required to be done as per Rule 28(2) of CGST Rules.
b. The activity of supply of the service of providing a corporate guarantee is not linked with the actual disbursal of the loan. The service that is provided by the guarantor to the guarof the service of providing a corporate guarantee will be calculated based on the amount guaranteed and will not be based on the amount of loan actually disbursed to the recipient of the corporate guarantee.
made thereunder, irrespective of when the loan is actually disbursed to the recipient, and irrespective of the amount of loan actually disbursed.
c. -
tution by a supplier to a related recipient, on behalf of the said recipient, the supplier of the service is the corporate entity providing the corporate guarantee and the recipient is the related entity for whom the corporate guarantee is provided by the said supplier.Therefore,
d.
be no impact on GST, unless there is issuance of fresh corporate guarantee or there is a renewal of the existing corporate guarantee. However, if the takeover of the loan is followed/ accompanied by issuance of fresh corporate guarantee, then GST would be payable on the same.
In cases where corporate guarantee is being provided by multiple related entities, the value of such services of providing corporate guarantee shall be the sum of the actual consideration paid/payable to co-guarantors, if the said amount of total consideration is higher than one per cent of the amount of such guarantee offered. In cases where the sum of the actual consideration is less than one per cent of the amount of such guarantee offered, then GST shall be payable by each co-guarantor proportionately on one per cent of the amount guaranteed by them.
For instance, if there are two co-guarantors, A and B, who jointly provide a corporate guar-
A and B shall each pay GST on 0.5% of the amount guaranteed.
However, if in the above case of A and B providing corporate guarantee jointly to a banking/
60% of the guarantee amount and B provides guarantee for the remaining 40% of the guaranteed amount, then GST shall be payable by A and B proportionately i.e., 0.6% and 0.4% of the amount guaranteed. This is to say that A shall pay GST on 1% of the amount guaranteed by A, i.e., 1% on Rs. 60 lakhs and B shall pay GST on 1% of the amount guaranteed by B, i.e., 1% on Rs. 40 lakhs.
e be paid under forward charge mechanism, and invoice is to be issued by the supplier of the service of providing corporate guarantee to the related recipient under section 31 of CGST Act, 2017 read along with the relevant rules.
However, in cases where such guarantee is provided by the foreign/overseas entity for a related entity located in India, then GST would be payable under reverse charge mechanism, by the recipient of service, i.e., the related entity located in India.
g.
Rule 28(2) of CGST Rules has been amended retrospectively with effect from 26th October 2023, vide -
one per cent of the amount guaranteed per annum or the actual consideration, whichever is higher.
Accordingly, the value of supply of the service of providing corporate guarantee to a banking years shall be one per cent of the amount of such guarantee offered multiplied by the number of years for which the said guarantee is offered or the actual consideration whichever is higher.
In addition to the above, in cases where the corporate guarantee is provided for a period less than a year, say 6 months (half a year), then in those cases as well, the valuation may be done on proportionate basis for the said period, i.e., in this case, the value of the said supply of services may be taken as half of one per cent of the amount of such guarantee offered (6/12 * one per cent), or the actual consideration, whichever is higher.
the value of such guarantee is to be calculated at one per cent per year of the amount of such guarantee offered, or the actual consideration, whichever is higher, i.e., the value of such corporate guarantee provided would be 5% of the amount guaranteed or the actual consideration, whichever is higher. Therefore, GST would be payable on such amount at the time of issuance of such corporate guarantee, i.e., 5% of the amount guaranteed or the actual consideration, whichever is higher.
However, if a corporate guarantee is issued, say for a period of one year and is renewed amount of such guarantee offered, or the actual consideration, whichever is higher, on the years.
h
Proviso has been inserted in sub-rule (2) of Rule 28 of CGST Rules, retrospectively with effect from 26th October 2023 vide to that provided in the second proviso to sub-rule (1) of Rule 28 of CGST Rules, to provide related persons.
guarantees provided between related persons, where full input tax credit is available to the recipient of services, the value declared in the invoice shall be deemed to be the value of supply of the said service.
As per the amendment done in sub-rule (2) of rule 28 of CGST Rules retrospectively w.e.f. 26th October 2023 vide
said sub-rule will not apply in cases where the recipient of the services of providing corporate guarantee between related persons is located outside India. Accordingly, the provisions of the said sub-rule shall not apply to the export of the services of providing corporate guarantee between related persons.
Question 199: What would be the Value of Supply in case of supply of goods by a principal to an Agent?
(
(
The Value of Supply in case of supply of goods by Principal to Agent would be the
a) Open market value of the goods being supplied, or
b) At the option of the supplier, be ninety per cent of the price charged for the supply of goods of like kind and quality by the recipient to his customer not being a related person, where the goods are intended for further supply by the said recipient.
Where the value of a supply is not determinable as per the above rules, same shall be determined by the application of rule 30 or rule 31 in that order.
A principal supplies groundnut to his agent and the agent is supplying groundnuts of like kind and quality in subsequent supplies at a price of five thousand rupees per quintal on the day of the supply. Another independent supplier is supplying groundnuts of like kind and quality to the said agent at the price of four thousand five hundred and fifty rupees per quintal. The value of the supply made by the principal shall be four thousand five hundred and fifty rupees per quintal or where he exercises the option, the value shall be 90 per cent of five thousand rupees i.e., four thousand five hundred rupees per quintal.
option of the supplier, overriding anything contained anywhere else in the Act?
: Value in respect of supplies as detailed out below would be determined in the manner as specified in the Rules:
(
a) Purchase or sale of foreign currency, including money changing
(b) Booking of tickets for travel by air provided by an air travel agent
(
(
c) Life insurance business
d) 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 purchase of such goods
(
e) Value of a token, or a voucher, or a coupon, or a stamp (other than postage stamp) which is redeemable against a supply of goods or services or both.
Question 200A: Whether the amount of insurance premium, which is not included in the taxable value as per Rule 32(4) of Central Goods and Services Tax Rules, 2017 applicable for life insurance
tax credit availed in respect of such amount shall be required to be reversed or not.
: Circular No. 214/8/2024 Dated 26th June 2024 has clarified that amount of the premium for taxable life insurance policies, which is not included in the taxable value as determined under rule 32(4) of CGST Rules, cannot be considered as pertaining to a non-taxable or exempt supply and therefore, there is no requirement of reversal of input tax credit as per provisions of Rule 42 or rule 43 of CGST Rules, read with sub-section (1) and sub-section (2) of Section 17 of CGST Act, in respect of the said amount.
Question 201: What are the adjustments which have to be provided to arrive at the value of supply? - section 15(2) of CGST Act, 2017
: Following are adjustments which have to be provided to arrive at the value of supply:
(1) Value of supply shall include:
(
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;
(
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;
(
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;
(
d) interest or late fee or penalty for delayed payment of any consideration for any supply; and
(
e) subsidies directly linked to the price excluding subsidies provided by the Central Government and State Governments.
(2) Value of 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
(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
Question 202: How discount provided before or at the time of supply and discount provided after the time of supply have been treated under the law for the purpose of value of supply? - section 15(3) of CGST Act, 2017 :
Condition Particular
Condition 1The discount has been given before or at the time of supply.
Condition 2Such discount shall be duly recorded in the invoice issued in respect of such supply.
A has supplied goods to B. Normal selling price of the goods is ` 100.00. A provides a discount of ` 10 to B and supplied the goods at ` 90. In such case, as the discount is evident and duly recorded in the invoice, therefore such discount would be allowed as a deduction.
Condition Particular
Condition 1The discount is established in terms of an agreement entered into, at or before the time of such supply. Condition 2
Condition 3The recipient should have reversed the input tax credit as attributable to the discount on the basis of document issued by the supplier.
A has entered into an agreement with B for supply of Sugar candy. The agreement provides that if B would make an off take of 2,000 sugar candy in one month, he would provide an off take discount of 2% on entire off take made by B during the month. B makes an off take of 2,500 sugar candy during the month on three invoices as follows:
Now A would issue a credit note to B on all the invoices issued during the month and would also reverse tax levied on such invoices.
B would have to reverse Input Tax Credit of the tax Levied by A in the earlier invoices.
Question 202A: In cases where the discounts are offered by the suppliers through tax credit notes, after the supply has been effected, the said discount is not to be included in the taxable value only if the condition of clause (b)(ii) of sub-section (3) of section 15 of the Central Goods and Services Tax Act, 2017, for reversal of the input tax credit attributable to the said discount by the recipient, is b)(ii) of the CGST Act regarding proportionate reversal of input tax credit by the recipients in respect of such discounts given by the supplier by issuing tax credit notes after the supply has been effected.
It has been clarified vide Circular No. 212/7/2024 that, till the time a functionality/facility is made available on the common portal to enable the suppliers as well as the tax officers to verify whether the input tax credit attributable to such discounts offered through tax credit notes has been reversed by the recipient or not, the supplier may procure a certificate from the recipient of supply, issued by the Chartered Accountant (CA) or the Cost Accountant (CMA), certifying that the recipient has made the required proportionate reversal of input tax credit at his end in respect of such credit note issued by the supplier.
The said CA/CMA certificate may include details such as the details of the credit notes, the details of the relevant invoice number against which the said credit note has been issued, the amount of ITC reversal in respect of each of the said credit notes along with the details of the FORM GST DRC-03/return/any other relevant document through which such reversal of ITC has been made by the recipient. Such certificate issued by CA or CMA shall contain UDIN (Unique Document Identification Number). UDIN of the certificate issued by CAs can be verified from ICAI website https://udin.icai.org/search-udin and that issued by CMAs can be verified from ICMAI website https://eicmai.in/udin/VerifyUDIN.aspx.
In cases, where the amount of tax (CGST+SGST+IGST and including compensation cess, if any) involved in the discount given by the supplier to a recipient through tax credit notes in a Financial Year is not exceeding Rs. 5,00,000 (rupees five lakhs only), then instead of CA/CMA certificate, the said supplier may procure an undertaking/certificate from the said recipient that the said input tax credit attributable to such discount has been reversed by him, along with the details mentioned hereinabove.
th June 2024 is required to be produced in all cases wherein credit note has been issued by the supplier as per the provisions of Section 34 of CGST Act, 2017 i.e. say for e.g. return of goods or is only required to be
1.102
produced only in cases wherein credit note has been issued on account of discount as per the provisions of Section 15(3)(b)(ii) of CGST Act, 2017.
It would be relevant to highlight that as per Circular No. 212/7/2024 Dated 26th June 2024, such requirement is specific to provisions of Section 15(3)(b)(ii) of CGST Act, 2017 as statute requires specific compliance of the condition that recipient has also reversed the Input Tax Credit to the extent of tax on output supplies has been reduced by the supplier. However for other instances wherein credit note has been issued in pursuance of Section 34, no such requirement is present for certificate as the section does not requires any specific requirement of recipient reversing the credit to the extent of tax on outwards supplies reduced by the supplier.
Question 203: Tanuj has paid an amount as rate difference on an ad hoc basis, post supply to its vendors. He wants to know whether amount paid to his vendors towards “rate difference” post supply can be deducted from the value of supply for the purpose of arriving at the ‘transaction value’ in terms of Section 15 of the Central Goods and Services Tax Act?
Tanuj has paid the amount as a rate difference on an ad hoc basis and without any pre-fixed criteria, basis or rationale for arriving at the quantum of discounts. These amounts paid post supply do not comply with requirements of section 15(3)(b)(i) of the CGST Act and therefore cannot be considered and allowed as deduction for the purpose of arriving at the ‘transaction value’ in terms of section 15 of the CGST Act.
Question 204: What are method prescribed for valuation under Rules 30 and 31 of Central Goods and Services Tax Rules, 2017?
These two rules can be called as residual rules for the purpose of valuation. Where the valuation cannot be made as per under Rules 27, 28 and 29 of the Central Goods and Services Tax Rules, 2017, then operation of rules 30 and 31 would come into operation. The method of valuation as prescribed under rules 30 and 31 are as follows:
Where the value of a supply of goods or services or both is not determinable by rules 27, 28 and 29, value of such supply shall be one hundred and ten per cent of the cost of production or manufacture or the cost of acquisition of such goods or the cost of provision of such services.
Where the value of supply of goods or services or both cannot be determined under rules 27 to 30, the same shall be determined using reasonable means consistent with the principles and the general provisions of section 15 and the provisions of this Chapter. However, in case of supply of services, the supplier may opt for this rule, ignoring the provisions as contained in rule 30.
Question 205: Sometimes, supplier makes payment to the third party on authorization by such recipient, whether such payment would be added to the valuation of supply?
Before answering the above question, let’s first understand the basic concept of pure agent. Pure Agent has been defined in the rule as a person who -
(
a) enters into a contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs in the course of supply of goods or services or both;
(b) neither intends to hold nor holds any title to the goods or services or both so procured or supplied as pure agent of the recipient of supply;
(
(
c) does not use for his own interest such goods or services so procured; and
d) receives only the actual amount incurred to procure such goods or services in addition to the amount received for supply he provides on his own account.
The illustration of pure agent is as follows:
Corporate services firm A is engaged to handle the legal work pertaining to the incorporation of Company B. Other than its service fees, A also recovers from B, registration fee and approval fee for the name of the company paid to Registrar of the Companies. The fees charged by the Registrar of the companies registration and approval of the name are compulsorily levied on B. A is merely acting as a pure agent in the
payment of those fees. Therefore, A’s recovery of such expenses is a disbursement and not part of the value of supply made by A to B.
Thus, keeping the above background, payment made by the supplier to the third party on the authorization by the recipient would not be added to the valuation of supply provided supplier acts as a pure agent and fulfils certain conditions which are as follows:
(
i) 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;
(ii) the payment made by the pure agent on behalf of the recipient of supply has been separately indicated in the invoice issued by the pure agent to the recipient of service; and
(iii) the supplies procured by the pure agent from the third party as a pure agent of the recipient of supply are in addition to the services he supplies on his own account.
In case of In re applicant was engaged in transporting cash/coins/bullion in his or her own vehicles. The agreement between applicant and bank mentioned that toll and parking charges will be paid on actual amount. AAR observed that vehicles were owned by applicant and toll has been charged for providing service by way of access to a road or bridge. Therefore, applicant admittedly was the beneficiary and liable to pay toll, which is compulsorily levied on vehicles. It was held that expenses so incurred are, therefore, cost of service provided to Banks and reimbursement of such expenses is recovery of a portion of value of supply made to Banks and therefore Toll charges paid are not to be excluded from the value of supply under Rule 33.
In In re held that Transaction made between Del-Credere Agent and customer for passing on specified bonus given by principal is nothing but an additional discount given for early payment made by the customer to the Principal through Del-Credere Agent. In this case there is only one supply made by the principal to the customer of the goods supplied. The additional discount relates to supply already made by the principal and passing on such bonus to the customers by Del-Credere Agent is in the nature of pure agent.
Question 206: Rahul has supplied goods to Shyam. Rahul has undertaken to supply the goods in the bill for the purpose of arriving at the taxable value?
As per provisions of Section 15 of the CGST Act, 2017, taxable value shall include any amount that a supplier is liable to pay in relation to a supply but which has been incurred by the recipient of the supply.
Thus, if Rahul has undertaken to supply goods at the factory gate of Shyam then irrespective of the fact that who pays the freight, it would be Rahul who was liable to pay and therefore tax would be levied on bill after adding freight to the value of goods supplied.
The liability to pay STT and Stamp Duty on purchase or sale of share is that of either purchaser or seller and not of stock broker. The stock broker collects and deposits the same on behalf of the purchaser or seller and in the capacity of the pure agent. Thus, GST is not payable on STT and Stamp Duty as long as the sub-broker satisfies the conditions of pure agent as specified in Rule 33 of the CGST Rules, 2017.
Question 208: Kavita has exported goods to USA for US$ 5000 against payment of IGST. She is confused regarding how value of Exports in INR has to be arrived at. Whether taxable value in INR
As per Rule 34 of CGST Rules, 2017, rate of exchange for determination of taxable value shall be applicable rate of exchange as notified by the Board under section 14 of the Customs Act, 1962 for the date of time of supply of such goods in terms of section 12 of the Act. Therefore, Taxable Value of Export of US$ 5000 would be arrived at by using rate of exchange as notified by the Board under section 14 of the Customs Act, 1962.
Question 209: Whether GST is applicable on reimbursement of electricity charges received by
vide Circular No. 206/18/2023 Dated 31st October, 2023 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.
The Circular states that where 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.
Therefore, it appears that the circular creates a sort of exception for Real Estate Owners, Resident Welfare Associations (RWAs), Real Estate Developers, etc. who charge for electricity for their lessees or occupants, however this exception is not applicable to persons to whom premises have been given on rent but only
Question 210: How valuation of Services would be done for the activity of providing corporate guarantee by a person on behalf of another related person, or by the holding company for sanction of consideration?
services by a person to another related person or by a holding company to a subsidiary company, in form ofmined as per rule 28 of CGST Rules.
Question 211: What does the provision of sub-rule (2) to Rule 28 of CGST Rules provide for valuation of services for the activity of providing corporate guarantee by a person on behalf of another related person, or by the holding company for sanction of credit facilities to its subsidiary company,
As per the provisions of sub-rule (2) of Rule 28, it has been provided that notwithstanding anything contained in sub-rule (1), the value of supply of services by a supplier to a recipient who is a related of the said recipient, shall be deemed to be one per cent of the amount of such guarantee offered, or the actual consideration, whichever is higher.
Question 212: Why sub-rule (2) has been inserted in rule 28 of CGST Rules vide related persons in respect of providing corporate guarantee?
provide uniformity in practices and ease of implementation, sub-rule (2) has been inserted in rule 28 of CGST Rules vide services between related persons in respect of providing corporate guarantee. Accordingly, consequent to insertion of the said sub-rule in rule 28 of CGST Rules, in all such cases of supply of services by a related person to another person, or by a holding company to a subsidiary company, of such supply of services, will henceforth be determined as per the provisions of the sub-rule (2) of Rule 28 of CGST Rules, irrespective of whether full ITC is available to the recipient of services or not.
their companies and the same shall be valued in the manner provided in terms of S. No. 1 of the said circular.
Question
213: Whether Provisions of sub-rule (2) has been inserted in rule 28 of CGST Rules
The provision has been inserted with a prospective effect and has not been inserted with a retrospective effect and unless the provision is inserted with a retrospective effect, it only has a prospective substantive amendment. Further form the language of Circular No. 204/16/2023 dated 27th October, 2023, it also appears that application of the provision would be prospective in nature as it states that “the taxable value of such supply of services, will henceforth be determined as per the provisions of the sub-rule (2) of Rule 28 of CGST Rules, irrespective of whether full ITC is available to the recipient of services or not.”
Transaction Value
1. Supplier and Recipient are not related party
2. Price is the sole consideration
If Both Conditions are satisfied
Transaction Value as entered between them would be the value of Supply
If Not, then resort would have to be had to Valuation Rules
not an agent under Para 3 of Schedule I of the CGST Act?
The matter has been clarified by CBEC Vide Circular No. 73/47/2018 dated 5th November, 2018; that in cases where the Del-Credere Agent is not an agent under Para 3 of Schedule I of the CGST Act , the temporary short-term transaction based loan being provided by Del-Credere Agent to the buyer is a supply of service by the Del-Credere Agent to the recipient on Principal to Principal basis and is an independent supply. Therefore, the interest being charged by the Del-Credere Agent would not form part of the value of supply of goods supplied (to the buyer) by the supplier. It may be noted that vide notification No. 12/2017-Central Tax (Rate) dated 28th June, 2017 (S. No. 27), services by way of extending deposits, loans or advances insofar as the consideration is represented by way of interest or discount (other than interest involved in credit card services) has been exempted.
Act and makes payment to the principal on behalf of the buyer and charges interest to the buyer for delayed payment along with the value of goods being supplied, whether the interest will form a part of the value of supply of goods also or not?
It has been clarified vide Circular No. 73/47/2018, dated 5th November, 2018 that in cases where the Del-Credere Agent is an agent under Para 3 of Schedule I of the CGST Act , the temporary short-term transaction based credit being provided by Del-Credere Agent to the buyer no longer retains its character of an independent supply and is
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subsumed in the supply of the goods by the Del-Credere Agent to the recipient. It is emphasised that the activity of extension of credit by the Del-Credere Agent to the recipient would not be considered as a separate supply as it is in the context of the supply of goods made by the Del-Credere Agent to the recipient. It is further clarified that the value of the interest charged for such credit would be required to be included in the value of supply of goods by Del-Credere Agent to the recipient as per clause (d) of sub-section (2) of section 15 of the CGST Act.
Question 216: Whether any GST is leviable on incentive paid by MeitY to acquiring banks under
It has been clarified vide Circular No. 190/02/2023 dated 13th January, 2023 that the service supplied by the acquiring banks in the digital payment system in case of transactions through RuPay/BHIM UPI is the same as the service that they provide in case of transactions through any other card or mode of digital payment. The only difference is that the consideration for such services, instead of being paid by the merchant or the user of the card, is paid by the central government in the form of incentive. However, it is not a consideration paid by the Central Government for any service supplied by the acquiring bank to the Central Government. The incentive is in the nature of a subsidy directly linked to the price of the service and the same does not form part of the taxable value of the transaction in view of the provisions of section 2(31) and section 15 of the CGST Act, 2017. Therefore, incentives paid by MeitY to acquiring banks under the Incentive scheme for promotion of RuPay Debit Cards and low value BHIM-UPI transactions are in the nature of subsidy and thus not taxable.
can be considered as an admissible discount for the purpose of determination of value of supply of insurance service provided by the insurance company to the insured?
It has been clarified vide Circular No. 186/18/2022 dated 27th December, 2022 that insurance companies make the disclosure of the fact of availability of discount in form of No Claim Bonus, subject to certain conditions, to the insured in the insurance policy document itself and also provide the details of the No Claim Bonus in the invoices also. The pre-disclosure of NCB amount in the policy documents and specific mention of the discount in form of No Claim Bonus in the invoice is in consonance with the conditions laid down for deduction of discount from the value of supply under clause (a) of sub-section (3) of section 15 of the CGST Act. Therefore, Claim Bonus (NCB) is a permissible deduction under clause (a) of sub-section (3) of section 15 of the CGST Act for the purpose of calculation of value of supply of the insurance services provided by the insurance company to the insured. Accordingly, where the deduction on account of No claim bonus is provided in the invoice issued by the insurer to the insured, GST shall be leviable on actual insurance premium amount, payable by the policy holders to the insurer, after deduction of No Claim Bonus mentioned on the invoice.
Question 217A : Whether in case of motor vehicle insurance, GST is payable by the insurance motor vehicle.
It has been clarified vide Circular No. 215/9/2024 Dated 26th June 2024 that in cases where due to the conditions mentioned in the contract itself, general insurance companies are deducting the value of salvage as deductibles from the claim amount, the salvage remains the property of insured and insurance companies are not liable to discharge GST liability on the same. However, in cases, where the insurance claim is settled on full claim amount, without deduction of value of salvage/wreckage (as per the terms of the contract), the salvage becomes the property of the insurance company and the insurance company will be obligated to discharge GST on supply of salvage to the salvage buyer.
Question 218: What is the gist of relevant Circulars issued on this subject?
Circular No.Date of Circular Brief about the Circular 186/18/2022-GST27-Dec-2022 Taxability of No Claim Bonus offered by Insurance companies 190/02/2023-GST13-Jan-2023 Clarification regarding taxability of Services 27-Oct-2023 and corporate guarantee in GST
Circular No.Date of Circular
206/18/2023-GST31-Oct-2023
Brief about the Circular
Applicability of GST on reimbursement of electricity charges received by real estate companies, malls, airport operators, etc. from their lessees/occupants.
210/04/2024-GST26th June 2024 person where recipient is eligible to full input tax credit.
212/06/2024-GST26th June 2024
conditions of Section 15(3)(b)(ii) of the CGST Act, 2017 by the suppliers
214/08/2024-GST26th June 2024 of the portion of the premium for life insurance policies which is not included in taxable value
215/09/2024-GST26th June 2024surance claims.
225/19/2024-GST11th July 2024
supply of services of providing corporate guarantee between related persons.
Rs. 4,495/-
