Valuation Under GST

Introduction

The valuation of goods/ services that are provided by the service provider to the recipient is vital for the purpose of calculating GST. The valuation under GST is governed by the, GST Valuation (Determination of Value of Supply of Goods and Services) Rules, 2016.

Valuation / Methods of determining the value of goods

The methods of determining the value of goods is broadly divided into two

Monetary Consideration

Some of the valuations methods where the consideration is fully monetary are explained below:

Transaction Value Method:

-          Value determined in monetary terms

-       Taxable value is the transaction value that is agreed by the seller and the  recipient

-          While determining the transaction value, one has to consider the following:

Taxes(excluding GST), packing expense, insurance, interest or late fees or penalty for delayed payment, any subsidies, trade and other discounts and other transactions that affect the price of that particular goods / service.

-    Certain types of discounts to be excluded like, trade discounts, quality discounts and so on

Comparison Method:

-   When the value cannot be determined by the above method then the transaction value of the like goods/ services supplied or provided to the other customers are considered.

-      While determining the value under this method, the following have to be considered between the valued goods and compared goods:

o     date of supply

o     commercial value and quantity levels

o     composition, quality and design

o     freight and insurance depending on the place of supply

Computed Value Method

-     When the value cannot be determined by any of the above said methods then the transaction value is determined based on the computed value method, in the below manner:.

-    While determining the value under this method, the following is to be considered

o        cost of production, manufacture/ processing of goods, cost of provision of service

o          design or brand charges/ royalty incurred, if any

o     other general expenses incurred or profit earned with regard to the goods/ services being valued

Residual

When the value cannot be determined by any of the above said methods then the transaction value is determined in a reasonable manner considering the principles and general provisions of the rules.

Query: what is reasonable manner?

Valuation in case of Pure Agent

When a pure agent:

-       Enters into a contractual agreement with the recipient of services/ goods

-       Does not intend nor holds the title of the goods/ services

-       Does not use the goods/ services so procured

-       Gets reimbursed at actual incurred for procurement of the goods/ services.

Valuation:

-        The expenditure / cost incurred by the service provider as a pure agent shall be excluded from the value of taxable service if the following is satisfied:

  o   Service provider acts as a pure agent of the recipient of service / goods while making payment to the third party

  o   The recipient uses the goods/ services procured by the service provider in the capacity as a pure agent.

  o The liability to make payment to the third party lies on the recipient of service, however he authorized the service provider to make payment on his behalf.

  o   To maintain separately the details of payments made by the service provider

  o   The invoice to clearly indicate the payments made by the service provider on behalf of the recipient

  o   The service provider to claim only such amount paid by him to the third party on behalf of the service recipient

  o   Procurement of such goods/ services as a pure agent is in addition to the services that he provides.

Valuation in case of Money Changer

-       The value of the taxable services such as purchase/ sale of foreign currency, money changing, provided by the money changer is determined on the following:

  o   to consider the RBI reference rate at the time of conversion of the currency from / to INR and to multiply it with the total units of currency

  o   if the RBI reference rate is not available then the value shall  be 1% of the gross amount of INR provided/ received by the person changing the money

  o if the currencies involved in exchange is not INR then the value shall be equal to 1% of the lesser of the two amounts the person changing the money would have received by converting the two currencies into INR.

Non-Monetary Consideration

Where, the consideration for supply includes non-monetary consideration, the following methods are to be adopted to determine the taxable value:

   a)   Open Market Value of such supply (full value of money excluding taxes under GST laws, payable by a person to obtain such supply at the time when supply being valued is made)

   b)   Total money value of the supply i.e. monetary consideration plus money value of the non-monetary consideration

    c)   Value of supply of like kind and quality

    d)   Value of supply based on cost i.e. cost of supply plus 10% mark-up

   e)   Value of supply determined by using reasonable means (Best Judgement method)