Let’s begin with the charging section of the CGST Act, 2017-
“(1) Subject to the provisions of sub-section (2), there shall be levied a tax called the central goods and services tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person.”
According to section 9 GST has to be charged on value of supplies determined in accordance with section 15 of the act. So now let`s drive into the section 15 so as to attend a proper understanding of how the value of a supply is determined. Let’s first look into the structure of section 15.
The value of a supply of goods or services or both shall be the transaction value.
Inclusions to Value of Supply determined in accordance with sub-section (1).
Exclusions from the Value of Supply determined in accordance with sub-section (1).
Where the value of supply cannot be determined under sub-section (1) it shall be determined in accordance with Rule 27, Rule 28, Rule 29, Rule 30, Rule 31, Rule 31A, Rule 32, Rule 33, Rule 34 & Rule 35 of the CGST Rules, 2017.
Notwithstanding anything contained in sub section (1) or (4) value of supplies shall be determined in manner as may be notified by the Government on the recommendations of the Council
In this article we’ll be discussing the cases where transaction values shall be treated as value of supply.
Sub Section (1)-
The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both
where the supplier and the recipient of the supply are not related, and
the price is the sole consideration for the supply.
Related persons has been defined through explanation to the section 15 itself, which is as under-
Explanation.—For the purposes of this Act,—
(a) persons shall be deemed to be “related persons” if—
(i) such persons are officers or directors of one another’s businesses;
(ii) such persons are legally recognised partners in business;
(iii) such persons are employer and employee;
(iv) any person directly or indirectly owns, controls or holds twenty-five per cent. or more of the outstanding voting stock or shares of both of them;
(v) one of them directly or indirectly controls the other;
(vi) both of them are directly or indirectly controlled by a third person;
(vii) together they directly or indirectly control a third person; or
(viii) they are members of the same family;
(b) the term “person” also includes legal persons;
(c) 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.”
If an auditor is given an office space at client place to carry out audit all throughout the year and the auditor charges let`s say 10 lakh rupees, this is a case where the supplier and recipient though not related but the price is not the sole consideration as the rent-free accommodation also needs to be considered. In this case since the price is not the sole consideration value of such supply shall be determined in accordance with section 15 sub section (4) and transaction price cannot be taken as value of supply.
Sub Section (2)-
Transaction value as determined u/ss (1) shall also include-
Any taxes, duties, cesses, fees and charges levied under any law other than GST law, if charged separately by the supplier;
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. For Example, If marriage hall is given for a rent of 5 lakh rupees per day and initially it was decided that all other expenses including electricity expenses shall be born by the owner of marriage hall but subsequently the amount has been paid by the recipient of service, in such case since the supplier was liable to bear the electricity expense but ultimately was paid by the recipient the amount so paid shall also be included in the value of supply.
incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply
interest or late fee or penalty for delayed payment of any consideration for any supply
subsidies directly linked to the price excluding subsidies provided by the Central Government and State Governments.
Transaction value as determined u/ss (1) shall also be reduced by discounts if given-
before or at the time of the supply if such discount has been duly recorded in the invoice issued in respect of such supply
after the supply has been effected, if such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices and 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
Sub Section (4)-
Where the value of the supply of goods or services or both cannot be determined under sub-section (1), the same shall be determined in such manner as may be prescribed. [See Rule 27, Rule 28, Rule 29, Rule 30, Rule 31, Rule 31A, Rule 32, Rule 33, Rule 34 & Rule 35]
Sub Section (5)-
Notwithstanding anything contained in sub-section (1) or sub-section (4), the value of such supplies as may be notified by the Government on the recommendations of the Council shall be determined in such manner as may be prescribed.
In the upcoming articles we shall discuss cases where value of supply is other than the transaction value.
CA Pranay Jain is a young and aspiring Chartered Accountant. He qualified Chartered Accountancy Course in 2021 and has a well-established practice in various fields of taxation and auditing, with his core area of practice being in the field of litigation i.e., handling assessment and appeal-related matters and representing assesses before various tax departments.
He is also socially active on LinkedIn at linkedin.com/in/capranayjain
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