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Determination of Value of Supply

Let us look at chapter 4 of CGST rules – Determination of Value of Supply. This text is taken from http://www.cbec.gov.in/resources//htdocs-cbec/gst/cgst-rules-01july2017%20.pdf

Value of Supply of Goods or Services Where the Consideration is not
Wholly in Money

Where the supply of goods or services is for a consideration not wholly in
money, the value of the supply shall,-

(a) be the open market value of such supply;

(b) if the open market value is not available under clause (a), be the sum
total of consideration in money and 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;
(c) if the value of supply is not determinable under clause (a) or clause
(b), be the value of supply of goods or services or both of like kind and quality;
(d) if the value is not determinable under clause (a) or clause (b) or
clause (c), be the sum total of consideration in money and such further amount in money that is equivalent to consideration not in money as determined by the application of rule 30 or rule 31 in that order.

Illustration:

(1) Where a new phone is supplied for twenty thousand rupees along with the exchange of an old phone and if the price of the new phone without exchange is twenty four thousand rupees, the open market value of the new phone is twenty four thousand rupees.

(2) Where a laptop is supplied for forty thousand rupees along with the
barter of a printer that is manufactured by the recipient and the value of the printer known at the time of supply is four thousand rupees but the open market value of the laptop is not known, the value of the supply of the laptop is forty four thousand rupees.

Value of Supply of Goods or Services or Both Between Distinct or
Related Persons, Other Than Through an Agent

The value of the supply of goods or services or both between distinct
persons as specified in sub-section (4) and (5) of section 25 or where the
supplier and recipient are related, other than where the supply is made through an agent, shall-
(a) be the open market value of such supply;
(b) if the open market value is not available, be the value of supply of
goods or services of like kind and quality;
(c) if the value is not determinable under clause (a) or (b), be the value
as determined by the application of rule 30 or rule 31, in that order:
Provided that where the goods are intended for further supply as such by
the recipient, the value shall, at the option of the supplier, be an amount equivalent to ninety percent 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:
Provided further that where the recipient is eligible for full input tax
credit, the value declared in the invoice shall be deemed to be the open market value of the goods or services.

Value of Supply of Goods Made or Received Through an Agent

The value of supply of goods between the principal and his agent shall-

(a) be the open market value of the goods being supplied, or 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.
Illustration: 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.
(b) where the value of a supply is not determinable under clause (a), the
same shall be determined by the application of rule 30 or rule 31 in that order.

Value of Supply of Goods or Services or Both Based on Cost

Where the value of a supply of goods or services or both is not determinable by any of the preceding rules of this Chapter,
the value shall be one hundred and ten percent of the cost of production or
manufacture or the cost of acquisition of such goods or the cost of provision of such services.

Residual Method for Determination of Value of Supply of Goods or
Services or Both

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:
Provided that in the case of supply of services, the supplier may opt for
this rule, ignoring rule 30.

Determination of Value in Respect of Certain Supplies

(1) Notwithstanding anything contained in the provisions of this Chapter, the value in respect of supplies specified below shall, at the option of the supplier, be determined in the manner provided hereinafter.

(2) The value of supply of services in relation to the purchase or sale of
foreign currency, including money changing, shall be determined by the supplier of services in the following manner, namely:-
(a) for a currency, when exchanged from, or to, Indian Rupees, the value
shall be equal to the difference in the buying rate or the selling rate, as the case may be, and the Reserve Bank of India reference rate for that currency at that time, multiplied by the total units of currency:
Provided that in case where the Reserve Bank of India reference rate for
a currency is not available, the value shall be one per cent. of the gross
amount of Indian Rupees provided or received by the person changing the money:
Provided further that in case where neither of the currencies exchanged
is Indian Rupees, the value shall be equal to one per cent. of the lesser
of the two amounts the person changing the money would have received by converting any of the two currencies into Indian Rupee on that day at the reference rate provided by the Reserve Bank of India.
Provided also that a person supplying the services may exercise the
option to ascertain the value in terms of clause (b) for a financial year
and such option shall not be withdrawn during the remaining part of that financial year.
(b) at the option of the supplier of services, the value in relation to the
supply of foreign currency, including money changing, shall be deemed to be-
(i) one per cent. of the gross amount of currency exchanged for an amount
up to one lakh rupees, subject to a minimum amount of two hundred and fifty rupees;
(ii) one thousand rupees and half of a per cent. of the gross amount of
currency exchanged for an amount exceeding one lakh rupees and up to ten lakh rupees; and
(iii) five thousand and five hundred rupees and one tenth of a per cent. of
the gross amount of currency exchanged for an amount exceeding ten lakh
rupees, subject to a maximum amount of sixty thousand rupees.
(3) The value of the supply of services in relation to booking of tickets
for travel by air provided by an air travel agent shall be deemed to be an amount calculated at the rate of five per cent. of the basic fare in the case of domestic bookings, and at the rate of ten per cent of the basic fare in the case of international bookings of passage for travel by air.
Explanation: For the purposes of this sub-rule, the expression “basic
fare” means that part of the air fare on which commission is normally paid to the air travel agent by the airlines.
(4) The value of supply of services in relation to life insurance business
shall be,-
(a) the gross premium charged from a policy holder reduced by the amount allocated for investment, or savings on behalf of the policy holder, if such an amount is intimated to the policy holder at the time of supply of service;
(b) in case of single premium annuity policies other than (a), ten per
cent. of single premium charged from the policy holder; or
(c) in all other cases, twenty five per cent. of the premium charged from
the policy holder in the first year and twelve and a half per cent. of the premium charged from the policy holder in subsequent years:
Provided that nothing contained in this sub-rule shall apply where the
entire premium paid by the policy holder is only towards the risk cover in life insurance.
(5) Where a taxable supply is provided by a 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 the purchase of such goods, the value of supply shall be the difference between the selling price and the purchase price and where the value of such supply is negative, it shall be ignored:
Provided that the purchase value of goods repossessed from a defaulting
borrower, who is not registered, for the purpose of recovery of a loan or debt shall be deemed to be the purchase price of such goods by the defaulting borrower reduced by five percentage points
for every quarter or part thereof, between the date of purchase and the
date of disposal by the person making such repossession.
(6) The 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 shall be equal to the money value of the goods or services or both redeemable against such token, voucher, coupon, or stamp.
(7) The value of taxable services provided by such class of service
providers as may be notified by the Government, on the recommendations of the Council, as referred to in paragraph 2 of Schedule I of the said Act between distinct persons as referred to in section 25, where input tax credit is available, shall be deemed to be NIL.

Value of Supply of Services in Case of Pure Agent

Notwithstanding anything contained in the provisions of this Chapter, the expenditure or costs incurred by a supplier as a pure agent of the recipient of supply shall be excluded from the value of supply, if all the following

conditions are satisfied, namely,-

(i) the supplier acts as a pure agent of the recipient of the supply, when
he makes the payment to the third party on authorisation 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.
Explanation: For the purposes of this rule, the expression “pure agent”
means 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.
Illustration: 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 the Registrar of Companies. The
fees charged by the Registrar of Companies for the 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.

Rate of Exchange of Currency, Other Than Indian Rupees, for Determination of Value

The rate of exchange for the determination of the value of taxable goods or services or both shall be the applicable reference rate for that currency as determined by the Reserve Bank of India on the date of time of supply in respect of such supply in terms of section 12 or, as the case may be, section 13 of the Act.

Value of Supply Inclusive of Integrated Tax, Central Tax, State Tax, Union Territory Tax

Where the value of supply is inclusive of integrated tax or, as the
case may be, central tax, State tax, Union Territory tax, the tax amount shall be determined in the following manner, namely,-
Tax amount = (Value inclusive of taxes X tax rate in % of IGST or, as the
case may be, CGST, SGST or UTGST) ÷ (100+ sum of tax rates, as applicable, in %)
Explanation: For the purposes of the provisions of this Chapter, the
expressions-
(a) “open market value” of a supply of goods or services or both means the full value in money, excluding the integrated tax, central tax, State tax, Union territory tax and the cess payable by a person in a transaction, where the supplier and the recipient of the supply are not related and the price is the sole consideration, to obtain such supply at the same

time when the supply being valued is made;

(b) “supply of goods or services or both of like kind and quality” means
any other supply of goods or services or both made under similar circumstances that, in respect of the characteristics, quality, quantity, functional components, materials, and the reputation of the goods or services or both first mentioned, is the same as, or closely
or substantially resembles that supply of goods or services or both.
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