Cost method says “where the value of a supply of goods or services or both is not determinable by any of the preceding rules, the value shall be one hundred and ten percent of the cost of production or manufacturing or cost of acquisition of such goods or cost of provision of such services”
Let’s understand with the help of one example:
Suppose Nilkamal Limited is manufacturing office chairs and the cost of manufacturing is Rs. 4,000 per chair. Similar chair in open market is valued at Rs. 4,500. These chairs are supplied to a furniture showroom at the rate Rs. 3,000 and balance in non-monetary consideration. Now since the open market value is available, Rs. 4,500 will be considered for valuation of supply. However in case if Open Market Value is not available, the value of supply as per cost method will be followed which says it has to be 110% of the cost of manufacturing i.e. Rs. 4,000*110% = Rs. 4,400. Thus GST will be charged on Rs. 4,400 in this case.Simplify Your GST Filing & Invoicing
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