Valuation Of Supply Of Goods And Services Under GST

CS Deepak Pratap Singh

Goods and Service Tax (GST) will be levied on taxable supply of goods and services. GST will be levied on value addition on each stage of supply of goods and services by allowing setoff facilities at each stage to avoid double taxation. GST is the demand of the country. The Central Government is very serious in this regard and we hope that it will be enforced after 1st April, 2016. The GST wills benefits all stakeholders and ease of doing business in India.

As we know GST is applicable on taxable supply of goods or services, and to be taxed under GST requires various ingredients. The most important ingredient is “Consideration.”

Anything received reciprocally for the supply of goods or services or both, can be termed as consideration. The consideration may be in any form in terms of money, payment through credit card, internet banking, payment in kind, payment in money or partly in kind etc.

PAYMENT OF CONSIDERATION THROUGH MONEY;

1. Payment in cash;

2. Payment through Credit Card or Debit Card;

3. Payment through Electronic means

PAYMENT NOT RECEIVED IN MONEY;

1. Barter arrangements;

Example: Let us consider a farmer buy a tractor from a dealer, now in return farmer has not paid anything to dealer in money, but in return he has supplied 100 Kgs of rice to the dealer. Now the value of 100 Kgs., of rice will be taken as consideration for purpose of GST.

2. Exchange of Services;

Example: suppose a caterer has supplied his services to a Chartered Accountants birthday and in exchange CA will file caterers return free of cost.

3. Condition imposed upon the making of the supply

Example: Lets us consider a pharmacy company agreed to supply medicine to the dealer at discount of @20% on condition that the dealer will provide a separate self at his shop for the products of Pharmacy Company. The dealers in this case supply non monitory services by providing separate self to the pharmacy company.

CONSIDERATION RECEIVED PARTLY IN MONEY;

In this case consideration against supply of goods or services or both is received partly in form of money and partly in kind.

Example: consider Mr. A wish to sale his car for Rs. 80,000 and Mr. B wants to buy that car for his business purpose. Mr. B put proposal before Mr. A to buy car for Rs. 70,000 and paint the house of Mr. A. Not in this case Rs. 10,000 will be paid through supply of services in kind.

VALUATION RULES FOR SUPPLY OF GOODS AND SERVICES;

Some rules have been framed for valuation of supply of goods or services or both for GST purpose. These rules are;

1. General Valuation Rules ; and

2. Special Valuation Rules

GENERAL VALUATION RULES;

These rules can be applied in cases, where supply of goods or services or both will be made against consideration wholly in terms of money or cash. Thus the consideration for supply will be equal to value of supply of goods or services or both and GST on the supply.

Consideration = Value of Supply + GST

Consideration=Value of Supply + [(Value of Supply)* GST rate]

SPECIAL VALUATION RULES; this rule is applicable when;

1. The consideration received is not in money;

When consideration against supply of goods or services or both is received not in money, then the value of supply will be taken as Open Market Value less GST applicable.

Value of Supply= Open Market Value (of supply of goods or services or both)-GST (on OMV)

Example 1; Let us consider Sonu sold his cycle to Monu for Rs. 2200. Now in exchange Monu gave his mobile phone to Sonu. Lets us consider the GST rate on mobile phones is @20% and market rate of mobile at that time was Rs. 2400.

Value of cycle= Rs. 2400-(Rs.2400*20/120)=Rs.2400-Rs400=Rs.2000

Examples 2; Lets us consider grosser shopkeeper has supplied goods to a CA costing Rs. 22000, now in return CA has filed his returns and provided taxation services to the shopkeeper. Now the value of taxation services in open market will be Rs. 30,000 and GST rate is @20%. Now the valuation will be

Valuation of tax opinion=Rs. 30,000-Rs. 30,000*20/100=Rs. 25,000

2. Special Valuation Rules for the supply in which consideration is received partly in money and partly in kind;

In this case the valuation of supply will be taken as aggregate of;

(i) To the extent of consideration which is received in money for the supply or goods or services , the amount of money; and

(ii) To the extent of consideration is received in kind i.e., not in money for the supply of goods or services, the Open Market Value of the consideration which is received in kind.

Consideration=Monitory Portion+ OMV of the consideration in kind

Value of Supply=Consideration –GST on consideration

Example: lets us consider in exchange offer a shopkeeper sold to Mr. A, a wardrobe of Rs.10000. Now Mr. A has paid Rs.6000 in cash and return to chairs to the shopkeeper. The Open Market Value of chairs is Rs 4000 and rate of GST applicable is @20%

Consideration of wardrod= Rs. 6000+ Open Market Value of 2 chairs=Rs. 6000+ Rs.4000=Rs.10000

GST Portion=Rs. 10000*20/120=Rs. 1667.

Value of Supply of Goods=Rs. 10000-Rs. 1667=Rs 8333

Valuation of Imported Services;

In this case the consideration paid for such supply will be treated as the value of supply of imported services.

Example: Lets us consider A Ltd., is a company registered in Singapore supplying services to B Limited in India for development of a township. The cost of services is Rs. 20 Lakhs. The project comprises 40% commercial properties and rest residential. Not GST rate on commercial properties is @10%.

Value of supply of Services= Consideration paid=Rs. 20,00,000

Percentage of taxable supply= 40% *Rs.20,00,000=Rs. 8,00,000

GST to be paid=Rs.8,00,000*10%=Rs. 80,000

Valuation of Imported Goods;

The value of supply of imported goods will be determined as per the Customs Act. The valuation rules prescribed in the Customs Act will be used as a base for determination of value of imported goods. The GST rate will be applied on the sum total of custom value of imported goods and the import duty paid thereon.

Example: A Ltd. has imported chemicals from Sudan for a custom value of Rs. 800000. The rate of custom duty is @30%. It has provided export exemption on import duty @50% and applicable rate of GST is @20%.

The value on which GST is chargeable;

Custom value= Rs. 8,00,000

Custom duty=30 %( exemption50%) = (Rs.8, 00,000*30%)*50%=Rs. 1, 20,000

Total Value for GST=Rs. 8, 00,000+ Rs. 1, 20,000=Rs. 9, 20,000

GST =20%* Rs. 9, 20, 0000=Rs. 1, 84,000

Valuation for Discount;

In this case the value of supply of goods will be determined as original price charged for the goods net of discount offered and the GST will be charged on the value of goods so arrived.

Example: Lets us consider a manufacture supplied some goods to Mr. A on the condition that Mr. A will receive discount @10% if he will pay consideration within specified period. Now the value of goods supplied was Rs. 50,000. Mr. A is allowed to pay the same in five equal instalments plus GST. He has to pay on the last day of every month for five months to get the discount. The GST rate applicable is @20%.

The original value of supply of goods=Rs. 50,000

Discount received on prompt payment=3*10%*Rs.10000=Rs.3000

Actual Value of Supply of goods=Rs. 50,000-Rs. 3000=Rs. 47000

GST to be paid=Rs. 47000*20%=Rs. 9400

(Author can be reached at cs.deepakpsingh@gmail.com)