Section 15 of CGST Act 2017: Value of Taxable Supply

What does Section 15 Say?

Section 15 of the CGST ACT 2017 talks about the Value of Supply of Goods or Services or Both shall be the Transaction Value, Which is the Price actually paid or payable for the supply of goods or services or both where the supplier and recipient of the supply are not related and the price is the sole consideration for the supply. Section 15 is a very important section as the Value of Supply needs to be determined without which the Tax Liability cannot be ascertained.

Let us take the reference from the GST Law as described below:

(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.

(2) The value of supply shall include -

(a) any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than this Act, the State Goods and Services Tax Act, the Union Territory Goods and Services Tax Act and the Goods and Services Tax (Compensation to States) Act, if charged separately by the supplier; (b) 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;

(c) incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services;

(d) interest or late fee or penalty for delayed payment of any consideration for any supply; and

(e) subsidies directly linked to the price excluding subsidies provided by the Central Government and State Governments.

Explanation.– For the purposes of this sub-section, the amount of subsidy shall be included in the value of supply of the supplier who receives the subsidy.

(3) The value of the supply shall not include any discount which is given–– (a) before or at the time of the supply if such discount has been duly recorded in the invoice issued in respect of such supply; and (b) after the supply has been effected, if— (i) 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 (ii) 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.

(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.

(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.

Explanation.—For the purposes of this Act,– (a) persons shall be deemed to be "related persons" if -

1. such persons are officers or directors of one another‘s businesses;
2. such persons are legally recognised partners in business;
3. such persons are employer and employee;
4. 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;
5. one of them directly or indirectly controls theother;
6. both of them are directly or indirectly controlled by a third person;
7. together they directly or indirectly control a third person; or
8. 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 isthe sole agent or sole distributor or sole concessionaire, howsoever described, of the other, shall be deemed to be related.

Important Points to be Remembered

1. Value of Taxable Supply shall be the Transaction Value that is the actual price paid or payable for the said goods or services or both.
2. Value of Taxable Supply shall include all the Incidental Expenses such as Commission and Packaging Fee as charged by Supplier from the recipient.
3. Any Interest or Late fee or Penalty charged in Lieu of Consideration by Supplier.
4. Any Taxes, Duties, Cess Levied under Law in Force other than this act.
5. Subsidies Directly Linked with the Consideration other than Government Subsidies.
6. Discount offered by Supplier shall not be Included in the Transaction Value.

CGST RULES OF VALUE OF TAXABLE SUPPLY

As per the CGST Rules the Value of Supply of Goods or Services or Both shall be determined in a manner as described below:

1. Open Market Value: The Open Market Value shall be the Full Value in Money excluding the GST payable by person in a transaction. This method shall be applied in case where the supplier and recipient are not related to each other and price is the sole consideration .
2. Supply of Goods and Services of Like Kind and Quality: Supply of any Goods or Services or both under similar circumstances in respect of characteristics, quality, quantity, functional component, materials and the reputation of goods or services or both is mentioned is the same as or closely or substantially resembles that supply of goods or services or both.

As per Rule 27: When Consideration not wholly in money

1. Open Market Value.
2. If (a) is not available.
3. Value of Consideration= Consideration in Money + FMV of Goods or Services or both not in money.
4. If (a) and (b) both not available.
5. Value of Taxable Supply shall be Like Kind and Quality.
6. If (a) ,(b) &(c) is not available then apply rule 30 & rule 31.

As per Rule 28: Related Party Transactions

1. Open Market Value.
2. If (a) is not available.
3. Value of Taxable Supply shall be Like Kind and Quality.
4. If (a) &(b) is not available then apply rule 30 & rule 31.

As per Rule 29: Supply between Principal and Agent

• Open Market Value Or
• 90% of the Price of Like Kind and Quality by the Recipient
• If (a) & (b) is not available then apply rule 30 or rule 31 as per the order

Now let us discuss the Rule 30 & Rule 31 of the CGST Rules

As per Rule 30: Value of Taxable Supply based on Cost

The Value shall be 110% of the Cost of Production, Cost of Acquisition and Cost of Provision of Services.

As per Rule 31: Residual Method or Best Judgement Method

The Value shall be in consistent with the principle and general provision of Section 15 and the Provision of Rule 27 to Rule 30 of CGST Rules shall apply.

Normally Rule 30 and Rule 31 shall be made applicable only when if the above-said rules are unable to determine the valuation of taxable supply or if the situation is not covered by aforesaid rules.

Summary of Section 15 and CGST Rules 

Section 15 and CGST Rules which are mentioned above help us to determine the Value of the Taxable Supply of Goods or Services or Both which shall be the Transaction Value as if the Value of Taxable Supply shall not be ascertained then the concept of determining the Tax Liability shall not arise. Normally the Price paid or Payable for the Supply of Goods or Services or Both shall be the Value of Taxable Supply but in certain cases, it becomes difficult to ascertain the Value of Supply for which necessary rules has been framed which provide us the method to determine the Value of Supply. Such as the Term Open Market Value has been used which is the Value-Based on Fully Value of Money Paid or Payable excl GST, hence it is easy to determine the Value of Taxable Supply.