Valuation Rule for Supply under Goods and Services Tax

By Registrationwala

3rd May 2017

 

Good and Services Tax will be charged on the estimation of supply made. The new law has given different tenets which can be alluded to for deciding the estimation of supply on which GST must be charged. In simple words, these tenets will help in deciding the charging an incentive for GST.

Analysis of Valuation Rules for Supply

Valuation Rules have recently been released and these rules are going to impact all the businesses. All conceivable situations wherein valuation is required are sorted under seven unique heads. These heads are:

1. Value of Supply of Goods or Services where the consideration is not wholly in money.

Associations work in a dynamic model and we have seen imaginative arrangements wherein a buyer is required to repay the halfway sum  in cash and the rest in kind, for instance, when exchanging used stock for another item.

As a general rule, estimation of supply will be the measure of consideration received in cash from the purchaser. But, there can be circumstances when midway compensation is in cash and the rest is in kind. In such circumstance, the estimation of supply ought to be:

2. Open Market Value of such supply. OMV will be the sum which is adequately accessible in open market.

3. In the event that the open market value is not accessible, the estimation of supply will be the entirety of the aggregate of consideration in cash and any such further sum in cash as is proportional to the thought not in cash if such sum is known at the time of supply. In straightforward words the monetary estimation of partial consideration will be added to fiscal thought, to sum up to total consideration.

4. In the event that the esteem is not definite under the clauses above, the estimation of supply of products or administration or both will be identical to that of like kind and quantity. Here the taxable individual can allude to similar goods or benefits or both for deciding the estimation of supply.

5. On the off chance that the esteem is not definite under all the above clauses, the esteem should be the whole of consideration in cash and such further amount of cash that is equal to consideration not in cash as decided on the premise of Cost Method or Residual Method.

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·  Value of Supply of Goods or Services between Related Person

What does ‘Related Person‘ mean?

Numerous organizations have various branches across states. Under the new GST law, they are instructed to enroll independently in each state they are functionable in. Likewise, there can be numerous organisations inside a combination which would likewise require different enrolments under GST. For example, TATA Steel and TATA Motors are both viewed as independent legitimate organisations under TATA Sons, despite the fact that the previous supplies contributions to the latter. Such business groups which may have individual legitimate presence while sharing a common control fall under the meaning of 'related individual' under GST law.

1. Value of Supply of Goods made or received through an agent.

The newly presented GST valuation rules particularly cover circumstances where products are provided by the Principal to an operator or the other way around. Such supplies are chargeable under GST. Any supply from Principal to an operator or otherwise will attract GST and in this way either of the groups need to allude to these valuation rules to dodge a debate with tax administrative authorities.

GST law characterizes an "Agent" as a man, including a component, broker, commission operator, arhatia (term used local markets), a salesperson or some other trade operator, who carries on the matter of supply or receipt of products or administrations or both in the interest of another. Any supply between such gatherings is liable for Goods and Services Tax and in this way the valuation rule is utilized to decide amend tax liability. Additionally, such agent and his primary principal should, mutually and severally, be liable to pay the tax on such goods or service. As per the rule,estimation of supply shall be,

2. Both of:

a) Open Market Value, or;

b) Ninety percent (90%) of the cost charged for the supply of merchandise of like kind and quality by the beneficiary to his client not being a related person, where products are expected for further supply by the said beneficiary.

3. In circumstances where it can't be resolved on the premise of the control over, the esteem might be resolved on the premise of Cost Method or Residual Method.

4.      Value of Supply of Goods or Services or both based on cost.

Cost method has been alluded in every valuation rule where there is no immediate strategy for valuation conceivable. 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”

In basic terms, 110% of the cost of assembling or cost of arrangement of merchandise or administrations might be considered with the end goal of the valuation and accordingly Goods and Services Tax will be charged on such sum.

1.      Residual method for determination of the value of supply of goods or services or both.

According to the residual method, where the estimation of supply of goods or administrations or both can't be resolved under the cost method, the same might be resolved using sensible means consistent with the standards and general arrangements of the Goods and Services Tax law.

A basic elucidation of this rule recommends that provider can utilize any strategy to decide the estimation of supply under GST, provided such technique is reasonable in the case of inquiry. The enrolled taxable individual should not misuse this method to dislodge the GST liability as the penal provisions are strict under the new indirect tax regime.

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2.      Determination of value in respect of certain supplies.

• The estimation of supply of services in relation to buy or sell of foreign cash, including money changing, might be controlled by the supplier of service

• The estimation of supply of services in relation to booking of tickets to travel by air given by an air travel agent, might be regarded to be a sum calculated at the rate of five percent of the basic fare in the case of domestic bookings, and at the rate of ten percent of the basic fare in the case of international bookings of passage for travel by air.

•The estimation of supply of services in relation to life insurance business might be: (a) the gross premium charged from a policy holder lessened by the sum allocated for investment, or savings in the interest of the policy holder, if such sum 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 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.

• Where an taxable supply is given by a man managing in purchasing and offering of second hand products i.e. utilized merchandise or after such minor preparing which does not change the way of the products and where no information input tax credit has been availed on purchase of such products, the estimation of supply might be the difference between the offering cost and price tag and where the estimation of such supply is negative it should be overlooked.

• The estimation of a token, or a voucher, or a coupon, or a stamp (other than postage stamp) which is redeemable against a supply of merchandise or benefits or both might be equivalent to the cash estimation of the products or administrations or both redeemable against such token, voucher, coupon, or stamp.

• The value of taxable services given by such class of service providers as might be advised by the Government on the proposals of the Council as alluded to in Entry 2 of Schedule I between distinct persons as referred to in section 25, other than those where input tax credit is not available under sub-section (5) of section 17, shall be deemed to be NIL.

3.      Value of Supply of Service in the case of a pure agent.

The cost or expenditure brought about by the providers as a pure agent of the beneficiary of supply of administrations should be barred for the estimation of supply if the accompanying condition fulfilled:-

a) Act as a pure agent (Contract between third parties and recipient of supply)

b) The beneficiary of the supply is subject to make payment to third party.

c) The beneficiary of the supply approves the provider to make payment to third party on his behalf.

d) The beneficiary of the supply knows that the administration for which payment has been made by the provider might be given by the third party.

e) The payment made by the provider on behalf of the recipient of supply has been independently shown in the invoice issued to the recipient.

f) The provider recovers from the beneficiary of supply only such sum as has been paid by him to the third party. 

 

Valuation Rule for Supply under Goods and Services Tax

2017-05-03