The ‘One India, One Tax System’ termed as the goods and service tax or GST poses a question to many as to what is valuation of supply and how will goods and services be valuated under the single tax structure.
GST will be charged on the transaction value, which is the price actually paid or payable for the supply of goods/ services between unrelated parties.
What Does Valuation Of Supply Mean Under GST?
The value of supply on which GST has to be charged is known as valuation of supply. It involves determining the value of supply of goods/ services on which tax is to be levied.
Time And Place Of Valuation
Supply of goods/services consists of 3 categories, namely-
- Time of supply
- Place of supply
- Valuation of supply
Valuation of supply takes place on the time and place so as to understand the worth of the commodity or product. At this juncture, it would be pertinent to note that for the purpose of determining whether a transaction would be treated as intra-state or inter-state supply would be based on the place of supply as prescribed under the IGST provisions. On similar lines, the time of supply provisions would determine the point when the applicability of GST on a given transaction.
Where Is Valuation Of Supply Applicable?
The value of supply under GST is applicable in the following cases-
- Supply of goods or services where the consideration is not wholly in money
In cases where the supply of goods or services is considered not wholly in money, value of supply shall be:
- The open market value of such supply
- If open market is not available, the sum total of money equivalent to the consideration not in money, if such amount is known at the time of supply
- If the value of supply is not listed under clause (a) and (b)
- Supply of goods or services or both between distinct or related persons
The supply of goods and services or both between district and related persons is listed under section (4) and (5) of section 25. In cases where the supplier and recipient are related, other than the place of supply is made through an agent, should:
- Be the open market value of such supply
- If open market is not available, the value of supply of good/services of similar kind and quantity
- If value is not determined under clause (a) or (b), be the value listed under rule 4 or 5
- Value of supply of goods/services both based on cost
Where the value of supply of a good/service is not determined by any of the preceding rules, the value will be 110% more of the cost of production or manufacture or the cost of acquisition of such goods/services.
- Value of supply of goods made or received through an agent
The value of supply between the principal and his agent shall be:
- The open market value of goods being supplied at the opinion of the supplier, be 90% of the price charged for the supply of goods, or intended for further supply by the said recipient.
- If the value of a supply is not determinable under clause (a), the same shall be determined under rule 2 or rule 5.
How Are Goods And Services Valuated Under GST?
Consider an example where a manufacturer selling a hardware tool like drilling machines. He/she sells 1 drilling machine to a wholesaler at an MRP of Rs 5,500 but the manufacturer sells it for Rs 3000. The product will be valuated under GST with additions to CGST and SGST as follows:
Eg: Consider the purchase of a product with CGST 9% and SGST 9%.
|Item Cost||Rs 3,000|
|SGST (9%)||Rs 270|
|CGST (9%)||Rs 270|
How To Determine Value Of Second-Hand Goods?
The taxed value of used goods after processing shall be taken as the difference between the purchase price and selling price, provided no input tax credit is availed on purchase of such goods.
If the selling price is less than the purchase price, the negative value will be avoided. Those purchasing second hand goods after paying tax to the supplier will be placed under such valuation rule, only when they have not availed input tax credit on such input supply.
The GST is said to be a game changer for the Indian market as determining the value of goods/services will categorically segment it on the basis of product worth.
How To Avail GST?
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