GST Valuation Rules:

(i) General provisions

The Model GST Law provides that where the value of supply of goods and/or services cannot be determined under sub-section (1) of Section 16, the same shall be determined in such manner as may be prescribed in the rules, in the following situations where;

(i) the consideration paid or payable, is not money, wholly or partly

(ii) the supplier and the recipient of the supply are related

(iii) there is reason to doubt the truth or accuracy of the transaction value declared by the supplier

(iv) business transactions are undertaken by a pure agent, money changer, insurer or travel agent and distributor or selling agent of lottery

(v) such other supplier as may be notified by the Central or a State government on the recommendations of the Council.

Section 2(28) of the Model GST Law defines consideration in relation to supply of goods and /or services to include ‘(a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods and/or services, whether by the said person or by any other person; (b) the monetary value of any act or forbearance, whether or not voluntary, in respect of, in response to, or for the inducement of, the supply of goods and/or services, whether by the said person or by any other person. However, a deposit, whether refundable or not, given in respect of the supply of goods and/or services shall not be considered as payment made for the supply unless the supplier applies the deposit as consideration for the supply’.

Rule 3 of the GST Valuation (Determination of Value of Supply of Goods and Services) Rules, 2016 (hereinafter refer to as the GST Valuation Rules) provides for determining the transaction value in monetary terms.

Where the supply consists of both taxable and non-taxable supply, the taxable supply shall be deemed to be for such part of the monetary consideration as is attributable thereto.

Transaction value shall be accepted even where the supplier and the recipient of supply are related, provided that the relationship has not influenced the price.

Transaction value shall be applicable where the goods are transferred from (a) one place of business to another place of the same business, and (b) the principal to an agent or from an agent to the principal.

The value of supplies specified in para 4.1 above shall be determined by proceeding sequentially through rule 4 to 6 of the GST Valuation Rules.

(ii) Value of supply by comparison (Rule 4)

Where the value of supply cannot be determined under rule 3 of the GST Valuation Rules, the value has to be determined on the basis the transaction value of goods and/or services of like kind and quality supplied at or about the same time to other recipients, adjusted after taking into consideration the relevant factors such as difference in the (i) dates of supply, (ii) commercial/quantity levels, (iii) composition, quality/design between the goods / services valued and the goods / services with which they are compared and (iv) freight and insurance charges depending upon the place of supply.

Goods of like kind and quantity is defined to mean goods which are identical or similar in physical characteristics, quality and reputation, and perform the same functions, commercial interchangeable with the goods being valued,  supplied by the same person or by a different person. Services of like kind and quality are defined to mean the services which are identical or similar in nature, quality and reputation as the services being valued and supplies by the same person or by a different person.

(iii) Value of supply by computed value method (Rule 5)

Where the value of the supply cannot be determined by comparison method, the same shall be based on a computed value which shall include (a) the cost of production, manufacture or processing of the goods or the cost of the provision of services, (b) charges if any for the design or brand, and (c) an amount towards profit and generalexpenses equal to that usually reflected in supply of goods and / or services of the same class or kind as the goods and/or services being valued which are made by other suppliers.

(iv) Residual method (Rule 6)

Where of value of the goods and services cannot be determined under rule 5, the value shall be determined using reasonable means consistent with the principles and general provisions of these rules.

(v) Rejection of declared value

Where the proper officer has reason to doubt the truth and the accuracy of the value declared in relation to supply of goods and / or services, he may ask the supplier to furnish further information including documents or other evidence and after receiving such information or where no such information is forthcoming, it shall be deemed that the transaction value of such goods and or services cannot be determined under rule 3 of the GST Valuation Rules.

The reasons to doubt the truth and accuracy of the value of the supply may include;

• the significantly higher value at which goods and / or services of like kind or quality supplied at or about the same time in comparable quantity, in a comparable commercial transaction
• significantly lower or higher value of the supply of goods and / or services compared to the market value of goods and or services of like kind and quality at the time of supply
• mis-declaration of goods and or services such as description, quality, quantity, year of manufacture etc.

The proper officer has to follow the principles of natural justice including granting of hearing, recording of reasons in writing before proceeding to determine the value in accordance with the provisions of rule 4 or rule 5 or rule 6, proceeding sequentially.

(vi) Valuation in certain cases

Pure Agent

Clause (b) to sub-section (2) of section 15 provides that any reimbursable expenditure or cost incurred by or on behalf of the supplier and charged in relation to the supply of goods and or services shall be included in the transaction value, as defined under sub-section (1) of section 15. Rule 8 of the GST Valuation Rules carves out an exception to the provisions contained in sub-section (2) of section 15 in respect of the expenditure or cost that a service provider is incurs, as a pure agent of the recipient, so as to exclude the same from the transaction value, if such supplier fulfils all the following conditions, listed below;

• the service provider acts as a pure agent of the recipient of service when he makes payment to third party for the goods and/or services procured

 

• the recipient of service receives and uses the goods and/or services so procured by the service provider in his capacity as pure agent of the recipient of service

 

• the recipient of service is liable to make payment to the third party

 

• the recipient of service authorises the service provider to make payment on his behalf

 

• the recipient of service knows that the goods and/or services for which payment has been made by the service provider shall be provided by the third party

 

• the payment made by the service provider on behalf of the recipient of service has been separately indicated in the invoice issued by the service provider to the recipient of service

 

• the service provider recovers from the recipient of service only such amount as has been paid by him to the third party, and

 

• the goods and/or services procured by the service provider from the third party as a pure agent of the recipient of service are in addition to the services he provides on his own account.

A ‘pure agent’ means a person who(a) enters into a contractual agreement with the recipient of service to act as his pure agent to incur expenditure or costs in the course of providing taxable service (b) neither intends to hold nor holds any title to the goods and/or services so procured or provided as pure agent of the recipient of service (c) does not use such goods and/or services so procured, and (d) receives only the actual amount incurred to procure such goods and/or services.