Learning Contents
- Role of Valuation
- Section_15(1): Valuation of Supply
- Section_15(2): Valuation includes Duties and Taxes and other Incidental Expenses
- Section_15(3): Treatment of discount under CGSTAct,2017
- Section_15(4): Valuation under Rule_27 to 35
Section 15 of CGST Act,2017 deals with determination of value of Supply, in order to calculate GST (under section9 of CGST Act,2017)
Role of Valuation in GST
- In Registration of GST
- In filling of GSTR9C (Reconciliation statements)
- In case of Composition scheme
- In case of person required to collect TCS
- In case of assessment
- In case of special audit
- In case of advance ruling
Valuation Provisions under GST Act
Section15(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.
Section15(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.
Treatment of Discount under GST Act_Section15(3)
Section15(3): Discount and its treatment under GST_ The value of supply shall not include means (value -discount) any discount which is given
15(3)(a): Discount given before or at the time of supply: If such discount has been duly recorded in the invoice issued in respect of such supply. it will reduce the value of supply for GST purposes.
Example: A seller sells goods worth ₹10,000 and offers a 10% discount for early payment. The buyer makes the payment in time and receives a discount of ₹1,000. The value of supply would be ₹9,000, and GST would be calculated on ₹9,000.
15(3)(b) Discount given after Time of supply:(i) discount based on the voluminous purchase over the period of time, performance discount, discount on achieving certain specific percentage of quantity etc.
- Is established in term of an agreement
- Entered into at or before the time of supply and
- Specifically linked to relevant invoices; and
- Input tax credit as is attributable to the discount on the basis of discount issued by the supplier has been reversed by the recipient of the supply.
Post-supply discounts, or discounts given after the supply has been made, can be treated differently. If the discount is agreed upon in the contract or specified in a separate document, the value of supply can be adjusted to reflect the discount. GST liability will be adjusted accordingly for both the supplier and recipient.
Example: If a supplier sells goods for ₹10,000 and offers a post-supply discount of ₹1,000, and the buyer receives the discount after the invoice is issued, then the supplier can issue a credit note for ₹1,000, and GST will be adjusted accordingly.
Specific Valuation Rules.
Section15(4): Where the value of the supply of goods or services or both cannot be determined under section15(1), the same shall be determined in such manner as prescribed in Rule 27 to 35.
Illustrations of valuation under GST
Illustartion_1: Valuation in case of invoice has to be raised in case of event/milestone.
Milestone-Based Invoicing: An invoice is issued when a specific milestone or event in the project is completed. For example, in construction, this could be when the foundation is completed, or in software development, it could be after a prototype is delivered. The valuation would be based on the percentage of work completed or the value tied to that milestone.
Percentage of Completion: If a project is large and involves multiple events or stages, the valuation can be done based on the percentage of the total contract value that corresponds to the milestone. For instance, if the total project value is 100,000 and a milestone worth 20% is completed, the invoice raised will be for 20,000.
Illustration_2: Valuation in case of website facilitating of religious function between pundit and customers.
The registered person liable to pay tax on commission portion out of total consideration received online from services recipients and not on booking values as per section15(1).
Illustration_3: of Section15(2) of CGST Act,2017
Let’s say a company (Supplier A) sells goods to a customer (Buyer B).
- Price of Goods: ₹10,000
- Additional Charges:
- Freight Charges: ₹500 (for transporting the goods)
- GST on Freight: ₹90 (18% GST on ₹500)
- Packaging Charges: ₹200
- GST on Packaging: ₹36 (18% GST on ₹200)
- Other incidental charges: ₹100 (for handling)
Valuation under Section 15(2):
The transaction value under Section 15(2) includes:
- Price of goods: ₹10,000
- Freight Charges: ₹500
- Packaging Charges: ₹200
- Other incidental charges: ₹100
Total Value of Supply = ₹10,000 (Price of goods) + ₹500 (Freight) + ₹200 (Packaging) + ₹100 (Incidental charges)
= ₹10,800
Now, GST is calculated on the value of supply (₹10,800), as follows:
- GST @ 18% on ₹10,800 = ₹1,944
So, the total amount to be paid by Buyer B = ₹10,800 (value of supply) + ₹1,944 (GST) = ₹12,744.
Key points of section15(2), while , we are going to value the supply
- Taxes and Duties: GST should be included in the value of supply, but separate taxes like GST, customs duty, etc., should be excluded when calculating the base value.
- Incidental Expenses: Additional charges like freight, packaging, and handling are added to the value of the goods or services for GST calculation.
- Discounts: Discounts agreed upon in advance and reflected in the invoice reduce the value of supply, and GST is calculated on the reduced price.