Jul 312017
 

Liability to pay GST on expense

As we all know that from 1st July 2017, GST is payable on sales made by trades, manufactures etc which hitherto paying taxes under existing laws. However, do we know that GST is also payable on expense incurred by the assessee. There we are discussing the related provisions in brief:

Section 9(4) of the act, as stated below, cast a liability on the purchaser of the goods and / or service to pay the GST:

(4) The central tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis as the recipient and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.

(Similar provisions are inserted in respective state GST laws, IGST and UTGST laws)

Thus, the liability to pay GST is twofold as explained below:

Direct liability Indirect liability
Simple to understand that in case any supplies are made the supplier is liable to pay GST and get it recovered from the purchaser. Here, an attempt is made to recover the taxes from the purchaser in case supplier is not liable to pay the GST as his turnover is below Rs 20 lacs.

Caution to business owners

From now onwards, before booking any expenditure in the profit and loss account, accountant must go through the list of expenses and find out:-

  1. Whether GST is liable to be paid on the expenses under GST law?
  2. If yes, whether GST is paid by the supplier of goods and / or services?
  3. If GST is not paid, find out the HSN code and rate of GST based on the classification criteria of the goods and / or services received and consumed by the receiver registered person?
  4. Raise invoice on himself of the taxable amount and tax value of the respective goods?
  5. Pay the tax liability on the above tax invoice?
  6. Find out whether GST is paid above is also available as input tax credit (ITC) or goods and / or services falls under section 17(5)?
  7. In case goods / services under question falls under section 17(5) input tax credit will not be available irrespective of the fact that GST is paid by supplier or receiver?

Expenses not liable to GST under reverse charge mechanism

Expenses on which GST is not payable:

  1. Salary to staff
  2. Wages to staff
  3. Salary, interest on loan, commission etc to partners of the firm
  4. Electricity expense
  5. Petrol
  6. HSD
  7. Any payment of statutory dues
  8. Expenses upto Rs 5000 per day in aggregate for supplies from all unregistered taxable person in a single day.
Jul 282017
 

Service provided before GST and not concluded

Query?

How the transactions would be viewed legally as well as by the department which have commenced provision of service in June 2017 but the invoicing and the payment for the same are spilling over to July 2017 when the GST is effective?

Legal Provision:

Under Existing tax (i.e. Service Tax) Under GST regime
“Section 66B – Charge of service tax on and after Finance Act, 2012There shall be levied a tax (hereinafter referred to as the service tax) at the rate of fourteen per cent. on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person toanother and collected in such manner as may be prescribed.

 

SECTION 67A – Date of determination of rate of tax, value of taxable service and rate of exchange:

(1) The rate of service tax, value of a taxable service and rate of exchange, if any, shall be the rate of service tax or value of a taxable service or rate of exchange, as the case may be, in force or as applicable at the time when the taxable service has been provided or agreed to be provided.

 

Explanation. — For the purposes of this section, “rate of exchange” means the rate of exchange determined in accordance with such rules as may be prescribed].

 

When tax is payable under existing law:

Under the existing service tax regime tax is payable at the point of time determined by Point of Taxation Rules 2011 which is earlier of the following events:

a)    Date of invoice, if the same is issued within 30 days of completion of service, if not, the date of completion of the service;

b)    Receipt of advance to the extent of such advance or receipt of payment

Levy – Section 9 (1)There shall be levied a tax called the central goods and services tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person. 

Time of Supply 13

(2) The time of supply of services shall be the earliest of the following dates, namely:—

a)    The date of issue of invoice by the supplier, if the invoice is issued within the period prescribed under sub-section (2) of section 31 or the date of receipt of payment, whichever is earlier; or

b)    The date of provision of service, if the invoice is not issued within the period prescribed under sub-section (2) of section 31 or the date of receipt of payment, whichever is earlier; or

c)     The date on which the recipient shows the receipt of services in his books of account, in a case where the provisions of clause (a) or clause (b) do not apply”

 

“Section 142(10) Save as otherwise provided in this Chapter, the goods or services or both supplied on or after the appointed day in pursuance of a contract entered into prior to the appointed day shall be liable to tax under the provisions of this Act.

 

Section 142(11)(b) Notwithstanding anything contained in section 13, no tax shall be payable on services under this Act to the extent the tax was leviable on the said services under Chapter V of the

Finance Act, 1994”

 Examples & conclusion:

Particulars Service Provided Invoice raised Payment received Action
Case 1 Before June 30 Before June 30 Before June 30 Pay Service Tax
Case 2 Before June 30 Before June 30 After June 30 Pay Service Tax
Case 3 Before June 30 After June 30(Invoice raised within 30 days) After June 30 Always batter to pay service tax.
Case 4 Before June 30 After June 30(Invoice is not raised within 30 days) After June 30 Pay Service Tax
Case 4 After June 30 After June 30 After June 30 Pay GST

Jul 262017
 

Whether educational institutions are also liable to get registered under GST?

Are education institute are liable to be pay GST:

Rate of GST on services as prescribed by government under Sr. No. 69 is given below: of Services Rate

Sr. No. 69

Services provided –

a)    by an educational institution to its students, faculty and staff;
b)    to an educational institution, by way of,-
i.    transportation of students, faculty and staff;
ii.    catering, including any mid-day meals scheme sponsored by the Central Government, State Government or Union territory;
iii.    security or cleaning or house-keeping services performed in such educational institution;
iv.    services relating to admission to, or conduct of examination by, such institution; upto higher secondary:

Provided that nothing contained in entry (b) shall apply to an educational institution other than an institution providing services by way of pre-school education and education up to higher secondary school or equivalent.

Nil

Thus, as per above entry educational institution are not required to pay GST on their services provided to students.

Are educational institutions are required to obtained registration under GST?

As per section 22(1) of the act – Every supplier shall be liable to be registered under this Act in the State or Union territory, other than special category States, from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds twenty lakh rupees.

For ascertaining the liability to obtained registration two major conditions needs to be fulfilled:

(i)    For ascertaining place of registration – from where taxable supplies are being made.
(ii)    When liable to obtained registration – when aggregate turnover in a financial year exceeds Rs 20,00,000/-.

Section 23(1)(1) states that –  The following persons shall not be liable to registration, namely:-

Any person engaged exclusively in the business of supplying goods or services or both that are not liable to tax or wholly exempt from tax under this Act or under the Integrated Goods and Services Tax Act;

Taxable supplies:

Section 2(108) Taxable Supply  means a supply of goods or services or both which is leviable to tax under this act;

 As per section 9 services provided by educational institutions are leviable to tax and hence GST shall be levied on services are provided by educational institute at the rate notified by government which is NIL as mentioned above.

Aggregate turnover:

Section 2(6) AGGREGATE TURNOVER  means the aggregate value of:(i)            Taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis),(ii)           Exempt supplies,

(iii)          Exports of goods or services or both and

(iv)          Inter-State supplies of persons having the same Permanent Account Number,

To be computed on all India basis but excludes central tax, State tax, Union territory tax, integrated tax and cess;

Section 2(47) Exempt Supply means supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11, or under section 6 of the Integrated Goods and Services Tax Act, and includes non-taxable supply;
Section 2(78) Non-taxable supply” means a supply of goods or services or both which is not leviable to tax under this Act or under the Integrated Goods and Services Tax Act;

Since, services provided by educational institutions are exempted supply which are to be included in the included turnover for ascertaining the liability to obtained registration.

Conclusion:

In view of the above discussion the position of educational institutions may be summarized as below:

  1. In case educational institution is providing only educations services than such fees are chargeable at NIL rate and such educational institutions are not liable to get themselves registered.
  2. In case educational institutions are also providing other supplies, i.e., providing books to students, providing shoes and dress etc to students then in such cases such institutions are liable to get themselves registered.

Effect of registration:

  • Fee receipts shall be issued to students in the format prescribed under GST.
  • All expenses incurred by educational institutions needs to be scrutinized to see whether any liability to pay GST exist under section 9(4) as reverse charge mechanism taxpayer.
  • Monthly returns shall be filled all such educational institutions.
  • Input tax credit may be claimed for eligible expenses
  • Refund may be claimed for unutilized input tax credit.

Jul 252017
 

Common mistake occurred in transition to GST regime

I have personally identified some mistakes which business man are doing in the transition process from existing acts to GST regime. If the data is not properly synchronize properly from the very beginning of transition process it is obvious that difficulty may arise subsequently at the time of filing of return or validation of return or claiming refund.

Here it should be noted that under GST there is a online process of matching date and cross validation and hence any mistake you incurred at the time of making sale invoice it cant be hidden and get noticed at the time of filling return or matching of return. Further, non filing of data or wrong filing of data is auto penalized under GST and hence it is important file correct data to avoid future difficulties.

Here an attempt is being done to identify such common mistakes that are doing viral in transition process which needs to be avoided:

  1. Place of supply in case of providing services is not known or not known properly. In case of provider of services place of supply is specifically mentioned under section 12 & 13 of the act.

    a.    In case any service is not specifically covered under section 12 or as the case be section 13 then place of supply will be registered address of recipient of services in case supply of services to registered person.
    b.    In case supply of services to unregistered person place of supply will be the address of recipient known to the service provider.
    c.    In case address is not known than supplier address will the address of recipient. In such cases supplier will charge CGST and SCGST in all cases.
    d.    In few cases act have made it compulsory to mention the address in that cases service bill can be provided only after recipient address is mentioned on invoice.

  2.  The next common mistake is to mentioning GST against tax charge. This is technically wrong under that act. Mentioning GST over the invoice and charging tax combining CGST and SGST means you are charging IGST.

    a.    In case of inter-state sale: If you are selling goods / services to registered person where IGST is applicable then clearly mention IGST over the invoice. As IGST, CGST and SGST needs to be transferred under different account heads of the government.
    b.    In case of local sale: If you are selling to local registered person than mentioned both CGST and SGST and corresponding amount of tax under different column of the invoice.
    c.    Avoid: Never mix the CGST, SGST and IGST.

  3. How to apply for composition levy (CMP – 01) – Still there is confusion among trades that how can they avail benefit of composition scheme. Now new CMP forms for applying for composition scheme are now available on website.

    a.     It should be noted that while applying for composition scheme every trade or restaurant service provider shall give details of his stock as on 30th June 2017.
    b.    Further, if you have any stock of inter state purchase than you will not be allowed to avail the benefit of composition scheme at the time of migration.
    c.    In the above case you shall register first as normal trader under GST and then apply of composition scheme under GST subsequently.
    d.    Option of paying tax under composition levy shall be chosen at the start of the year and the same needs to be carry forward of the rest of the year.

  4. Problem in identifying correct tax Rate – Clarity over tax rates on items dealing with is required and best way to avoid future disputes is to sit with your supplier and get clear over the HSN code of the items you are dealing with. Once your HSN code is clear tax rate corresponding to that HSN code is your tax rates.

    a.    Here it’s the worth to note that HSN code is required to mention only in those cases where your turnover is more than 150 lacs rupees.
    b.    But clarity over HSN code is required to all suppliers as in all cases return are cross matched and in case return are not matched mis-match report will be generated by GSTRN. This will cause unnecessary difficulties at the time of validation of return.

Jul 242017
 

GST and TDS calculation under Income Tax Act

Circular no 23/2017 of CBDT:

The Central Board of Direct Taxes (the Board) had earlier issued Circular No. 112014 dated 13.01.2014 clarifying that wherever in terms of the agreement or contract between the payer and the payee, the Service Tax component comprised in the amount payable to a resident is indicated separately, tax shall be deducted at source under Chapter XVII-B of the Income tax Act, 1961 (the Act) on the amount paid or payable without including such Service Tax component.

Now, the Government has brought in force a new Goods and Services Tax regime with effect from 01.07.2017 replacing, amongst others, the Service Tax which was being charged prior to this date as per the provisions of Finance Act, 1994. Therefore, there is a need to harmonize; the Circular No. 01/20 14 of the Board with the new system for taxation of services under the GST regime.

Hence therefore, wherever in terms of the agreement or contract between the payer and the payee, the component of ‘GST on services’ comprised in the amount payable to a resident is indicated separately, tax shall be deducted at source under Chapter XV II-B of the Act on the amount paid or payable without including such ‘GST on services’ component.

Conclusion:

The amount of TDS shall be computed without grossing up for the goods and service tax (GST) component, which is also part of the bill.

What is included in GST for the purpose of deduction of TDS at source?

GST for these purposes shall include:

  1. Integrated Goods and Services Tax (IGST),
  2. Central Goods and Services Tax (CGST),
  3. State Goods and Services Tax (SGST)and
  4. Union Territory Goods and Services Tax (UTGST).

For the purpose of above circular, GST does not included cess chargeable under GST (Compensation to the States) Act which is also a part of GST chargeable under the above acts. Matter needs to be further clarified as to whether TDS shall also be deducted on the cess component or not. Practically cess shall also be excluded for the purposes of deduction of TDS.

What is the impact of above circular on the existing contract as on 01.07.2017?

Any reference to ‘service tax’ in an existing agreement or contract which was entered prior to 01.07 .2017 shall be treated as ‘GST on services’ with respect to the period from 01.07.20 17 onward till the expiry of such agreement or contract.

Example: There are several payments, such as works contracts which attract GST (at 18%) and which also attract TDS (at 10% on fees for technical services, 2%/1% on work contract) under the Income Tax (I-T) Act.

Whether TDS under GST and TDS under income tax shall be deducted separately?

As the purpose of deduction of TDS under GST and TDS under income tax act is different and hence in cases where as per terms of contract TDS under income tax and TDS under GST is deductible at the same time than both are deducted separately and accounted for in the different accounts and further deposited under separate account.

Jul 142017
 

Zero rated supply

Meaning [section 16]:

“zero rated supply” means any of the following supplies of goods or services or both, namely:––

  1. Export of goods or services or both; or
  2. Supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit.

Whether registration is required for making zero rated supply

As per section 23 following persons are not liable to obtain registration:

  1. Any person engaged exclusively in the business of supplying goods or services or both that are:
    1. not liable to tax or
    2. wholly exempt from tax under CGST / SGST;
  2. An agriculturist, to the extent of supply of produce out of cultivation of land.

Since, in the above definition zero rated suppliers are not specifically included and hence such suppliers are required to take registration.

Outward supplies:

Since GST is destination based consumption tax hence tax is payable at the state where goods and / or services are actually consumed. Applying this logic on the above supplies, tax shall be attributable outside India.

Input tax credit:

  1. ITC is specifically allowed: credit of input tax may be availed for making zero-rated supplies, notwithstanding that such supply may be an exempt supply.
  2. General disallowance of ITC: input tax credit shall not be available for the items mentioned under section 17(5)

Manner of claiming refund of accumulated ITC:

  • Zero rated without payment of tax: He may supply goods or services or both under bond or Letter of Undertaking, subject to such conditions, safeguards and procedure as may be prescribed, without payment of integrated tax and claim refund of unutilised input tax credit; or
  • Zero rated with payment of tax: He may supply goods or services or both, subject to such conditions, safeguards and procedure as may be prescribed, on payment of integrated tax and claim refund of such tax paid on goods or services or both supplied, in accordance with the provisions of section 54 of the Central Goods and Services Tax Act or the rules made there under.

Apportionment of credit and blocked credits

Where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies under this Act or under the Integrated Goods and Services Tax Act and partly for effecting exempt supplies under the said Acts, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies.

Cases where refund of ITC claimed will not be credited to fund but paid to registered claimant:

Refund of ITC claimed to be refunded shall be allowed in the following cases:

  1. zero rated supplies made without payment of tax;
  2. where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies), except supplies of goods or services or both as may be notified by the Government on the recommendations of the Council:

Mar 292017
 

UNION CABINET APPROVES 4 GST BILL

The Union Cabinet has cleared four bills related to the Goods and Services Tax (GST), ahead of their introduction in Parliament, to enable roll out of the tax reform from July 1.

Approval of the bills by Parliament and a separate one by all state Assemblies will complete the legislative process for roll out of the GST, the one-nation-one-tax system that merges central taxes like excise duty and service tax and state levies like VAT.

What is GST bill?

  • Goods and Services Tax bill is India’s biggest reform in India’s indirect tax structure.
  • The purpose of the bill is to introduce one single tax on supply of goods and services, from the manufacturing stage until its delivery to the final consumer.
  • The final consumer of the goods and/or services will only have to bear the GST charged by the final dealer in the supply chain, and avail set-off benefits at all the previous stages.
  • This means interim tax stages such as excise duties and service tax and state levies like VAT will be absorbed under GST.

What were the four bills approved by the Cabinet ?

  • The Central Goods and Services Tax Bill 2017 (The CGST Bill),
  • The Integrated Goods and Services Tax Bill 2017 (The IGST Bill),
  • The Union Territory Goods and Services Tax Bill 2017 (The UTGST Bill) and
  • The Goods and Services Tax (Compensation to the States) Bill 2017 (The Compensation Bill)

GST Bill peak rate to be 40%, slabs intact for now

 The GST levy may go up to 40 percent after the GST Council proposed raising the peak rate in the Bill to 20 percent, from the current 14 percent, to obviate the need for approaching Parliament for any change in rates in future.

The change in the peak rate will not alter the 4-slab rate structure of 5, 12, 18 and 28 percent agreed upon last year for the moment, In addition, a cess will be levied on demerit goods like luxury cars, aerated drinks and tobacco products.

The CGST Bill sets the tax regime for the levy of GST on intra-state supply of goods or services or both by the central government. IGST Bill deals levy of GST on inter-state supply of goods or services or both by the central government.

Similarly, the UTGST Bill provides for levy of GST on intra-UT supply of goods and services in the Union Territories without legislature. The Compensation Bill provides for compensation to the states for loss of revenue due to GST for a period of five years.

All state assemblies will have to separately approve the state GST legislation before this one-nation one-tax regime can be rolled out.

What are the benefits of GST?

  • The introduction of GST bill will help in simplifying administration as it removes multiple taxation systems at every stage of trade model and removes disturbances in production.
  • It also aims towards providing a uniform tax rate for all goods and services.
  • The manufacturers will be benefited by the tax regime as it will reduce the tax that levied on them.
  • A system of seamless tax-credits will lead to minimal cascading of taxes, thus reducing hidden costs during trade.

Roadblocks for GST bill

  • The state GST bill has to be approved by every state government, before its introduction in Parliament for approval.
  • At the moment, the state GST bill has been sent to all the states by their respective state legislatures for the approval.

Courtesy: Esha Agrawal
For any queries and comments please email on: eshaag6@gmail.com

Mar 202017
 

Why there is a need to differentiate between goods and services?

  1. Different rate of tax and classification rule for goods and services: The goods are to be classified as per HSN codes and services are to be classified as per SAC terminology. These codes are to be mentioned over invoices also. Moreover the rate of taxing goods and/ or services are different and hence, difference in amount of liability to pay tax. Hence, there is a requirement to classify a supply between goods or services as per rules mentioned in sch. II of the revised model GST law.
  2. Different place of supply provisions as to goods / services: GST being destination based tax on consumption and hence tax revenue shall go to the state where goods / services are consumed and hence difference provisions are made under law for place of supply as to goods on one hand and place of supply on the other.
  3. All transaction including composite transactions has been considered either as goods or as services under schedule II of the Revised Model GST Law.

Meaning of terms Goods and Services:

Meaning of Goods Meaning of Services
Art. 366(12) of the constitution:

Good includes all materials, commodities and articles.

Sec 2(49) of Revised Model GST Law:

Goods means every kind of movable property and

  • Includes

o    Actionable claim
o    Growing crops
o    Grass

o    Things attached to or forming part of the land which are agreed to be severed before supply or under the contract of supply

Sec 2(92) of the revised Model GST law

Services means anything other than goods and

 

  • Does not include

o    Securities
o    Money

  • Does not include

o    Money
o    Securities

Case Study:

Trading in securities: Trading in securities is specifically excluded from the definitions of goods (Sec 2(49) and services (Sec 2(92) and hence securities are neither goods not services and hence GST is not payable on trading in securities.

Actionable claims: Actionable claims under revised law are considered to be goods. As per section 2(1) of the Revised Model GST Law – actionable claims shall have the meaning assigned to it under section 3 of the Transfer of property act 1882 (TPA). As per section 3 of TPA, actionable claims comprises two types of claims –

  1. A claim to unsecured debts and
  2. A claim to beneficial interest in movable property which is not in possession, actual or constructive – whether present or future, conditional or contingent

Immovable properties: Goods and service tax can not be levy on sale or purchase of immovable goods. However, transfer of immovable property by way of lease or right of usages therefore would be within the preview of GST law as supply of services.

Intangible goods: As per Article 366(12) of the constitution goods includes all materials, commodities and articles. This definition does not make any distinction between tangible goods and intangible goods. The term good, as observed in TCS v State of AP (2004), used in constitution is very wide. The term all materials, articles and commodities includes both tangibles and intangibles which is capable of abstraction consumption and use and which can be transmitted transferred delivered stored possessed. Thus, intangible goods shall be treated as good and supply of intangible goods shall be supply of goods.

Canned software: To minimize the litigation schedule II is inserted in Revised Model GST law to define the matters to be treated as supply of good or service As per entry no 5(d) of the same development, design programming customization adaption up-gradation enhancement implementation of software shall be treated as supply of services. However, canned software are pre fabricated software and are generally sold through a medium. Hence, such canned services shall be considered as goods and supply of the same may be treated as supply of goods.

Mar 132017
 

High Seas Sale of goods under GST

Meaning of term High Seas Sale

High Sea Sales (HSS) is a sale carried out by the carrier document consignee to another buyer while the goods are yet on high seas. Goods on high seas means:

  • After their dispatch from the port / airport of origin, AND
  • Before their arrival at the port / airport of destination.

Consequences of HSS:

As mentioned above HSS contract / agreement should be signed after dispatch of goods from origin & prior to their arrival at destination. On concluding the HSS agreement, the bill of lading (B/L) should be endorsed in favour of the HSS buyer.

There is no bar on same goods being sold more than once on high seas. In such cases, the last HSS value is taken by customs for the purpose of levying of duty.

The tile of goods transfers to the HSS buyer prior to entry of goods in territorial jurisdiction of India.

The delivery from customs is, therefore, on account of last HSS buyer. Bill of entry (B/E) is also filed in the name of last HSS buyer.

Imposition of GST on HSS

As per section 3(3) of the IGST Act, supply of goods in the course of import into the territory of India till they cross the customs frontiers of India shall be deemed to be a supply of goods in the course of inter state trade or commerce.

Further, as per proviso to section 4(1) of IGST Act, intra state supply of goods shall not include supply of goods brought into India in the course of import till they cross the customs frontiers of India.

Thus, to conclude, sale in the course of import before customs frontier (i.e. HSS) would be subject to IGST.

Collection of GST on HSS

As per proviso to section 5(1) of IGST, the IGST on the goods imported into India shall be levied and collected in accordance with:

  • The provisions of section 3 of the customs tariff act 1975
  • At the point when duties of customs are levied on the said goods under section 12 of the customs act 1962
  • On the value as determined under the Customs Tariff act.

Conclusion

Thus, the first importer will not charge IGST on sale made by him to the HSS buyer and the later / last HSS buyer (as the case may be) would pay IGST at the time clearing of goods from the customs as per customs act.

Last HSS buyer would be eligible to claim such IGST paid to the customs authorities subject to other provisions of the act. GST paid is this case shall be in addition to Basic Custom Duty paid to custom authorities.

Mar 022017
 

GST Valuation (Determination of value of supply of Goods and services) Rules 2016

Valuation norms under GST under normal circumstances:

The value taken for calculation of GST is the price actually paid by recipient of goods / service to the supplier. This shall be taken if and only if:

  1. The supplier and the recipient of the supply are not related
  2. The price is the sole consideration for the supply

The value thus identified with above formula is popularly known as transaction value under section 15(1) of the model GST law. There are specific inclusions to be made in calculating transaction value as provided under section 15(2) and some exclusions provided under section 15(3) of the act. Section 15(4) provides that where the value of the supply of goods or services cannot be determined under sub-section (1), the same shall be determined in such manner as may be prescribed.

Hence, GST valuation rules 2016 are come on the way to provide when valuation under 15(1) shall be disregarded and how value shall be calculated under such circumstances.

When value under section 15(1) shall be disregarded

When the proper officer has reason to doubt the truth or accuracy of the value declared in relation to any goods and/or services, he may ask the supplier to furnish further information, including documents or other evidence and if, after receiving such further information, or in the absence of any response from such supplier, the proper officer still has reasonable doubt about the truth or accuracy of the value so declared, it shall be deemed that the transaction value of such goods and/or services cannot be determined under the provisions of sub-rule (1) of rule 3. [Rule 7(1)]

Thus, only reasons to doubt on truth or accuracy of the value are sufficient to reject the transaction value. The existence of following ingredients is sufficient to arouse existence of reasons of doubt on proper officer to reject transaction value and consider the valuation rules:

  1. The significantly higher value at which goods and/or service of the like kind or quantity are supplied
  2. The significantly lower or higher value of the supply of goods and/or services compared to the marker value
  3. Mis-declaration of parameters such as description, quantity, quality, year of manufacture or production

Goods or services of like kind and quantity

Goods of like kind and quantity means :- Services of like kind and quantity means
Goods which are identical or similar in1.     Physical characteristics,2.     Quality and3.     Reputation as the goods being valued, and4.     perform the same functions or5.     Are commercially interchangeable with the goods being valued6.     And supplied by the same person or by a different person services which are:1.     Identical or similar in nature,2.     Quality and3.     Reputation as the services being valued and4.     supplied by the same person or by a different person

If value can not be determine and/or in case value is determine but proper officer rejected the value, then, value shall be determine by proceeding sequentially through rules 4 to 6.

Step 1: Determination of value by comparison:

Rule 4 : Where transaction value of supply of goods or services can not be determine, value shall be determine in following manner:

  1. Transaction value of goods and/or services of like kind and quality
  2. Supplied at or about the same time to other customers,
  3. Adjusted in accordance with the provisions of sub-rule (2) which are given below:
    1. Difference in dates of supply
    2. Difference in commercial level
    3. Difference in quantity levels
    4. Difference in composition
    5. Difference in quality and design
    6. Difference in freight and insurance charges depending on the place of supply

When value can not be determine under rule 4:

  1. Goods and/or services of like kind and value are not available
  2. If they are available, but adjustments as required in point no 3 above can not be made

Step 2: Computed value method

If value can not be determined under rule 4 value shall be calculated under computed value method which shall be determined as below:

  1. The cost of production, manufacture or processing of the goods or, the cost of provision of the services;
  2. Charges, if any, for the design or brand;
  3. An amount towards profit and general expenses 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.