Nature of Supply- GST CS Executive Income Tax

Nature of Supply

General

  • Supply of goods/services/both can be either inter-state or intra-state.
  • On inter-state supplies IGST is payable.
  • On intra-state supplies CGST and SGST/UTGST are payable.

GST is destination based tax. It is very important to determine the nature of supply to find out which GST is payable.

What is Inter-State Supply? (Section 7 of IGST Act, 2017)

Supply of goods
Supply of goods, where the location of the supplier and the place of supply are in––

  • two different States;
  • two different Union territories; or
  • a State and a Union territory,

shall be treated as a supply of goods in the course of inter-State trade or commerce. 

Supply of goods

  • imported into the territory of India, till they cross the customs frontiers of India,

shall be treated to be a supply of goods in the course of inter-State trade or commerce

Supply of services
Supply of services, where the location of the supplier and the place of supply are in––

  • two different States;
  • two different Union territories; or
  • a State and a Union territory,

shall be treated as a supply of services in the course of inter-State trade or commerce.

Supply of services

  • imported into the territory of India

shall be treated to be a supply of services in the course of inter-State trade or commerce.

Supply of goods or services or both,––

  • when the supplier is located in India and the place of supply is outside India;
  • to or by a Special Economic Zone developer or a Special Economic Zone unit; or
  • in the taxable territory, not being an intra-State supply and not covered elsewhere in this section,

shall be treated to be a supply of goods or services or both in the course of inter-State trade or commerce.

What is Intra-State Supply? (Section 8 of IGST Act, 2017)

Supply of Goods
Where the location of the supplier and the place of supply of goods are

  • in the same State or
  • in the same Union territory

such supply shall be treated as intra-State supply.

Supply of goods which shall not be treated as intra-State supply

(i) supply of goods to or by a Special Economic Zone developer or a Special Economic Zone unit;

(ii) goods imported into the territory of India till they cross the customs frontiers of India; or

(iii) supplies made to a foreigner tourist.

Supply of services
Where the location of the supplier and the place of supply of services are

  • in the same State or
  • in the same Union territory

such supply of services shall be treated as intra-State supply

Supply of services which shall not be treated as intra-State supply
Supply of services to or by a Special Economic Zone developer or a Special Economic Zone unit.

Supplies in territorial waters (Section 9 of IGST Act, 2017)

Notwithstanding anything contained in this Act,––

  • where the location of the supplier is in the territorial waters
    the location of such supplier shall be deemed to be in the coastal State or Union territory where the nearest point of the appropriate baseline is located.; or
  • where the place of supply is in the territorial waters
    the place of supply shall be deemed to be in the coastal State or Union territory where the nearest point of the appropriate baseline is located.

The expression territorial waters have not been defined under the GST law. It should be understood that area upto 12 nautical miles from base line of sea coast into the sea.

Note: 1 nautical mile = 1.853 Km

PLACE OF SUPPLY OF GOODS OR SERVICES OR BOTH

Place of supply of goods other than supply of goods imported into, or exported from India (Section 10 of IGST Act) – Domestic Supply
The place of supply of goods, other than supply of goods imported into, or exported from India, shall be as under,–

 Conditions/SituationsPlace of supply
AWhere the supply involves movement of goods, whether by the supplier or the recipient or by any other personLocation of the goods at the time at which the movement of goods terminates for delivery to the recipient
BWhere the goods are delivered by the supplier to a recipient on the direction of a 3rd personIt shall be deemed that the said 3rd person has received the goods and the place of supply of such goods shall be the principal place of business of such person
CWhere the supply does not involve movement of goods, whether by the supplier or the recipientLocation of such goods at the time of the delivery to the recipient
DWhere the goods are assembled or installed at siteThe place of such installation or assembly
EWhere the goods are supplied on board a conveyance, including a vessel, an aircraft, a train or a motor vehicleLocation at which such goods are taken on board

Place of supply of goods imported into, or exported from India (Section 11 of IGST Act)
The place of supply of goods,––

  1.  imported into India shall be the location of the importer;
  2. exported from India shall be the location outside India.

Place of supply of services where location of supplier and recipient is in India (Section 12 of IGST Act) – Domestic Supply

 SectionConditions/SituationsPlace of Supply of Services 

1

12(2)(a)Where supply is made to registered personLocation of such registered person 
12(2)(b)

Where supply is made to a person other than registered person

Location of the recipient where the address on record exists 
Location of the supplier of services in other cases (means if address of recipient is not known) 
2

12(3)(a)
Sale, purchase or construction related services

Supply of service directly in relation to an immovable property, including services provided by architects, interior decorators, surveyors, engineers and other related experts or estate agents, any service provided by way of grant of rights to use immovable property or for carrying out or co-ordination of construction workLocation of Immovable Property 

12(3)(b)
Leasing and renting services

Supply of service by way of lodging accommodation by a hotel, inn, guest house, home stay, club or campsite, by whatever name called, and including a house boat or any other vesselLocation of Immovable Property/House Boat/Vessel 

12(3)(c)
Services related letting of space for organisation of events and functions

Supply of service by way of accommodation in any immovable property for organising any marriage or reception or matters related thereto, official, social, cultural, religious or business function including services provided in relation to such function at such property;Location of Immovable Property 
ProvisoIf the location of the immovable property or boat or vessel is located or intended to be located outside India, the place of supply shall be the location of the recipient 
ExplanationWhere the immovable property or boat or vessel is located in more than one State or Union territory, the supply of services shall be treated as made in each of the respective States or Union territories, in proportion to the value for services separately collected or determined in terms of the contract or agreement entered into in this regard or, in the absence of such contract or agreement, on such other basis as may be prescribed. 
3

12(4)
Personal Services

Supply of restaurant and catering services, personal grooming, fitness, beauty treatment, health service including cosmetic and plastic surgeryLocation where the services are actually performed 
4

12(5)(a)
Training

Supply of services in relation to training and performance appraisal to a registered personLocation of such person 
12(5)(b)Supply of services in relation to training and performance appraisal to a person other than registered personLocation where the services are actually performed 
5

12(6)
Tickets
Entry Pass

Supply of services provided by way of admission to a cultural, artistic, sporting, scientific, educational, entertainment event or amusement park or any other place and services ancillary theretoThe place where the event is actually held or where the park or such other place is located 
6

12(7)

Event Management Services

Supply of Services by the way of:

(a) organisation of a cultural, artistic, sporting, scientific, educational or entertainment event including supply of services in relation to a conference, fair, exhibition, celebration or similar events; or

(b) services ancillary to organisation of any of the events or services referred to in clause (a), or assigning of sponsorship to such events

(i) to a registered person,

–          place of supply shall be the location of such person;

(ii) to a person other than a registered person,

–          place of supply shall be the place where the event is actually held and

–          if the event is held outside India, the place of supply shall be the location of the recipient.

 
7

12(8)(a)
Transportation of goods

The place of supply of services by way of transportation of goods, including by mail or courier to a registered personLocation of such registered person 
12(8)(b)The place of supply of services by way of transportation of goods, including by mail or courier to a person other than registered personLocation at which such goods are handed over for their transportation 
8

12(9)(a)

Transportation of passengers

The place of supply of passenger transportation service to a registered personLocation of such person 
12(9)(b)The place of supply of passenger transportation service to a person other than a registered personPlace where the passenger embarks on the conveyance for a continuous journey 
ExplanationFor the purposes of this sub-section, the return journey shall be treated as a separate journey, even if the right to passage for onward and return journey is issued at the same time. 
912(10)Supply of services on board a conveyance, including a vessel, an aircraft, a train or a motor vehicleLocation of the first scheduled point of departure of that conveyance for the journey 
1012(11)The place of supply of telecommunication services including data transfer, broadcasting, cable and direct to home television services 
(a)  in case of services by way of fixed telecommunication line, leased circuits, internet leased circuit, cable or dish antennaLocation where the telecommunication line, leased circuit or cable connection or dish antenna is installed for receipt of services 
(b)  in case of mobile connection for telecommunication and internet services provided on post-paid basisLocation of billing address of the recipient of services on the record of the supplier of services 

(c)   in cases where mobile connection for telecommunication, internet service and direct to home television services are provided on pre-payment basis through a voucher or any other means,––

  • through a selling agent or a re-seller or a distributor of subscriber identity module card (SIM Card) or re-charge voucher
  • by any person to the final subscriber

The address of the selling agent or re-seller or distributor as per the record of the supplier at the time of supply

Location where such prepayment is received or such vouchers are sold;

 
(d) in other cases (means cases not covered under a, b and c)
  • Address of the recipient as per the records of the supplier of services and
  • Where such address is not available, the place of supply shall be location of the supplier of services
 

Note:

  • Where the address of the recipient as per the records of the supplier of services is not available, the place of supply shall be location of the supplier of services.
  • If such pre-paid service is availed or the recharge is made
    • through internet banking or other electronic mode of payment,
  • the location of the recipient of services on the record of the supplier of services shall be the place of supply of such services.
 

12(12)

The place of supply of banking and other financial services, including stock broking servicesLocation of the recipient of services on the records of the supplier of services 
11 
If the location of recipient of services is not on the records of the supplier, the place of supply shall be the location of the supplier of services. 
1212(13)(a)      The place of supply of insurance services to a registered personLocation of such registered person 
(b)     The place of supply of insurance services to a person other than registered personLocation of the recipient of services on the records of the supplier of services 

Note : A new proviso has been inserted in this sub-section to lay down that where the transportation of goods is to a place outside India, the place of supply shall be the place of destination of such goods. Therefore, in case where the location of supplier and recipient is in India and goods are transported to a place outside India, the place of supply of transportation service shall be the place of destination of such goods, i.e. outside India.

Place of supply of services where location of supplier or location of recipient is outside India [Section 13]

Section

Conditions/Situations

Place of Supply of Services

13(3)(a)

Services supplied in respect of goods which are required to be made physically available by the recipient of services to the supplier of services, or to a person acting on behalf of the supplier of services in order to provide the services

Location where the services are actually performed

When services stated in Section 13(3)(a) are provided from a remote location by way of electronic means

Location where goods are situated at the time of supply of services

Provided further that nothing contained in this clause shall apply in the case of services supplied in respect of goods which are temporarily imported into India for repairs and are exported after repairs without being put to any other use in India, than that which is required for such repairs;

13(3)(b)

Services supplied to an individual, represented either as the recipient of services or a person acting on behalf of the recipient, which require the physical presence of the recipient or the person acting on his behalf, with the supplier for the supply of services.

Location where the services are actually performed

13(4)

[Just like 12(3)]

Services supplied directly in relation to an immovable property, including services supplied in this regard by experts and estate agents, supply of accommodation by a hotel, inn, guest house, club or campsite, by whatever name called, grant of rights to use immovable property, services for carrying out or co-ordination of construction work, including that of architects or interior decorators

Place where the immovable property is located or intended to be located

13(5)

[Just like 12(7)]

The place of supply of services supplied by way of admission to, or organisation of a cultural, artistic, sporting, scientific, educational or entertainment event, or a celebration, conference, fair, exhibition or similar events, and of services ancillary to such admission or organisation

Place where the event is actually held

13(6)

Where any services referred to in sub-section (3) or sub-section (4) or sub-section (5) is supplied at more than one location, including a location in the taxable territory

Location in the taxable territory

13(8)

Place of supply in the following cases:

(a)    services supplied by a banking company, or a financial institution, or a non-banking financial company, to account holders;

(b)   intermediary services;

(c)    services consisting of hiring of means of transport, including yachts but excluding aircrafts and vessels, up to a period of 1 month

Location of the supplier of services

13(9)

Supply of services of transportation of goods, other than by way of mail or courier

Place of destination of such goods

13(10)

Supply in respect of passenger transportation services

Place where the passenger embarks on the conveyance for a continuous journey

13(11)

Supply of services provided on board a conveyance during the course of a passenger transport operation, including services intended to be wholly or substantially consumed while on board

First scheduled point of departure of that conveyance for the journey

13(12)

Supply of online information and database access or retrieval services

Location of the recipient of services

In case of advertisements over internet, the advertisement service shall be deemed to have been provided all over India. Thus, the value of such service will be apportioned amongst all States and UTs, of India. The amount attributable to the value of advertisement service disseminated in a State/UT shall be calculated on the basis of the internet subscribers in such State/UT.

Important Definitions

Continuous Journey [Section 2(3) of IGST Act]
“Continuous Journey” means a journey for which a single or more than one ticket or invoice is issued at the same time, either by a single supplier of service or through an agent acting on behalf of more than one supplier of service, and which involves no stopover between any of the legs of the journey for which one or more separate tickets or invoices are issued.

Location of the recipient of services [Section 2(14) of IGST Act]
“Location of the recipient of services” means,

  1. where a supply is received at a place of business for which the registration has been obtained
    the location of such place of business;
  2. where a supply is received at a place other than the place of business for which registration has been obtained (a fixed establishment elsewhere)
    the location of such fixed establishment;
  3.  where a supply is received at more than one establishment, whether the place of business or fixed establishment
    the location of the establishment most directly concerned with the receipt of the supply; and
  4. in absence of such places
    the location of the usual place of residence of the recipient

Location of the supplier of services [Section 2(15) of IGST Act]
“Location of the supplier of services” means, –

  1. where a supply is made from a place of business for which the registration has been obtained
    the location of such place of business;
  2. where a supply is made from a place other than the place of business for which registration has been obtained (a fixed establishment elsewhere),
    the location of such fixed establishment;
  3. where a supply is made from more than one establishment, whether the place of business or fixed establishment
    the location of the establishment most directly concerned with the provision of the supply; and
  4. in absence of such places
    the location of the usual place of residence of the supplier

Non-taxable online recipient [Section 2(16) of IGST Act]
“Non-taxable online recipient” means

  • any Government, local authority, governmental authority,
  • an individual or any other person not registered

and receiving online information and database access or retrieval services in relation to any purpose

  • other than commerce, industry or any other business or profession, located in taxable territory.

Time of Supply

Time of supply of goods [Section 12 of CGST Act, 2017] In normal case – Forward Charge Mechanism [Subsection 2] The time of supply of goods shall be the earlier of the following dates, namely:—
  • the date of issue of invoice by the supplier or
  • the last date on which he is required to issue the invoice (as per section 31(1)); or
  • the date on which the supplier receives the payment with respect to the supply.
Last date on which invoice is required to be issued – Section 31
  1. Where the supply involves movement of the goods On/before the time of removal of the goods
  2. Where the supply doesn’t involve the movement of the goods On/before the delivery of the goods to the recipient,
  3. In case of a continuous supply of goods On/before the issuance of the statement of account,
  4. Where the goods are supplied on “approval for sale / return” basis On/before the time of supply subject to a maximum of 6 months from the date of removal
The date on which the supplier receives the payment It shall be the
  • date on which the payment is entered in his books of account or
  • the date on which the payment is credited to his bank account,
whichever is earlier. Provided that where the supplier of taxable goods receives an amount up to Rs. 1000 in excess of the amount indicated in the tax invoice, the time of supply to the extent of such excess amount shall, at the option of the said supplier, be the date of issue of invoice in respect of such excess amount. Example:
Deep Gyan Ltd. supplied goods to AJ Ltd., under a contract for the goods to be delivered to the factory of AJ Ltd. The goods were removed from the factory of Deep Gyan Ltd. on 7th August, 2018 and the goods were delivered to the factory of AJ Ltd. on 10th August, 2018. The invoice was issued on 13th August, 2018 and the payment was credited to Deep Gyan Ltd. A/c on 20th August, 2018 although the entry in the books was made on 17th August, 2018 when the cheque was received. Please advise on the time of supply. Solution Depending upon following factors, we have to find out the last date on which invoice is required to be issued
Situations/ Conditions Last date on which invoice is required to be issued
Whether the supply involves movement of the goods On/before the time of removal of the goods
Where supply doesn’t involves movement of goods On/before the delivery of the goods to the recipient
In case of a continuous supply of goods On/before the issuance of the statement of account
Where the goods are supplied on “approval for sale / return” basis On/before the time of supply subject to a maximum of 6 months from the date of removal
In our case, supply involves movement of the goods. Thus the last date on which invoice is required to be issued is on/before the time of removal of the goods i.e. 7th August, 2018. It should be noted that supplier has issued invoice on 13th August, 2018. Depending upon following factors, we have to find out the date on which the supplier receives the payment:
  • date on which the payment is entered in his books of account or
  • the date on which the payment is credited to his bank account,
whichever is earlier. In our case,
  • date on which the payment is entered in his books of account is 17th August, 2018
  • the date on which the payment is credited to his bank account is 20th August, 2018
We have to consider the earliest date out of these two dates i.e. 17th August, 2018 Now, according to Section 12 of CGST Act, 2017, the time of supply of goods shall be the earlier of the following dates, namely:—
  •   the date of issue of invoice by the supplier i.e. 13th August, 2018 or
  • the last date on which he is required to issue the invoice (as per section 31(1)) i.e. 7th August, 2018; or
  • the date on which the supplier receives the payment with respect to the supply i.e. 17th August, 2018
Thus, time of supply in this case is 7th August, 2018.

In case of supplies in respect of which tax is paid or liable to be paid on reverse charge basis [Subsection 3]
The time of supply shall be the earliest of the following dates, namely:—

  • the date of the receipt of goods; or
  • the date of payment as entered in the books of account of the recipient or the date on which the payment is debited in his bank account, whichever is earlier; or
  • the date immediately following 30 days from the date of issue of invoice or any other document, by whatever name called, in lieu thereof by the supplier.

Provided that where it is not possible to determine the time of supply under clause (a) or clause (b) or clause (c), the time of supply shall be the date of entry in the books of account of the recipient of supply.

In case of supply of vouchers by a supplier [Subsection 4]
The time of supply shall be—

  • the date of issue of voucher, if the supply is identifiable at that point; or
  • the date of redemption of voucher, in all other cases.

If it is not possible to determine the time of supply under the provisions of sub-section (2)/(3)/(4) [Subsection 5]
Where it is not possible to determine the time of supply under the provisions of sub-section (2) or sub-section (3) or sub-section (4), the time of supply shall––

  • in a case where a periodical return has to be filed, be the date on which such return is to be filed; or
  • in any other case, be the date on which the tax is paid.

The time of supply to the extent it relates to an addition in the value of supply by way of interest, late fee or penalty for delayed payment of any consideration shall be the date on which the supplier receives such addition in value.

Time of supply of services [Section 13]

Time of supply of services in normal cases [Subsection 2]
The time of supply of services shall be the earliest of the following dates, namely:—

    1. Where invoice is issued by supplier within the period prescribed under section 31(2)
      Earlier of the following:
      the date of issue of invoice by the supplier or
      the date of receipt of payment
    2. Where invoice is not issued by supplier within the period prescribed under section 31(2)
      Earlier of the following:
      the date of provision of service or
      the date of receipt of payment
    3. In any other case (like where invoice is not issued)
      the date on which the recipient shows the receipt of services in his books of account

Provided that where the supplier of taxable service receives an amount up to Rs. 1000 in excess of the amount indicated in the tax invoice, the time of supply to the extent of such excess amount shall, at the option of the said supplier, be the date of issue of invoice relating to such excess amount.

The date of receipt of payment
It shall be earliest of following:

  • the date on which the payment is entered in the books of account of the supplier or
  • the date on which the payment is credited to his bank account

Period within which supplier shall issue invoice under Section 31(2)
A registered person supplying taxable services shall, before or after the provision of service but within a prescribed period, issue a tax invoice, showing the description, value, tax charged thereon and such other particulars as may be prescribed.

According to Rule 47 of CGST Rules, in the case of the taxable supply of services, invoice shall be issued within a period of 30 days from the date of the supply of service.

But where the supplier of services is

  • an insurer or a banking company or
  • a financial institution, including a non-banking financial company,

the period within which the invoice or any document in lieu thereof is to be issued shall be 45 days from the date of the supply of service

Time of issuing of tax invoice for continuous supply of services

When the due date of payment can be identified from the contract
The invoice will be issued before or after the payment is to be made by the recipient but within specified time (30 days/45 days). Invoice will be issued, whether or not any payment has been received by the supplier.
For example, telecom service provider sends telephone bill every month. This is mentioned in the contract with the telecom company.

When the due date of payment cannot be identified from the contract
The invoice shall be issued before or after each time when the supplier of service receives the payment but within specified time (30 days/45 days).

When the payment is linked to the completion of an event
The invoice shall be issued before or after the time of completion of that event but within specified time (30 days/45 days).

When the supply of services ceases under a contract before the completion of the supply
The invoice shall be issued at the time when the supply ceases and such invoice shall be issued to the extent of the service provided before stopping.
For example, a works contract starting on 1st August 2018 will due for completion in March 2019. But it was stopped on 10th Nov 2018. The contractor shall issue an invoice on 10th November 2018 to the extent of work performed.

In case of supplies in respect of which tax is paid or liable to be paid on reverse charge basis [Subsection 3]

In case of supplies in respect of which tax is paid or liable to be paid on reverse charge basis, the time of supply shall be the earlier of the following dates, namely:––

  • the date of payment as entered in the books of account of the recipient or the date on which the payment is debited in his bank account, whichever is earlier; or
  • the date immediately following 60 days from the date of issue of invoice or any other document, by whatever name called, in lieu thereof by the supplier

Provided that where it is not possible to determine the time of supply under clause (a) or clause (b), the time of supply shall be

  • the date of entry in the books of account of the recipient of supply

Provided further that in case of supply by associated enterprises, where the supplier of service is located outside India, the time of supply shall be

  • the date of entry in the books of account of the recipient of supply or
  • the date of payment

whichever is earlier.

Time of supply in case of supply of vouchers [Subsection 4]
In case of supply of vouchers by a supplier, the time of supply shall be––

  • the date of issue of voucher, if the supply is identifiable at that point; or
  • the date of redemption of voucher, in all other cases.

Time of supply in case where it is not determinable under sub-section (2) or sub-section (3) or sub-section (4) [Subsection 5]

The time of supply shall––

  • in a case where a periodical return has to be filed, be the date on which such return is to be filed; or
  • in any other case, be the date on which the tax is paid.

The time of supply to the extent it relates to an addition in the value of supply
The time of supply to the extent it relates to an addition in the value of supply by way of interest, late fee or penalty for delayed payment of any consideration shall be

  • the date on which the supplier receives such addition in value.

Value of Taxable Supply

Value of Taxable Supply [Section 15 of CGST]
Transaction Value [Subsection 1]
The value of a supply of goods or services or both shall be the transaction value.

Transaction value 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.

What all should be included in the value of supply? [Subsection 2]
The value of supply shall include–––

  • Taxes: Any taxes, duties, cesses, fees and charges levied under any law for the time being in force (other than this CGST, SGST, UTGST and the Goods and Services Tax (Compensation to States) Act), if charged separately by the supplier;
  • Amount incurred by buyer on behalf of supplier: 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;
  • Incidental expenses: 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;
  • Interest or late fee or penalty for delayed payment: Any interest or late fee or penalty for delayed payment of any consideration for any supply; and
  • Subsidies: Subsidies directly linked to the price (excluding subsidies provided by the Central Government and State Governments).

Explanation.––For the purposes of this sub-section, the amount of subsidy shall be included in the value of supply of the supplier who receives the subsidy.

Illustration 1
Aallu imported certain goods for Rs. 1, 00,000 and paid Basic Custom Duty of Rs. 10,000 @ 10% on 1, 00,000.
Aallu supplied these goods to Kachallu. For the purpose of GST, BCD of Rs. 10,000 shall be included in the transaction value as per Section 15(2) of CGST Act.

Illustration 2
Aallu bought a washing machine from Kachallu for Rs. 30,000. As per the contract, Kachallu had to deliver washing machine at the residence of Aallu free of cost. But Aallu hired a tampo for the delivery and paid Rs. 500.
For the purpose of GST, amount paid by Aallu for hiring tempo shall be included in the transaction value as per Section 15(2) of CGST Act because this amount should have been incurred by Kachallu as per contract.
Thus transaction value for the purpose of GST shall be Rs. 30500

Illustration 3
Aallu bought a gift from Kachallu for Rs. 1000 and demanded special packing of the gift. Kachallu charged Rs. 100 extra for the special packing. 
For the purpose of GST, amount paid by Aallu for special packing shall be included in the transaction value as per Section 15(2) of CGST Act because this expense is incidental to the supply of gift.

Treatment of Discount by supplier to buyer [Subsection 3]
The value of the supply shall not include any discount which is given––

  • before or at the time of the supply if such discount has been duly recorded in the invoice issued in respect of such supply; and
  • after the supply has been effected, if—
    • such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices; and
    • input tax credit as is attributable to the discount on the basis of document issued by the supplier has been reversed by the recipient of the supply.

Refer Rules if Transaction Value can’t be determined [Subsection 4]
Where the value of the supply of goods or services or both cannot be determined under sub-section (1), the same shall be determined in such manner as may be prescribed.

Meaning of Related Person
According to Explanation to Section 15(5) of CGST Act, 2017, persons shall be deemed to be “related persons” if –

  • such persons are officers or directors of one another’s businesses;
  • such persons are legally recognised partners in business;
  • such persons are employer and employee;
  • any person directly or indirectly owns, controls or holds 25% or more of the outstanding voting stock or shares of both of them;
  • one of them directly or indirectly controls the other;
  • both of them are directly or indirectly controlled by a third person;
  • together they directly or indirectly control a third person; or
  • they are members of the same family;

Illustration 4

Price of Goods sold                                                         Rs. 10,000

Tax by Municipal Authority on sale                           Rs.      500

Packing charges (additional)                                        Rs.    1000

Subsidy received from NGO on sale                        Rs.    1000

Discount (recorded in invoice)                                   5% of price of goods

Find value of supply.

Price of Goods sold                                                                                                         Rs. 10,000

Add: Tax by Municipal Authority on sale                                                                Rs.       500

Add: Packing Charges                                                                                                     Rs.     1000

Add: Subsidy received from NGO on sale                                                              Rs.     1000

Less: Discount (recorded in invoice)                                                                        Rs.       500

Value of Supply                                                                                                                                Rs.  12,000

Rules related to Valuation of Supply [Chapter IV of CSGT Rules, 2017 – Rule 27 to Rule 35]

Value of supply of goods or services where the consideration is not wholly in money [Rule 27]
Where the supply of goods or services is for a consideration not wholly in money, the value of the supply shall,-

  1. be the open market value of such supply;
  2. if the open market value is not available under clause (a), be the sum total of
    • consideration in money and
    • any such further amount in money as is equivalent to the consideration not in money, if such amount is known at the time of supply; (value of other consideration in money)
  3. if the value of supply is not determinable under clause (a) or clause (b),
    • be the value of supply of goods or services or both of like kind and quality;
  4. if the value is not determinable under clause (a) or clause (b) or clause (c),
    • be the sum total of consideration in money and such further amount in money that is equivalent to consideration not in money as determined by the application of rule 30 or rule 31 in that order.

Illustrations:

  1. Where a new phone is supplied for Rs. 20,000 along with the exchange of an old phone and if the price of the new phone without exchange is Rs. 24,000, the open market value of the new phone is Rs. 24,000.
  2. Where a laptop is supplied for Rs. 40,000 along with the barter of a printer that is manufactured by the recipient and the value of the printer known at the time of supply is Rs. 4000 but the open market value of the laptop is not known, the value of the supply of the laptop is Rs. 44,000.

Value of supply of goods or services or both between distinct or related persons, other than through an agent [Rule 28]
The value of the supply of goods or services or both between distinct persons as specified in sub-section (4) and (5) of section 25 or where the supplier and recipient are related, other than where the supply is made through an agent, shall-

  1. be the open market value of such supply;
  2. if the open market value is not available,
    • be the value of supply of goods or services of like kind and quality;
  3. if the value is not determinable under clause (a) or (b),
    • be the value as determined by the application of rule 30 or rule 31, in that order

Provided that where the goods are intended for further supply as such by the recipient, the value shall, at the option of the supplier,

  • be an amount equivalent to 90% of the price charged for the supply of goods of like kind and quality by the recipient to his customer not being a related person

Provided further that where the recipient is eligible for full input tax credit,

  • the value declared in the invoice shall be deemed to be the open market value of the goods or services.

Value of supply of goods made or received through an agent [Rule 29]
The value of supply of goods between the principal and his agent shall-

  • be the open market value of the goods being supplied, or at the option of the supplier, be 90% of the price charged for the supply of goods of like kind and quality by the recipient to his customer not being a related person, where the goods are intended for further supply by the said recipient.
  • where the value of a supply is not determinable under clause (a), the same shall be determined by the application of rule 30 or rule 31 in that order.

Illustration:
A principal supplies groundnut to his agent and the agent is supplying groundnuts of like kind and quality in subsequent supplies at a price of Rs. 5,000 per quintal on the day of the supply. Another independent supplier is supplying groundnuts of like kind and quality to the said agent at the price of Rs. 4550 per quintal.
The value of the supply made by the principal shall be

    • 4550 per quintal or
    • where he exercises the option, the value shall be 90 per cent. of Rs. 5,000 i.e., Rs. 4500 per quintal

Value of supply of goods or services or both based on cost [Rule 30]
Where the value of a supply of goods or services or both is not determinable by any of the preceding rules of this Chapter, the value shall be 110% of the cost of production or manufacture or the cost of acquisition of such goods or the cost of provision of such services.

Residual method for determination of value of supply of goods or services or both [Rule 31]
Where the value of supply of goods or services or both cannot be determined under rules 27 to 30, the same shall be determined using reasonable means consistent with the principles and the general provisions of section 15 and the provisions of this Chapter.

Provided that in the case of supply of services, the supplier may opt for this rule, ignoring rule 30.

Value of supply in case of lottery, betting, gambling and horse racing [Rule 31A]

  1. The value of supply of lottery run by State Governments shall be deemed to be 100/112 of the
    • face value of ticket or
    • price as notified in the Official Gazette by the organising State
      whichever is higher.
  2. The value of supply of lottery authorised by State Governments shall be deemed to be 100/128 of the
    • face value of ticket or
    • price as notified in the Official Gazette by the organising State
      whichever is higher.

Explanation:– For the purposes of this sub-rule, the expressions-

  • “lottery run by State Governments” means a lottery not allowed to be sold in any State other than the organizing State;
  • “lottery authorised by State Governments” means a lottery which is authorised to be sold in State(s) other than the organising State also;

Determination of value in respect of certain supplies [Rule 32]
The value of supply of services in relation to the purchase or sale of foreign currency, including money changing [Rule 32(2)]

Alternate 1

Alternate 2

When foreign currency is exchanged to Indian Rupees (Purchase of Foreign Currency by Service Provider)
The value of service by the exchanger shall be equal to the difference in the
(RBI reference rate for that currency at that time – Buying Rate) X by the total units of currency

On 2nd August 2018, Mr. Aallu converted USD 100 into INR 6,800 (INR 68 per USD) through Deep Gyan Travel Group. RBI’s reference rate for buying and selling was Rs. 69/70 respectively on such date. Now the value of supply will be:  (69-68)*100 = INR 100

If RBI reference rate for a currency is not available, the value shall be 1% of the gross amount of Indian Rupees provided or received by the person changing the money

i.  1% of the gross amount of currency exchanged for an amount up to one lakh rupees, subject to a minimum amount of Rs. 250;
ii.  Rs. 1000 and ½ % of the gross amount of currency exchanged for an amount exceeding Rs. 1 lakh and up to Rs. 10 lakh; and

iii.   Rs. 5500 and 1/10th % of the gross amount of currency exchanged for an amount exceeding Rs. 10 lakh, subject to a maximum amount of Rs. 60,000.

When Indian currency is exchanged to Foreign Currency (Sale of Foreign Currency)
The value of service by the exchanger shall be equal to the difference in the
(Selling rate – RBI reference rate for that currency at that time) X by the total units of currency

On 2nd August 2018, Mr. Aallu converted Rs. 13200 into USD 200 (1 USD = 66 INR) through Deep Gyan Travel Group. RBI’s reference rate for buying and selling was Rs. 64/65 respectively on such date. Now the value of supply will be:  (66-65)*200 = INR 200

If RBI reference rate for a currency is not available, the value shall be 1% of the gross amount of Indian Rupees provided or received by the person changing the money

 

When one foreign currency is exchanged to another foreign currency
Where neither of the currencies exchanged is Indian Rupees, the value shall be equal to 1% of the lesser of the two amounts the person changing the money would have received by converting any of the two currencies into Indian Rupee on that day at the reference rate provided by the Reserve Bank of India.

It means first we have to calculate the value of each foreign currency using RBI reference rate. 1% of the lesser of the two amounts shall be considered as value of supply of service.

 
The value of the supply of services in relation to booking of tickets for travel by air provided by an air travel agent [Rule 32(3)]
In the case of domestic bookings 5% of the basic fare
In the case of international bookings 10% of the basic fare
“Basic fare” means that part of the air fare on which commission is normally paid to the air travel agent by the airlines.

The value of supply of services in relation to life insurance business [Rule 32(4)]

Where amount allocated for investment or savings on behalf of the policy holder is intimated to the policy holder at the time of supply of service
Insurance policy covering risk and investment

Gross premium charged from a policy holder less (-) the amount allocated for investment, or savings.
Example: If Rs. 50,000 is gross premium, of which Rs. 45,000 is invested in funds, then the value of supply shall be Rs. 5,000.

In case of single premium annuity policies other than stated above.

10% of single premium charged from the policy holder.
These single premium annuity policies ask for a lump sum payment and then the insurer starts paying annuity (regular income) for lifetime.

In all other cases

  • 20% of the premium charged from the policy holder in the 1st year and
  • 12.5% of the premium charged from the policy holder in subsequent years

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 a taxable supply is provided by a person dealing in buying and selling of second hand goods i.e., used goods as such or after such minor processing which does not change the nature of the goods and where no input tax credit has been availed on the purchase of such goods [Rule 32(5)]
The value of supply shall be the difference between the selling price and the purchase price and where the value of such supply is negative, it shall be ignored.

Provided that the purchase value of goods repossessed from a defaulting borrower, who is not registered, for the purpose of recovery of a loan or debt shall be deemed to be the purchase price of such goods by the defaulting borrower reduced by 5% points for every quarter or part thereof, between the date of purchase and the date of disposal by the person making such repossession.

Suppose, if you sell a can which is 3 years old, originally bought at Rs 10 lacs, is now repossessed and sold at a price of Rs 7 lacs, the GST treatment will be:

Selling price = Rs 7 lacs
Deemed purchase price as per proviso (10 – 3*20%) = 4 lacs
Taxable value = Rs 3 lacs
If the value is negative, it shall be ignored.

The value of a token, or a voucher, or a coupon, or a stamp (other than postage stamp) which is redeemable against a supply of goods or services or both [Rule 32(6)]
Money value of the goods or services or both redeemable against such token, voucher, coupon, or stamp.

Value of supply of services in case of pure agent [Rule 33]
Notwithstanding anything contained in the provisions of this Chapter, the expenditure or costs incurred by a supplier as a pure agent of the recipient of supply shall be excluded from the value of supply, if all the following conditions are satisfied, namely,-

  1. the supplier acts as a pure agent of the recipient of the supply, when he makes the payment to the third party on authorisation by such recipient;
  2. the payment made by the pure agent on behalf of the recipient of supply has been separately indicated in the invoice issued by the pure agent to the recipient of service; and
  3. the supplies procured by the pure agent from the third party as a pure agent of the recipient of supply are in addition to the services he supplies on his own account.

Explanation.- For the purposes of this rule, the expression “pure agent” means a person who-

  • enters into a contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs in the course of supply of goods or services or both;
  • neither intends to hold nor holds any title to the goods or services or both so procured or supplied as pure agent of the recipient of supply;
  • does not use for his own interest such goods or services so procured; and
  • receives only the actual amount incurred to procure such goods or services in addition to the amount received for supply he provides on his own account.

Illustration.- Corporate services firm A is engaged to handle the legal work pertaining to the incorporation of Company B. Other than its service fees, A also recovers from B, registration fee and approval fee for the name of the company paid to the Registrar of Companies. The fees charged by the Registrar of Companies for the registration and approval of the name are compulsorily levied on B. A is merely acting as a pure agent in the payment of those fees. Therefore, A’s recovery of such expenses is a disbursement and not part of the value of supply made by A to B.

Rate of exchange of currency, other than Indian rupees, for determination of value [Rule 34]
In case of Goods
The rate of exchange for determination of value of taxable goods shall be the applicable rate of exchange as notified by the Board under section 14 of the Customs Act, 1962 for the date of time of supply of such goods in terms of section 12 of the Act.

In case of Services
The rate of exchange for determination of value of taxable services shall be the applicable rate of exchange determined as per the generally accepted accounting principles for the date of time of supply of such services in terms of section 13 of the Act.

Value of supply inclusive of integrated tax, central tax, State tax, Union territory tax [Rule 35]

Leave a Comment