Call it a great step by Indian Government or great step towards transformation or great step towards transparency, an important move to free our country from tax terrorism is finally on the verge. More than the expected goals are: greater tax compliance, increased tax revenues, tracking and tackling black money, and a strong federal structure. More importantly, it will help bringing in administrative harmony between the Center and the States. Making the consumer the ultimate king, it has prospered the democratic aspect of the nation. .
The Central Government has put on the domain the draft rules entitled Goods and Service Tax Valuation (Determination of the Value of Supply of Goods and Services) Rules, 2016. These rules are applicable in determining the value of supply of goods and services under the IGST/CGST/SGST. Section 15 of the Model GST Act gives provisions for determining the value of supply. Further, Section 15 (1) provides that the value of supply of goods and services shall be the transaction value and Section 15 (2) provides what transaction value shall include.
Rule 3 of the GST Valuation (Determination of the Value of Supply of Goods and Services) Rules, 2016 provides for the methods for the determination of value. It is to be noted that the transaction value is determined in monetary terms. Where the supply consists of both taxable and non-taxable supply, taxable supply shall be deemed to be for such part of the monetary consideration. The transaction shall be accepted where the supplier and the beneficiary of supply are related, provided that the relation has not influenced the price. The value of supply in case where goods are transferred from:
- One place of business to another place of the same business;
- The principal to an agent or from an agent to the principal,
Shall be the transaction value, irrespective of the fact that whether or not situated in the same state.
The value of supplies provided under Section 15(4) of the Act shall be determined by the following methods:
- Determination of value of supply by comparison (Rule 4);
- Computed value method (Rule 5);
- Residual Method (Rule 6).
Initially, the value of supply is determined under Rule 3. In case where it is not possible to determine it in accordance with the Rule 3, Rule 4 comes into play and the value shall be determined on the basis of transaction value of goods and/or services of like kind and quality supplied at or about the same time to other customers, adjusted in accordance with the provisions of sub-rule (2). Relevant factor which are taken into consideration while determining the value of supply under Rule 4(2) includes:
- Difference in date of supply,
- Difference in commercial levels and quantity levels,
- Difference in composition, quality and design between the goods and/or services being valued and the goods and/or services with which they are compared,
- Difference in freight and insurance charges depending on the place of supply.
Further, if the value cannot be determined under Rule 4, it shall be based on the computed value (Rule 5) which shall include:
- The cost of production, manufacture or processing of the goods or, the cost of the provisions of the services;
- Charges, if any, for design or brand;
- An amount towards profit and general expenses equal to that usually reflected in the 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.
Further, even if the value cannot be determined under Rule 5 as well, then the value shall be determined under Rule 6, using the reasonable means consistent with the principles and general provisions of these rules.
Hence, these are the methods used for determining the value of supply in contest to the new provision for the supply of goods and services.