Goods and service tax or GST integrates all taxes under one hood. It was introduced to ensure a “One Nation One Tax” regime. Being a new version of indirect taxation, there are various queries in the mind of business owners.
One of the most common concerns is what is the Valuation of supply under GST? What will be covered in the taxable supply’s value on which Goods and services tax is estimated? In the erstwhile regime, taxes are estimated on account of value related to the goods/services.
| Tax | Value of goods/services |
| Excise | Transaction value of goods or MRP |
| VAT | Sale Value |
| Service tax | Taxable value of service rendered |
A Brief Outlook on Valuation of Supply under GST
At present, GST charges are applicable on the ‘transaction value’. The term ‘transaction value’ defines as the price paid for the supply of goods/services that take place between the unrelated parties. This implies that the price is the sole consideration for the supply.
The value of supply under Goods and Service Tax shall cover:-
- Any taxes, cess, duties, chargers, & fees imposed under any Act other than GST. GST Compensation Cess will not be taken into account if charged separately by the supplier.
- Any amount chargeable to the supplier incurred by the supplies’ recipient & is not covered in the price.
- The value will encompass all incidental expenses vis a vis sale such as commission, packing, etc.
- Subsidies other than Government subsidies associated with supply will be included.
- Interest/ penalty/ late fee/for late payment of consideration shall be included.
Read our article:Step by step guide on how to check GST Registration Status
Understanding Valuation of Supply under GST
Example: – Suppose a manufacturer named ABC Tool Inc. is involved in the production and selling of industrial-grade products such as polisher, drills, spades, etc. The company sells a set of drill bits to its customer, viz; XYZ, operating as a wholesaler. The Market Retail Price i.e., MRP of the said product, is Rs 6,500, but ABC Tool Inc. sells it for Rs 4000. The table below depicts the legit version of the invoice based on the transaction above.
| Power Drill | 4,000 |
| Add: Excise @ 12.5% | 500 |
| Subtotal | 4500 |
| Add: VAT @14.5% (on subtotal) | 652 |
| Total | 5152 |
The value of goods/services provided is the transaction value. I.e. the price paid, which is INR 4,000 in the example. Assuming SGST= 9% & CGST=9%
|
Power Drill |
4,000 |
|
Add: CGST @9% |
360 |
|
Add: SGST @9% |
360 |
|
Total |
4,720 |
Treatment of Discounts under GST
Discount shall have different treatment under Goods and Services Tax. Discounts provided before or at the time of supply shall be permitted as a deduction from a transaction value. Discounts provided after supply shall be permitted only if specific conditions are met. In the following section, we will discuss the discounts and impact of GST.
Valuation of Supply in Non-INR Transaction
When exports are made, the invoice may be raised by the taxpayer in Foreign Currency. The IGST (if any) included in the invoice shall be converted via the Exchange rate provided by the Reserve Bank of India. One can visit the official website of RBI[1] to know about the exchange rate. The importation from abroad is also subjected to the RBI exchange rates. When reverse charge covers the imported supplies, the invoice must be converted via the RBI Exchange Rate.
Examining Valuation of Supply under GST in Case of Discount
Discounts offered before or at the time of supply will be permitted as a deduction from the transaction value. Such a nature of discount must be explicitly cited on the invoice. Discounts offered post supply shall be allowed only if:-
- It is included in the agreement drawn into prior sale and
- The input tax credit is in proportion with the discounts has been reversed by the recipient and
- It can be explicitly tracked to the tax invoice.
Example 1 :- Suppose a company, viz ABC, engaged with tools like drills, polishers, spades, etc. ABC now sells polishers to another entity, viz ABC, for Rs 5,000, offering a 2% discount. ABC incurs INR 150 of packing charges. For prompt payment, ABC provides additional 0.5% discounts if the recipient pays within one week.
| Power Drill | 5,000 |
| Packing charges | 150 |
| Discount @2% (on sale value) | (100) |
| Subtotal | 5,250 |
| Add: CGST @9% | 472 |
| Add: SGST @9% | 472 |
| Total | 6,194 |
A discount of 0.5% is not mentioned in the invoice because it shall be offered at the time of payment. However, this discount was acknowledged at the time of supply & can be associated with this particular invoice; the discount amount can be deducted from the transaction value. In light of this, ABC Ltd will issue a credit note to XYZ for Rs 25 (0.5% of Rs 5,000 = Rs 25+ GST@ 18% on Rs 25 = Rs 4.50, & this should be linked to the tax invoice accordingly. Here, discount has been offered post supply. But it was finalized at the time of supply & can be traced to the tax invoice. Therefore, it will be permitted to be reduced from the transaction value.
Conclusion
In the erstwhile GST regime, indirect taxes paid such as Excise are covered in the price on which duty/tax is levied. But, GST will be levied on all the taxes other than the tax paid as SGST, CGST or, IGST. This might compromise the very objective of GST in overcoming cascading effect of taxes. For instance, the tax imposed on petroleum products: It was declared that the petroleum products such as motor spirit and crude would not be subjected to GST. Sales Tax could be continued to be imposed by States & Centre would also continue its levies. This will hamper companies dealing with petroleum products as input due to the absence of credit on taxes paid on inputs. GST council may revise this condition in the upcoming days after further deliberations.
Read our article:How To Obtain GST Registration in India?
