7

VALUE OF SUPPLY
The section numbers referred to in the Chapter pertain to CGST Act, unless otherwise
specified. For the sake of brevity, the term input tax credit has been referred to as
ITC in this Chapter.

LEARNING OUTCOMES

After studying this Chapter, you will be able to –

 comprehend and analyse as to what constitutes the value of
a taxable supply of goods / services when the supply is made
to an unrelated person and price is the sole consideration for
the supply
 identify the various inclusions in/exclusions from the value of
supply
 comprehend and analyse the various rules providing the
mechanism to value a supply in situations where transaction
value cannot be adopted and in respect of certain special
supplies
 compute the value of a taxable supply in different scenarios

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 7.2 GOODS AND SERVICES TAX

1. INTRODUCTION
Every fiscal statue makes provision for the determination of value as tax which is
normally payable on ad-valorem basis. In GST also, tax is payable on ad-valorem
basis i.e., percentage of value of the supply of goods or services.
Thus, it becomes important to know
how to arrive at the value on which
tax is to be paid. Provisions relating
to ‘value of supply’ set out the
mechanism to compute such value
basis which CGST and SGST/UTGST
(intra-State supply) and IGST (inter-
State supply) should be paid.
Section 15 of the CGST Act
supplemented with the rules under
Chapter IV: Determination of Value
of Supply of CGST Rules prescribes
the provisions for determining the value of supply of goods and services made in
different circumstances and to different persons.
Section 15 of the CGST Act provides common provisions for determining the value
of supply of goods and services. Sub-section (1) of section 15 provides the
mechanism for determining the value of a supply which is made between unrelated
persons and when price and only the price is the sole consideration for the supply.
In most of the cases of regular normal trade, the invoice value (i.e. transaction
value) is the taxable value, which is specified under section 15(1). However,
when value cannot be determined under section 15(1); and for certain specific
transactions, the value is determined using Chapter IV: Determination of Value of
Supply of CGST Rules.

Provisions of value of supply under CGST Act have also been made applicable
to IGST Act vide section 20 of the IGST Act.

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 VALUE OF SUPPLY 7.3

2. RELEVANT DEFINITIONS

 Agent means a person, including a factor, broker, commission agent, arhatia,

del credere agent, an auctioneer or any other mercantile agent, by whatever
name called, who carries on the business of supply or receipt of goods or
services or both on behalf of another [Section 2(5)].

Factor
Who carries
Broker on business
of supply of
goods and
Commission agent
/or services
AGENT
Arhatia

Del Credre agent

On behalf
Auctioneer of another

Mercantile agent

 Consideration in relation to the supply of goods or services or both includes –

(a) any payment made or to be made, whether in money or otherwise, in
respect of, in response to, or for the inducement of, the supply of goods
or services or both, whether by the recipient or by any other person but
shall not include any subsidy given by the Central Government or a
State Government;
(b) the monetary value of any act or forbearance, in respect of, in response
to, or for the inducement of, the supply of goods or services or both,

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 7.4 GOODS AND SERVICES TAX

whether by the recipient or by any other person but shall not include
any subsidy given by the Central Government or a State Government;
Provided that a deposit given in respect of the supply of goods or services or
both shall not be considered as payment made for such supply unless the
supplier applies such deposit as consideration for the said supply [Section 2(31)].

CONSIDERATION

Payment in money Monetary value of

or otherwise for any act or
the supply forbearance for the
By recipient or
supply
any other
Deposit to be person
considered as payment

ONLY Excluding subsidy given

by Central/State
When the supplier Governments
applies such deposit as
consideration for the
said supply

 Family means,––
(i) the spouse and children of the person, and
(ii) the parents, grand-parents, brothers and sisters of the person if they
are wholly or mainly dependent on the said person [Section 2(49)].
 Goods means every kind of movable property other than money and
securities but includes actionable claim, growing crops, grass and things
attached to or forming part of the land which are agreed to be severed before
supply or under a contract of supply [Section 2(52)].
 Market value shall mean the full amount which a recipient of a supply is
required to pay in order to obtain the goods or services or both of like kind
and quality at or about the same time and at the same commercial level where
the recipient and the supplier are not related [Section 2(73)].

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 VALUE OF SUPPLY 7.5

of like kind & quality

at or about the same time

Full amount which a
to obtain goods and / or
MARKET VALUE recipient is required to
services
pay
at the same commercial
level

where recipient & supplier

are not related

 Person includes-
(a) an individual;
(b) a Hindu Undivided Family;
(c) a company;
(d) a firm;
(e) a Limited Liability Partnership;
(f) an association of persons or a body of individuals, whether
incorporated or not, in India or outside India;
(g) any corporation established by or under any Central Act, State Act or
Provincial Act or a Government company as defined in section 2(45) of
the Companies Act, 2013;
(h) any body corporate incorporated by or under the laws of a country
outside India;
(i) a co-operative society registered under any law relating to cooperative
societies;
(j) a local authority;
(k) Central Government or a State Government;
(l) society as defined under the Societies Registration Act, 1860;
(m) trust; and
(n) every artificial juridical person, not falling within any of the above
[Section 2(84)].

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 7.6 GOODS AND SERVICES TAX

 Money means the Indian legal tender or any foreign currency, cheque,
promissory note, bill of exchange, letter of credit, draft, pay order, traveller
cheque, money order, postal or electronic remittance or any other instrument
recognised by the Reserve Bank of India when used as a consideration to
settle an obligation or exchange with Indian legal tender of another
denomination but shall not include any currency that is held for its
numismatic value [Section 2(75)].

Indian legal tender

Foreign Currency

Cheque

Promissory note

When used as a
Bill of Exchange consideration
to settle an
Letter of Credit obligation or
exchange with Currency
EXCLUDING held for its
Indian legal
Money Draft tender of numismatic
another value
Pay Order denomination

Traveller Cheque

Money Order

Postal or electronic
remittance

Any other instrument

recognised by RBI

 Prescribed means prescribed by rules made under this Act on the

recommendations of the Council [Section 2(87)].

 Principal means a person on whose behalf an agent carries on the business

of supply or receipt of goods or services or both [ Section 2(88)].

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 VALUE OF SUPPLY 7.7

 Recipient of supply of goods or services or both, means—

(a) where a consideration is payable for the supply of goods or services or

both, the person who is liable to pay that consideration;

(b) where no consideration is payable for the supply of goods, the person
to whom the goods are delivered or made available, or to whom
possession or use of the goods is given or made available; and

(c) where no consideration is payable for the supply of a service, the person
to whom the service is rendered,

and any reference to a person to whom a supply is made shall be construed

as a reference to the recipient of the supply and shall include an agent acting
as such on behalf of the recipient in relation to the goods or services or both
supplied [Section 2(93)].

 Services means anything other than goods, money and securities but
includes activities relating to the use of money or its conversion by cash or
by any other mode, from one form, currency or denomination, to another
form, currency or denomination for which a separate consideration is
charged.

Explanation - For the removal of doubts, it is hereby clarified that the

expression “services” includes facilitating or arranging transactions in
securities [Section 2(102)].

 Supplier in relation to any goods or services or both, shall mean the person
supplying the said goods or services or both and shall include an agent acting
as such on behalf of such supplier in relation to the goods or services or both
supplied [Section 2(105)].

 Voucher means an instrument where there is an obligation to accept it as

consideration or part consideration for a supply of goods or services or both
and where the goods or services or both to be supplied or the identities of
their potential suppliers are either indicated on the instrument itself or in
related documentation, including the terms and conditions of use of such
instrument [Section 2(118)].

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 7.8 GOODS AND SERVICES TAX

3. VALUE OF SUPPLY [SECTION 15]

STATUTORY PROVISIONS

Section Value of taxable supply

15

Sub- Clause Particulars

section

(1) The value of a supply of goods or services or both shall be the

transaction value, which is the price actually paid or payable for the
said supply of goods or services or both where the supplier and the
recipient of the supply are not related and the price is the sole
consideration for the supply.

(2) The value of supply shall include-

(a) any taxes, duties, cesses, fees and charges levied under any
law for the time being in force other than this Act, the State
Goods and Services Tax Act, the Union Territory Goods and
Services Tax Act and the Goods and Services Tax
(Compensation to States) Act, if charged separately by the
supplier;

(b) any amount that the supplier is liable to pay in relation to

such supply but which has been incurred by the recipient of
the supply and not included in the price actually paid or
payable for the goods or services or both;

(c) incidental expenses, including commission and packing,

charged by the supplier to the recipient of a supply and any
amount charged for anything done by the supplier in
respect of the supply of goods or services or both at the time
of, or before delivery of goods or supply of services;

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 VALUE OF SUPPLY 7.9

(d) interest or late fee or penalty for delayed payment of any

consideration for any supply; and

(e) subsidies directly linked to the price excluding subsidies

provided by the Central Government and State
Governments.

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.

(3) The value of the supply shall not include any discount which is given

(a) 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

(b) after the supply has been effected, if—

(i) 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

(ii) 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.

(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.

(5) Notwithstanding anything contained in sub-section (1) or sub-section

(4), the value of such supplies as may be notified by the Government
on the recommendations of the Council shall be determined in such
manner as may be prescribed.

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 7.10 GOODS AND SERVICES TAX

Explanation—For the purposes of this Act,––

(a) persons shall be deemed to be “related persons” if––

(i) such persons are officers or directors of one another’s businesses;

(ii) such persons are legally recognised partners in business;

(iii) such persons are employer and employee;

(iv) any person directly or indirectly owns, controls or holds twenty-five

percent or more of the outstanding voting stock or shares of both of
them;

(v) one of them directly or indirectly controls the other;

(vi) both of them are directly or indirectly controlled by a third person;

(vii) together they directly or indirectly control a third person; or

(viii) they are members of the same family;

(b) the term “person” also includes legal persons;

(c) persons who are associated in the business of one another in that one is the
sole agent or sole distributor or sole concessionaire, howsoever described, of
the other, shall be deemed to be related

ANALYSIS

The CGST law has different provisions for determining the value of a supply of
goods / services in the following situations:
A. Supplies made solely for a price in money (monetary consideration), to
unrelated persons - Valuation governed by sub-section (1) of section 15;
B. Supplies made solely for non-monetary consideration, or for part monetary
consideration and part non-monetary consideration, or involving additional

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 VALUE OF SUPPLY 7.11

consideration, or to related persons – Valuation governed by sub-section (4)

of section 15 read with relevant rules
C. Supplies of specified categories of goods or services – Valuation governed by
sub-section (5) of section 15 read with relevant rules
A. Supplies to unrelated persons where price is the sole
consideration
(i) Transaction value [Section 15(1)]
When a transaction of supply of goods / services is made
 between two persons (see definition of “person”) who are not related
to each other (see definition of “related person” in ‘Explanation’ to
section 15), and
 price is the sole consideration (see definition of consideration) for the
supply,

the value of the supply is the “transaction value” .

Price is the Value of

Supply is
sole supply will
between
considerati- be
unrelated Transaction
on for the
persons value
supply

The definition of ‘related person’ under the explanation to section 15 covers

various situations of control, including sole agent, sole distributor and sole
concessionaire. The concept of related person has been presented by way of
a diagram in ensuing pages.
Therefore, if the supply is between persons who are related in terms of the
explanation to section 15, the value of the supply would not be the
transaction value but would be determined through the valuation rules
provided in the CGST Rules. Only when the supply is between unrelated
persons and price is the sole consideration, the value thereof would be the
transaction value in terms of section 15(1).

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 7.12 GOODS AND SERVICES TAX

Related Persons [Explanation to section 15]

Such persons are

Persons including DEEMED AS IF
RELATED officers/directors of one
Legal Persons PERSONS another’s business

Such persons are legally

recognised partners in
business

Such persons are employer &

employee

A third person controls

(directly/indirectly) or own/
holds ≥ 25% voting
stock/shares of both of them

One of them controls

(directly/indirectly) the other

A third person controls

(directly/indirectly) both of
them

Such persons together control

(directly/indirectly) a third
person

Such persons are members of

the same family [See definition
of family]

One of them is the sole

agent/sole distributor/sole
concessionaire of the other

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 VALUE OF SUPPLY 7.13

(1) Ms. Priya holds 30% shares of ABC Ltd. and 35% shares of XYZ
Ltd. ABC Ltd. and XYZ Ltd. are related.
(2) Q Ltd. has a deciding role in corporate policy, operations
management and quality control of R Ltd. It can be said that Q Ltd. controls
R Ltd. Thus, Q Ltd. and R Ltd. are related.
(3) Alpha Ltd. controls the composition of Board of directors of Beta Ltd. and
Gama Ltd. It is said to control both Beta Ltd. and Gama Ltd. Beta Ltd. and
Gama Ltd. are related persons.
(4) Brita Ltd. and Grita Ltd. together control Margarita Ltd. Brita Ltd. and
Grita Ltd. are related persons.
Under section 15(1), the transaction value which is applicable between
unrelated persons where price is the sole consideration for the supply is -

the price actually paid or payable for the said supply of goods or

services or both.

This is the price for the specific supply that is being valued. It includes the
amount already paid at the time the supply is being valued for tax, as well as
the amount payable and not yet paid at that time. The word ‘payable’ refers
to price that is agreed to be paid for the goods / services.
(5) Wholesale price for 1 MT of cement sold by X Ltd. in the ordinary
course of business: ` 7,000.
Price of 1 MT of cement sold by X Ltd. to an unrelated
customer Y : ` 6,700.
Value of supply made by X Ltd. to Y is ` 6,700 which is the price actually paid or
payable and not the wholesale price.

The value of taxable supply of goods and services shall

ordinarily be ‘the transaction value’ which is the price paid
or payable, when the parties are not related and price is the
sole consideration. Section 15 of the CGST Act further
elaborates various inclusions and exclusions from the ambit of
transaction value. For example, the transaction value shall not include
refundable deposit, discount allowed subject to certain conditions.

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 7.14 GOODS AND SERVICES TAX

(ii) Inclusions in value [Section 15(2)]

The value of supply includes certain elements which are enumerated and
discussed below.
 Taxes, duties, cesses, fees and charges other than CGST, SGST, UTGST,
GST Compensation Cess, if charged separately
 Payments to third parties  Any amount that the supplier is liable to
pay in relation to supply but which has been incurred by the recipient
of the supply and not already included in the price.
 Incidental expenses, such as, commission and packing, charged by the
supplier to the recipient of a supply
 Any amount charged for anything done by the supplier in respect of the
supply of goods and/or services at the time of, or before delivery of
goods /supply of services
 Interest or late fee or penalty for delayed payment of consideration
 Subsidies, directly linked to the price, other than subsidies given by the
State or Central Governments
The above elements are discussed below.
Taxes other than GST & GST Compensation Cess [Section 15(2)(a)]
Any taxes, duties, cesses, fees and charges levied under any law for the time
being in force except the CGST Act, the SGST Act, the UTGST Act and the GST
(Compensation to States) Act, if charged separately by the supplier, are
includible in the value of supply. In case of inter-State sale liable to IGST, the
value of supply will include taxes other than IGST and the GST Compensation
Cess in terms of third proviso to section 20 of IGST Act. In effect, all the taxes,
duties etc. which are not subsumed in GST form part of the taxable value for
the purpose of levying GST.
For instance, if a supplier of goods pays municipal tax in relation to the goods
being supplied and charges the same separately, such tax will form part of
the value of supply.

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 VALUE OF SUPPLY 7.15

TCS under Income-Tax Act, 1961 not includible in the taxable value for
the purpose of GST
CBIC vide Circular No. 76/50/2018 GST dated 31.12.2018 (amended vide
corrigendum dated 7.03.2019) has clarified that for the purpose of
determination of value of supply under GST, tax collected at source (TCS)
under the provisions of the Income Tax Act, 1961 would not be includible as
it is an interim levy not having the character of tax. In other words, TCS under
Income-Tax Act, 1961 (though other than GST) is not includible in the taxable
value for the purpose of GST as it is only a modality for collection of tax.
Payments made to third parties by the recipient on behalf of the
supplier in relation to the supply [Section 15(2)(b)]
A supplier may need to incur various expenses in order to make a particular
supply of goods / services. In the normal course, he would pay these amounts
and they would form part of the price that he charges from the customer
(recipient of supply). However, even if the customer makes direct payment
of some of such liabilities (of the supplier) to the third parties, and the
supplier does not include this amount in his bill, it would still form part of the
value of the supply.
A point to note here is that amount paid by the recipient to third parties will
be added to the value under this clause only when the supplier is under
contractual liability to make payment to such third parties and the said
payment is in relation to such supply.
(6) Grand Biz contracts with ABC Co. to conduct a dealers’ meet.
In furtherance of this, Grand Biz contracts with vendors to deliver
goods / services, like water, soft drinks, audio system, projector,
catering, flowers etc. at the venue on the stipulated dates at the stipulated
prices. Grand Biz is liable to make these payments as contracted.
The soft drinks supplier wants payment upon delivery; ABC Co. agrees to pay
the bill raised by the soft drinks vendor on Grand Biz on receiving the crates
of soft drinks. This amount is not billed by Grand Biz to ABC Co. However, it
would be added to the value of supply provided by Grand Biz to ABC Co. for
payment of GST.

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 7.16 GOODS AND SERVICES TAX

Valuation of supply made by a component manufacturer using moulds and

dies owned by Original Equipment Manufacturers (OEM) sent free of cost
(FOC) to him
Circular No. 47/21/2018 GST dated 08.06.2018 has clarified that while
calculating the value of the supply made by the component manufacturer
using moulds and dies owned by Original Equipment Manufacturers (OEM)
sent free of cost (FOC) to him, the value of such moulds and dies shall not be
added to the value of supply made by him because the cost of moulds/dies
was not to be incurred by the component manufacturer and thus, does not
merit inclusion in the value of supply in terms of section 15(2)(b).
However, if the contract between OEM and component manufacturer was for
supply of components made by using the moulds/dies belonging to the
component manufacturer, but the same have been supplied by the OEM to
the component manufacturer on FOC basis, the amortised cost of such
moulds/dies shall be added to the value of the components 1.

This clarification affirms the view that if an element or a

constituent of a supply, which the supplier is responsible to
incur/provide for the same, is actually paid for or made by
the recipient, the value of such element or constituent of the
supply is to be added to the value of the supply being charged by the
supplier. If, however, the supplier is not responsible to incur/provide for
such element or constituent and the recipient provides for the same, the
respective value is not to be added to the value of supply.

Incidental expenses [Section 15(2)(c)]

Incidental expenses, such as, commission and packing charged by the supplier
or anything else done by the supplier in relation to the supply at the time of or
before delivery of goods or supply of services must be added to value.
(7) Commission: This may be paid to an agent and recovered from
the buyer of the goods/services; this is part of the value of the supply.
(8) Packing, if charged by the supplier to the recipient, is similarly
part of the value of the supply.

1
Aspects relating to reversal of input tax credit on moulds and dies supplied free of cost, which
have been clarified in this Circular, have been included in Chapter 8: Input Tax Credit.

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 VALUE OF SUPPLY 7.17

(9) Inspection or certification charges is another element that will be

added to the value, if incurred before/at the time of supply and billed to the
recipient of supply.
(10) Installation and testing charges at the recipient’s site will also be
added, being an amount charged for something done by the supplier in
respect of the supply at the time of making the supply.
(11) Weighment charges, loading charges, designing charges etc.
incurred before/at the time of supply will be added to the value, if billed to
the recipient of supply.
Outward freight, transit insurance
Where the supplier agrees to deliver the goods at the buyer’s premises and
arranges for transport and insurance the contract of supply becomes a
composite supply; the principal supply being the supply of goods. Therefore,
outward freight and transit insurance become part of the value of the
composite supply and GST is payable thereon at the same rate as applicable
for the relevant goods. However, if the contract for supply is on ex-factory
basis where buyer pays the outward freight and insurance, the same will not
be included in the value of supply of goods.
Interest, late fee or penalty for delayed payment [Section 15(2)(d)]
The value for a supply will include not only the base price but also the charges
for delay in payment.
(12) A supply priced at ` 2,000 is made, with a credit period of 1
month for payment. Thereafter interest @ 12% is chargeable. The
payment is received after the lapse of two months from the date of
supply. The amount of interest @ 12% p.a. (i.e. 1% per month) on ` 2,000 for
one month after the free credit period of one month, is ` 20. Such interest
will be added to the value and thus, the value of supply will work out to be
` 2,020, assuming the interest to be exclusive of GST.

Time of supply for such interest/ late fee/ penalty is the date
when such amount is received by the supplier. Further, since
such charges are an addition in the value of supply, same rate
of tax as applicable on the main supply of goods / service are applicable
on such charges as well.

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 7.18 GOODS AND SERVICES TAX

Subsidies linked with price [Section 15(2)(e)]

Subsidy is a sum of money given to keep the price of a service or commodity
low. The subsidy is added to the value of supply of the supplier who receives
the subsidy. It must be noted that only subsidies directly linked to the price
of goods/services are added to the value. Blanket subsidy/donation received
are not includible in the value. Note that if the subsidy is given by the State
or Central Government, it is not to be added to the value of supply.
(13) The selling price of a notebook is ` 50. For notebooks sold
to students in Government schools, a company uses its CSR funds
to pay the seller ` 30, so that the students pay only ` 20 per
notebook. The value of the notebook will be ` 50, as this is a non-government
subsidy. If the same subsidy is paid by the Central Government or State
Government, the value of the notebook would be ` 20.
(iii) Exclusion of discounts from value [Section 15(3)]
Discounts are a common phenomenon for businesses. Numerous kinds of
discounts are given by the suppliers to their customers namely, trade
discounts, cash discounts, quantity/volume/performance discounts etc. Such
discounts are reduced from the sale price of the supply. Since, the value of a
taxable supply is the transaction value, GST is leviable on the value after
deducting the discounts.
However, not all discounts offered by the supplier to their customers are
allowed as a deduction from the value. Only such discounts which satisfy the
conditions prescribed in section 15(3), are allowed as deduction from the
value. The essence of the conditions prescribed in section 15(3) is that the
price as established at the time of supply should form the basis of value. The
discounts which do not fulfill the conditions specified in section 15(3) are not
deductible from the value, i.e. GST in such a case is levied on the gross value
of the supply without considering the discount.
Discounts that are allowed as deduction from the value are as follows:
(a) Discounts given before or at the time of supply and shown in the
invoice – Example for such discount can be discounts that are offered
for making the payment at the time of supply itself. Such discounts are
thus, recoded in the invoice and thus, GST is charged on the gross value
less discount recorded in the invoice.

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 VALUE OF SUPPLY 7.19

(b) Post supply discounts- It is not always commercially feasible to

determine all discounts before or at the time of supply or record them
in the invoice. For instance, cash discount given for making the
payment within a stipulated time. Even though the discount is
established before/at the time of supply, the supplier cannot record
such discount in the invoice as he does not know if the buyer will make
the payment within the stipulated time. Likewise, in case of
quantity/volume/performance discount also, the supplier is not aware
before/at the time of supply as to whether the buyer would purchase
the requisite quantity within the stipulated time. Therefore, in this case
also, the discount cannot be recorded in the invoice. In such cases,
initially the GST is paid on the gross value indicated in the invoice
without considering the discount. The supplier, however, passes the
discount to the buyers subsequently by issuing credit notes.
Post supply discounts, i.e. the discounts that are given after supply is
made are allowed as a deduction from the value of supply if the
following two conditions are satisfied:
o Discount is in terms of an agreement that existed at the time of
supply and can be worked out invoice-wise; and
o Proportionate input tax credit is reversed by the recipient - The
buyer would have availed input tax credit of GST payable on the
gross value specified in the invoice. Thus, when a credit note 2 is
issued to him by the supplier for the discount, the buyer will
reverse the proportionate credit; consequent to which, the
supplier’s output tax liability will be reduced by the same amount.
If any of the above conditions are not satisfied, the GST liability of
supplier cannot be reduced. The supplier, however, can issue a
commercial credit note 3 for the value of discount. In such a scenario,
the buyer will not be required to reverse any input tax credit.
The provisions relating to allowability of discount as a deduction from the
value have been depicted by way of a diagram given in the next page.

2
Credit notes governed under GST law are issued under section 34. Provisions of section 34 are
discussed in Chapter 10: Tax Invoice; Credit & Debit Notes
3
A commercial credit note is not governed under GST law and is issued only for the value of
discount/reduction in value of the supply, without any GST.

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 7.20 GOODS AND SERVICES TAX

At the time of supply

+ Yes
Shown in the
No

+
invoice
Discounts Before the supply
given
Discounts

+
In terms of an deducted
After the supply agreement that from value
existed at the of supply
time of supply
+
Can be linked Discounts
to invoices not

+ deducted
from value
Proportionate of supply
ITC reversed
by recipient
No

Yes

Allowability of certain specific types of discounts offered by the

suppliers as clarified vide Circular No. 92/11/2019 GST dated
07.03.2019
(i) Staggered discounts (‘Buy more, Save more’ offers): In case of
staggered discounts, rate of discount increases with increase in
purchase volume. For example – One may get 10 % discount for
purchases above ` 5,000/-, 20% discount for purchases above ` 10,000/-
and 30% discount for purchases above ` 20,000/-. Such discounts are
shown on the invoice itself.
Such discounts are excluded to determine the value of supply.
(ii) Periodic / year ending discounts/volume discounts: These discounts
are offered by the suppliers to their stockists, etc. For example- Get
additional discount of 1% if you purchase 10,000 pieces in a year, get
additional discount of 2% if you purchase 15,000 pieces in a year. Such

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 VALUE OF SUPPLY 7.21

discounts are established in terms of an agreement entered into at or

before the time of supply though not shown on the invoice as the actual
quantum of such discounts gets determined after the supply has been
effected and generally at the year end. In commercial parlance, such
discounts are colloquially referred to as “volume discounts”. Such
discounts are passed on by the supplier through credit notes.
Such discounts are excluded to determine the value of supply provided
they satisfy the parameters laid down in section 15(3) including the
reversal of ITC by the recipient of the supply as is attributable to the
discount on the basis of document (s) issued by the supplier.
(iii) Secondary discounts: These are the discounts which are not known
at the time of supply or are offered after the supply is already over. For
example, M/s A supplies 10,000 packets of biscuits to M/s B at ` 10/-
per packet. Afterwards, M/s A re-values it at ` 9/- per packet.
Subsequently, M/s A issues credit note to M/s B for ` 1/- per packet.
Such secondary discounts shall not be excluded while determining the
value of supply as such discounts are not known at the time of supply
and the conditions laid down in section 15(3)(b) are not satisfied.
It may be noted that financial / commercial credit note(s) can be issued
by the supplier even if the conditions mentioned in section 15(3)(b) are
not satisfied. Such credit notes do not include GST, and do not have
any impact on value of supply for the purposes of GST.
Examples of discount deductible from value of supply
(14) Royal Biscuit Co. gives a discount of 30% on the list price to
its distributors. Thus, for a carton of Spice Bisk, in the invoice the
list price is mentioned as ` 200, on which a discount of 30% is given to arrive
at the final price of ` 140. The value is ` 140, as the discount is allowed at
the time of supply and shown in the invoice.
Post supply discounts
(15) The agreement of Raju Electrical Appliances with its dealers is that
purchase of rice cookers over 1,000 pieces in the Diwali month will entitle
them to discount of 5% per cooker. Therefore, the quantum of discount can
be determined only at the end of Diwali month. However, since the
agreement relating to discount was in existence at the time of supply, and
the discount can be worked out for each invoice, such post supply discount

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 7.22 GOODS AND SERVICES TAX

will be allowed as a deduction from the value of supply of rice cookers.

Raju Electrical Appliances can issue credit note for 5% of the value of goods
along with GST and claim adjustment of excess tax paid. The dealer must
reverse the proportionate input tax credit on the relevant stock to bring it in
line with the reduced tax.
(16) Pink and Blue Pvt. Ltd. (PBPL) sold goods to Orange Pvt. Ltd. (OPL) on
15th January at ` 50,000 (exclusive of taxes and discounts) and charged ` 9,000
as IGST @ 18%. The terms of supply stipulated that discount @ 2% will be
given to OPL if it makes the payment within one month of the supply. OPL
avails the input tax credit of ` 9,000 in the month of January and makes the
payment for the goods on 10th February. PBPL issues credit note for ` 1180
[` 1,000 for value of discount and ` 180 for proportionate IGST leviable
thereon] to OPL on 11th February. After receiving credit note, OPL reverses
the input tax credit of ` 180 attributable to the discount given by the PBPL.
PBPL can reduce its GST liability of the month of February by ` 180. OPL
would have paid ` 57,820 (` 50,000 + ` 9,000 - ` 1,000 - ` 180) to PBPL on
10th February.

Examples of discount not deductible from value of supply

(17) In the above example, if the terms of supply did not provide
for discount @ 2% for payment within one month but PBPL offers
such discount to OPL at the time of payment after negotiation, the discount
will not be allowed as a deduction from the value. PBPL will issue a
commercial credit note for only the value of discount, i.e. for ` 1,000. OPL
will not reverse any input tax credit and PBPL will also not be able to reduce
its GST liability for the month of February. In this case, OPL would pay
` 58,000 (` 50,000 + ` 9,000 - ` 1,000) to PBPL on 10th February.
(18) A company announces turnover discounts after reviewing dealer
performance during the year. The discounts are based on performance slabs
and are given as cash-back. As these discounts were not known at the time
of supply of the goods, they will not be deducted from value of those goods.
Hence, the company will not be able to adjust excess tax paid from its tax
liability.

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 VALUE OF SUPPLY 7.23

ILLUSTRATION 1

BW Ltd. manufactures tobacco products. It has provided the following particulars

relating to goods sold by it to CF Ltd.

Particulars `

Price of the goods (exclusive of all taxes/duties and discounts) 60,000

Excise duty 6,000
Packing charges 2,000
Freight (arranged by BW Ltd.) 1600
Total amount billed to CF Ltd. before any discount 69,600
Discount @ 2% of the price of goods recorded in the invoice

The final amount charged from CF Ltd. is ` 69,600 less discount @ 2%.
Determine the value of taxable supply made by BW Ltd.

ANSWER
Computation of value of taxable supply

Particulars `

Price of the goods (exclusive of taxes and discounts) 60,000

Add: Excise duty [Note 1] 6,000
Packing charges [Note 2] 2,000
Freight [Note 3] 1,600
Less: Discount @ 2% on ` 60,000 [Note 4] (1,200)
Value of taxable supply 68,400

Notes:
(1) As per section 15(2)(a), any taxes, duties, cesses, fees and charges other than
CGST, SGST, UTGST, IGST and GST Compensation Cess, if charged separately
by the supplier should be included in the value of supply. Thus, excise duty
charged separately has been added in the value.

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 7.24 GOODS AND SERVICES TAX

(2) As per section 15(2)(c), incidental expenses, including commission and

packing, charged by the supplier to the recipient of a supply should be
included in the value. Thus, packing charges have been added in the value.
(3) Since transport is arranged by the supplier, the contract of supply becomes a
composite supply; the principal supply being the supply of goods. Therefore,
freight becomes part of the value of the composite supply.
(4) As per section 15(3)(a), the value of the supply does 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. Therefore, since
in this case, discount is known at the time of supply and recorded in the
supply, it is deductible from the value.

ILLUSTRATION 2
SA Ltd. is a manufacturer of biscuits. The price of a 200 gm pack of biscuit sold by
SA Ltd. is ` 30. It has received subsidy of ` 5 per pack of biscuit sold from NM Ltd. as
part of NM Ltd.’s CSR activity. SA Ltd. supplied 1000 packs of biscuits @ ` 25 per
pack to one of its wholesalers namely, MA Pvt. Ltd. during a tax period. Loading
charges of ` 1200 have also been charged separately from MA Pvt. Ltd. MA Pvt Ltd.
delayed the payment of consideration and thus, paid ` 5,000 as interest (no separate
amount of GST is paid on the interest by MA Ltd.) in the next tax period. Assume the
rate of GST to be 18%.
Determine the value of taxable supply made by SA Ltd.
ANSWER
Computation of value of taxable supply

Particulars `

Price of 1,000 packs of biscuits @ ` 25 25,000

Add: Subsidy received from NM Ltd. @ ` 5 for 1000 packs of 5,000
biscuits [Note 1]
Loading charges [Note 2] 1,200
Interest for delay in payment of consideration [Note 3] 4,237
(rounded off)
Value of taxable supply 35,437

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 VALUE OF SUPPLY 7.25

Notes:
(1) As per section 15(2)(e), subsidies directly linked to the price excluding
subsidies provided by the Central Government and State Governments should
be included in the value.
(2) As per section 15(2)(c), incidental expenses, including commission and
packing, charged by the supplier to the recipient of a supply and any amount
charged for anything done by the supplier in respect of the supply of goods
or services or both at the time of, or before delivery of goods or supply of
services should be included in the value.
(3) As per section 15(2)(e), interest or late fee or penalty for delayed payment of
any consideration for any supply should be included in the value. However,
as per section 12(6), the time of supply to the extent it relates to an addition
in the value of supply by way of interest is the date when such interest is
received. In the given case, since GST has not been paid separately on the
interest, the same is inclusive of GST. Thus, the value has been computed by
 Interest 
making back calculations  × 100  . The time of supply in relation
100 + tax rate 
to the addition in value by way of such interest will fall in the next tax period
on the date when the same is received.
B. Supplies where value cannot be determined u/s 15(1) [Sub-section
(4) of section 15]
Section 15(4) lays down that where sub-section (1) is not applicable, i.e. if the
transaction is with a related party, and/or price is not the sole consideration for the
supply of goods / services, then the value will be determined in the manner as
prescribed (see the definition of ‘prescribed’), which means as stipulated in the rules
for valuation, i.e. Chapter IV: Determination of Value of Supply of CGST Rules. Rules
27 to 31 of the CGST Rules provide the mechanism to determine value in all such
scenarios. These rules are discussed under Heading 4 in the ensuing pages of this
Chapter.
C. Supplies of specified categories of goods or services [Sub-section
(5) of section 15]
Section 15(5) lays down that in respect of certain notified supplies also, the value will
be determined in the manner as stipulated in the rules for valuation. Thus, the
methodology of transaction value will not apply for such notified categories of

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 7.26 GOODS AND SERVICES TAX

transactions; instead the rules will prescribe a different method of determining value
for these notified transactions. At present, the rules have prescribed a different
valuation method for
(i) the service of purchase or sale of foreign currency including money changing,
(ii) the service of booking air tickets by an air travel agent,
(iii) life insurance service
(iv) buying and selling of second hand goods,
(v) vouchers, token, coupons or stamps (other than postage stamps) redeemable
against goods or services;
(vi) services provided without consideration between distinct persons under GST
law that are different units of the same legal entity.
(vii) supply in case of lottery, betting, gambling and horse racing
The scheme of valuation as provided under section 15 is depicted by way of a
diagram given below:

Value of supply under

section 15

Whether price is the sole No Supply to be valued as per

consideration for supply? Chapter IV: Determination of
Value of Supply of CGST Rules
Yes

Whether supplier and the Yes

recipient are related?

No
Whether the supply is a Yes
notified supply u/s 15(5)?

No
Assessable Value = Transaction Value u/s 15(1)

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 VALUE OF SUPPLY 7.27

4. RULES FOR VALUATION OF SUPPLY OF

GOODS AND/OR SERVICES

CHAPTER IV: DETERMINATION OF VALUE OF

SUPPLY OF CGST RULES

Rule 27 Value of supply of goods or services where the consideration is

not wholly in money.-

Sub-rule Clause Particulars

Where the supply of goods or services is for a consideration not wholly

in money, the value of the supply shall,-

(a) be the open market value of such supply;

(b) 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;

(c) 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;

(d) 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.

Illustration:
(1) Where a new phone is supplied for twenty thousand rupees along
with the exchange of an old phone and if the price of the new
phone without exchange is twenty four thousand rupees, the open
market value of the new phone is twenty four thousand rupees.

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 7.28 GOODS AND SERVICES TAX

(2) Where a laptop is supplied for forty thousand rupees 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 four
thousand rupees but the open market value of the laptop is not
known, the value of the supply of the laptop is forty four thousand
rupees.

Rule 28 Value of supply of goods or services or both between distinct or

related persons, other than through an agent.-

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-

(a) be the open market value of such supply;

(b) if the open market value is not available, be the value of

supply of goods or services of like kind and quality;

(c) 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 ninety percent 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.

Rule 29 Value of supply of goods made or received through an agent.-

The value of supply of goods between the principal and his agent
shall-

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 VALUE OF SUPPLY 7.29

(a) be the open market value of the goods being supplied, or at

the option of the supplier, be 90 percent 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.

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 five thousand rupees 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 four thousand five hundred and
fifty rupees per quintal. The value of the supply made by the
principal shall be four thousand five hundred and fifty
rupees per quintal or where he exercises the option, the
value shall be 90 percent of five thousand rupees i.e., four
thousand five hundred rupees per quintal.

(b) 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.

Rule 30 Value of supply of goods or services or both based on cost.-

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 one hundred and ten percent of the cost of production or
manufacture or the cost of acquisition of such goods or the cost of
provision of such services.

Rule 31 Residual method for determination of value of supply of goods

or services or both.-

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:

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 7.30 GOODS AND SERVICES TAX

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

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

(1) Notwithstanding anything contained in the provisions of this Chapter,

the value in respect of supplies specified below shall be determined in
the manner provided hereinafter.

(2) The value of supply of lottery shall be deemed to be 100/128 of the

face value of ticket or of the price as notified in the Official Gazette
by the Organising State, whichever is higher.

Explanation: - For the purposes of this sub-rule, the expression

“Organising State” has the same meaning as assigned to it in clause
(f) of sub-rule (1) of rule 2 of the Lotteries (Regulation) Rules, 2010.

(3) The value of supply of actionable claim in the form of chance to win
in betting, gambling or horse racing in a race club shall be 100% of
the face value of the bet or the amount paid into the totalisator.

Rule 32 Determination of value in respect of certain supplies.-

Sub-rule Clause Particulars

(1) Notwithstanding anything contained in the provisions of this Chapter,

the value in respect of supplies specified below shall, at the option of
the supplier, be determined in the manner provided hereinafter.

(2) The value of supply of services in relation to the purchase or sale of

foreign currency, including money changing, shall be determined by
the supplier of services in the following manner, namely:-

(a) for a currency, when exchanged from, or to, Indian Rupees,

the value shall be equal to the difference in the buying rate
or the selling rate, as the case may be, and the Reserve Bank
of India reference rate for that currency at that time,
multiplied by the total units of currency:

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 VALUE OF SUPPLY 7.31

Provided that in case where the Reserve Bank of India

reference rate for a currency is not available, the value shall
be one percent of the gross amount of Indian Rupees
provided or received by the person changing the money:

Provided further that in case where neither of the currencies

exchanged is Indian Rupees, the value shall be equal to one
percent 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.

Provided also that a person supplying the services may

exercise the option to ascertain the value in terms of clause
(b) for a financial year and such option shall not be
withdrawn during the remaining part of that financial year.

(b) at the option of the supplier of services, the value in relation

to the supply of foreign currency, including money changing,
shall be deemed to be-

(i) one percent of the gross amount of currency

exchanged for an amount up to one lakh rupees,
subject to a minimum amount of two hundred and
fifty rupees;

(ii) one thousand rupees and half of a percent of the gross

amount of currency exchanged for an amount
exceeding one lakh rupees and up to ten lakh rupees;
and

(iii) five thousand and five hundred rupees and one tenth
of a percent of the gross amount of currency
exchanged for an amount exceeding ten lakh rupees,
subject to a maximum amount of sixty thousand
rupees.

(3) The value of the supply of services in relation to booking of tickets for
travel by air provided by an air travel agent shall be deemed to be an

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 7.32 GOODS AND SERVICES TAX

amount calculated at the rate of five percent of the basic fare in the
case of domestic bookings, and at the rate of ten percent of the basic
fare in the case of international bookings of passage for travel by air.

Explanation.- For the purposes of this sub-rule, the expression “basic

fare” means that part of the air fare on which commission is normally
paid to the air travel agent by the airlines.

(4) The value of supply of services in relation to life insurance business

shall be,-

(a) the gross premium charged from a policy holder reduced by

the amount allocated for investment, or savings on behalf of
the policy holder, if such an amount is intimated to the
policy holder at the time of supply of service;

(b) in case of single premium annuity policies other than (a), ten
percent of single premium charged from the policy holder;
or

(c) in all other cases, twenty five percent of the premium

charged from the policy holder in the first year and twelve
and a half percent of the premium charged from the policy
holder in subsequent years:

Provided that 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.

(5) 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, 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

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 VALUE OF SUPPLY 7.33

of a loan or debt shall be deemed to be the purchase price of such

goods by the defaulting borrower reduced by five percentage points
for every quarter or part thereof, between the date of purchase and
the date of disposal by the person making such repossession.

(6) 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 shall be equal to the money value of the goods or
services or both redeemable against such token, voucher, coupon, or
stamp.

(7) The value of taxable services provided by such class of service

providers as may be notified by the Government, on the
recommendations of the Council, as referred to in paragraph 2 of
Schedule I of the said Act between distinct persons as referred to in
section 25, where input tax credit is available, shall be deemed to be
NIL.

Rule 33 Value of supply of services in case of pure agent.

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,-

(i) 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;

(ii) 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

(iii) 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.

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 7.34 GOODS AND SERVICES TAX

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

(a) 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;

(b) 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;

(c) does not use for his own interest such goods or services so
procured; and

(d) 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.

Rule 34 Rate of exchange of currency, other than Indian rupees, for

determination of value.-

Sub-rule Particulars

(1) 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.

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 VALUE OF SUPPLY 7.35

(2) 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.

Rule 35 Value of supply inclusive of integrated tax, central tax, State

tax, Union territory tax.-

Where the value of supply is inclusive of integrated tax or, as the case
may be, central tax, State tax, Union territory tax, the tax amount shall
be determined in the following manner, namely,-

Tax amount = (Value inclusive of taxes X tax rate in % of IGST or, as

the case may be, CGST, SGST or UTGST) ÷ (100+ sum of tax rates, as
applicable, in %)

Explanation.- For the purposes of the provisions of this Chapter, the

expressions-

(a) “open market value” of a supply of goods or services or both means

the full value in money, excluding the integrated tax, central tax, State
tax, Union territory tax and the cess payable by a person in a
transaction, where the supplier and the recipient of the supply are not
related and the price is the sole consideration, to obtain such supply
at the same time when the supply being valued is made;

(b) “supply of goods or services or both of like kind and quality” means
any other supply of goods or services or both made under similar
circumstances that, in respect of the characteristics, quality, quantity,
functional components, materials, and the reputation of the goods or
services or both first mentioned, is the same as, or closely or
substantially resembles, that supply of goods or services or both.

ANALYSIS
When a supply cannot be valued in terms of section 15(1) as also in case of certain
specified supplies, valuation rules need to be resorted to. Rules 27-35 of Chapter
IV of CGST Rules provide the different methods of valuation in such scenarios.

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 7.36 GOODS AND SERVICES TAX

Rules 27 to 35 may be categorized as under for the purpose of discussion:

Rules 27 to 29
Valuation of supplies involving non-monetary
supplemented by
consideration or related parties
rules 30 and 31

Rules 31A and 32 Valuation of specified supplies

Valuation of supply made as pure agent of the

Rule 33
recipient

Rules 34 and 35 Other rules relevant for valuation

Rule 27 - Value of supply of goods or services where the consideration

is not wholly in money

If the consideration for a supply of goods and /or services is wholly or partly in
non-monetary terms, the supply is valued in accordance with provisions of rule 27.

Examples of supplies valued as per rule 27

• Barter transaction
• Exchange transaction
• Permanent transfer or disposal of business assets where
input tax credit has been availed on such assets

The methods provided in rule 27 are to be used in order of sequence, i.e. the
one coming later in the sequence is applicable only if the previous method(s)
are not applicable.
Rule 27 lays down the following methods to value a supply when the consideration
thereof is not solely in terms of money:
(a) The open market value of such supply;

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 VALUE OF SUPPLY 7.37

(b) If open market value of the supply is not known, the consideration in money
plus the money equivalent of the non-money consideration, if such amount
is known at the time of supply;
(c) If the value cannot be determined under the previous two clauses, the value
of supply of goods and/or services of like kind and quality;
(d) Finally, if the value is not ascertainable by using the above methods, the
consideration in money plus the money equivalent of the non-money
consideration, as worked out based on cost of the supply plus 10% mark-up
[Rule 30-Cost based valuation] or by other reasonable means [Rule 31-Best
Judgement method] in that sequence.
First, rule 30 is to be applied, if that is not feasible, rule 31 is to be applied.
However, in case of supply of services, the supplier has an option to skip rule 30
and directly apply rule 31. [Rule 30 regarding cost-based valuation and rule 31
regarding reasonable means are discussed in subsequent pages of this Chapter].
To understand the method of valuation provided in the above rule, the concepts of
‘Open Market Value’ and ‘Supply of like kind and quality’ need to be understood first.

What is open
market value?

Open market value means

 full value of money excluding taxes under GST law,
 payable by a person to obtain such supply
 at the time when supply being valued is made,
 provided such supply is between unrelated persons and
 price is the sole consideration for such supply.

What is supply of like kind

and quality?

Supply of like kind & quality means

 any other supply made under similar circumstances,
 which is same or closely or substantially resembles
 in respect of characteristics, quality, quantity,
functionality, reputation
 to the supply being valued.

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 7.38 GOODS AND SERVICES TAX

(19) X Pvt. Ltd. offers a new mobile phone worth ` 20,000/- to Y in

exchange of old mobile phone and cash payment of ` 16,000. Exchange
value of old phone lowers the price of a new phone. The known market
value of the new phone (without exchange of old phone), i.e. the open market value
is ` 20,000, which is the taxable value in this case.

(20) Laptop is manufactured and supplied for ` 40,000. Further, a printer valued
` 4,000 is also received in the barter. Market value of the laptop is not known. Its
taxable value will be ` 44,000.

Monetary consideration + Money value of non-

monetary consideration ⇒ computed on the
basis of 110% of cost of supply or by other
reasonable means

Value of supply of like kind and

quality

Monetary consideration + Money

value of non-monetary
consideration

Open market value

Rule 28 - Value of supply of goods or services or both between distinct

or related persons, other than through an agent

A person who is under influence of another person is called a related person like
members of the same family (See definition of family) or subsidiaries of a group
company etc. Under GST law various categories of related persons have been
specified and as relation may influence the price between two related persons
therefore, special valuation rule has been framed to arrive at the taxable value of
transactions between related persons.
Rule 28 deals with transactions between related persons [See definition of related
person in Explanation to section 15] and between ‘distinct persons’ as specified
under section 25, which means different registrations/establishments of the same
entity (with same PAN) [Refer Chapter 9: Registration for a detailed discussion on the

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 VALUE OF SUPPLY 7.39

concept of ‘distinct persons’]. This rule, however, does not provide the value of
the supply made through an agent.
It may be recollected that a supply between related persons or between distinct
persons as specified in section 25, when made in the course or furtherance of
business is treated as supply even if made without consideration in terms of
paragraph 2 of Schedule I of CGST Act. Thus, rule 28 provides the value of such
kind of supplies when the same are made for a consideration as well as when
the same are made without consideration.
The concept of related person has been explained by way of diagram given in the
preceding pages.

Example of related person

(21) Mr. A and Mr. B are legally recognised partners in the partnership
firm A&B Co. Mr. A & Mr. B are related persons. Thus, a transaction of
supply between Mr. A & Mr. B in the course or furtherance of business is treated
as supply even if made without consideration.

✪ A person who has obtained or is required to obtain more

than one registration, whether in one State or Union territory
or more than one State or Union territory shall, in respect of
each such registration, be treated as distinct persons for the
purposes of this Act [Section 25(4)].
✪ Where a person who has obtained or is required to obtain registration
in a State or Union territory in respect of an establishment, has an
establishment in another State or Union territory, then such establishments
shall be treated as establishments of distinct persons for the purposes of
this Act. [Section 25(5)].

Examples of supplies valued as per rule 28

• Intra-State stock transfer of goods between different

registrations of an entity under same PAN
• Inter-State stock transfer of goods between different
registrations of an entity under same PAN
• Import of services by a company from a holding/
subsidiary company in course or furtherance of buisness

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 7.40 GOODS AND SERVICES TAX

The methods of valuation of transactions between related persons and between

distinct persons, in the sequence in which they are to be applied, are as follows:
(a) the open market value of such supply;
(b) if open market value is not available, the
value of supply of goods or services of
like kind and quality;
(c) if value cannot be determined under the
above methods, it must be worked out
based on the cost of the supply plus
10% mark-up [Rule 30 regarding cost-
based valuation has been discussed in
subsequent pages of this Chapter) or by
other reasonable means, in that
sequence [Rule 31 regarding reasonable
means has been discussed in subsequent pages of this Chapter].

If the goods are intended to be supplied AS SUCH by the recipient

Value = 90% of the price charged for the supply of goods of like kind
and quality by the recipient to his unrelated customer
However, it is not mandatory for the supplier to adopt this method of valuation.
He can opt to value his goods in accordance with the valuation methods
prescribed in clause (a), (b) or (c) above.

It is important to note that as per valuation rule

32(7), the value of taxable services provided by
notified class of service providers, without any
consideration, between distinct persons is NIL, if
ITC is available.

Rule 32 has been discussed in detail in subsequent pages of this Chapter. The
valuation mechanism prescribed in rule 28 read with rule 32(7) has been explained
by way of a flow diagram in the ensuing pages.

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 VALUE OF SUPPLY 7.41

(22) ABC Pvt. Ltd., a registered supplier, is a manufacturer of taxable

goods. The company’s factory is located in Noida, Uttar Pradesh and
depot in Gurugram, Haryana. Gurugram depot is eligible for full ITC.
Noida factory agrees to supply goods worth ` 1,00,000 to a customer of Gurugram
depot (on its behalf). Noida factory ships the goods directly to the customer in
Gurugram and bills the Gurugram depot. Noida factory has the option of billing to
Gurugram depot at ` 90,000 (90% of ` 1,00,000). It can also bill the Gurugram
depot on actual cost as Gurugram depot is eligible for full ITC.
In the same scenario, if goods are replaced by services, the option of valuing the
services @ 90% of value charged by the recipient to unrelated customer will not be
available. However, since recipient is eligible for full ITC, the value of supply of
service declared in the invoice shall be taken as open market value (taxable value).

Rule 29 – Value of supply of goods or received through an agent

Supply of goods between principal and agent 4 [Refer definitions of principal and
agent under Heading 2: Relevant Definitions] is valued by the following methods,
applied in sequence:
(a) Open market value of goods being supplied
OR This rule is applicable
only for valuation of
90% of the price charged for the supply of
supply of goods
goods of like kind and quality by the
recipient to his unrelated customer between principal and
agent.
[Supplier has the option to choose either of
the two methods]
(23) ABC Ltd. supplies goods to its agent and the agent is supplying
goods of like kind and quality in subsequent supplies at a price of
` 1,000 per unit on the day of the supply.
ABC Ltd. also supplies goods to an unrelated customer at the price of ` 950 per
unit on the day of the supply. The value of the supply made by ABC Ltd. to agent
shall be ` 950 per unit or where it exercises the option, the value shall be 90% of
` 1,000 i.e., ` 900 per unit.

4
The relationship between principal agent has been discussed in detail in Chapter 2: Supply under
GST.

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 7.42 GOODS AND SERVICES TAX

(b) In case value cannot be determined under (a) then following values have to
be considered sequentially to determine the taxable value:

i. Value of supply based on cost i.e. cost of supply plus 10% mark-up

ii. Value of supply determined by using reasonable means consistent with

principles & general provisions of GST law (Best Judgement Method)

It may be noted that only the supply of goods between principal and agent is
valued vide this rule. Therefore, supply of services like commission-based services
provided by a commission agent for procuring orders, undertaking market research
etc. are not valued as per rule 29.

Examples of supplies valued as per rule 29

•Supply of goods by a principal to his agent when the

agent supplies the goods on behalf of the principal
•Supply of goods by an agent to his principal when the
agent receives the goods on behalf of the principal

1
Open
Market
Value

3 Best
OR 2 110% Judgement
of cost Method
1 of (value using
90% of the price
supply reasonable
charged for the
goods of like means)
kind and quality
by the recipient
to his unrelated
customer

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 VALUE OF SUPPLY 7.43

Rule 30 – Value of supply of goods or services or both based on cost

If the value of a supply of goods and/or services cannot be worked out by the
foregoing methods, its value will be 110% of the cost of production/
manufacture/acquisition of such goods or cost of provision of such services.

Rule 31 – Residual method for determination of value of supply of

goods or services or both [Best Judgement Method]

The supplier of goods needs to sequentially follow rules 27 to 30 before valuing

goods as per this residual rule 31. Service providers, however, have the option of
valuing services as per rule 30 or rule 31 after sequentially following rules 27 to 29.
The residual method consists of determination of value by using reasonable means
consistent with the principles and general provisions of section 15 and these Rules.

Supplier
of Rule 27 Rule 28 Rule 29 Rule 30 Rule 31
goods

Supplier
of Rule 27 Rule 28 Rule 29 Rule 30 Rule 31
service

(24) A cosmetics company buys its products from a subcontractor, who

supplies “testers” of each product, to be placed in retail outlets, free of
charge. These are of different size from the product that is sold.

The company and the sub-contractor are related persons. The sub-contractor does
not have details of cost of acquisition of such testers. As none of the methods in rules
27 to 30 will work for valuing these testers, the value will have to be determined by
using reasonable means consistent with the principles and general provisions of
section 15 and the Rules.

A possible method may be pro rata reduction of the price based on difference in size
from the product that is sold.

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 7.44 GOODS AND SERVICES TAX

Taxable supply made between related

persons and/or between distinct persons

Whether the supply is of a service provided by notified

service providers between distinct persons without any YES
Value= NIL
consideration and ITC is available?
NO

NOsupply is of
Whether the supplier Value= 90%
Whether the has opted to value
goods intended to be of the price
YES
goods at 90% of the of like goods
sold as such by the price of like goods sold YES
recipient? sold by the
by the recipient to recipient to
NO unrelated customer? unrelated
NO customer
Whether the
recipient is eligible
YES
for full ITC?
Invoice Value = Open market value
NO

YES
Is the open market value available? Value = Open market value

NO

YES Value = Value of supplies of like kind

Is the value of supplies of like kind and quality
and quality available?
NO

YES Value = 110% of cost of

Whether cost of production/provision production/provision of supply
of supply is available?
NO

Value to be computed as per reasonable

means (Best Judgement Method)

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 VALUE OF SUPPLY 7.45

Rule 31 A – Value of supply in case of lottery, betting, gambling and

horse racing

A new rule 31A has been inserted in CGST Rules to provide for valuation of supply
of lottery and actionable claim in the form of chance to win in betting, gambling or
horse racing in a race club. The rule provides that valuation of such supplies will
be governed by the specific provisions set out in the said rule and not by any other
valuation rule.

Supply Value

Supply of lottery by the Organising Higher of the two amounts to be

State deemed as the value
Organising State means the State 100/128 of the face value of ticket
Government which conducts the lottery OR
either in its own territory or sells its 100/128 of the price as notified in the
tickets in the territory of any other State Official Gazette by the organising
State

Supply of actionable claim in the form of 100% of the face value of the bet or
chance to win in betting, gambling or the amount paid into the totalisator*
horse racing in a race club

* Totalisator is a computerised device that pools the wagers/bets (after deduction of

charges and statutory taxes) of various persons placing the bet and also divides the total
wager amount to be distributed to the winning persons.
(25) The Government of a State runs a lottery where face value of a
lottery ticket is ` 250 and the price notified by the State Government
in the Official Gazette is ` 240. Here, the value of lottery is ` 195.313,
i.e. higher of ` 195.313 (250 x 100/128). or ` 187.50 (240 x 100/128).
(26) The Government of a State runs a lottery where face value of a lottery ticket
is ` 250 and the price notified by the State Government in the Official Gazette is
` 260. Here, the value of lottery is ` 203.13, i.e. higher of ` 195.313 (250 x 100/128)
or ` 203.13 (260 x 100/128).

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 7.46 GOODS AND SERVICES TAX

Rule 32 – Determination of value in respect of certain supplies

✪ Rule 32 provides the valuation methods for five specific

supplies.
✪ Rule 32 overrides other rules of valuation. Thus, the supplies
prescribed in this rule need not be valued by sequentially
following rules 27 to 31.
✪ The valuation methods prescribed under rule 32 are optional; the
supplier can use them if he so desires. He can also opt to value his supplies
in accordance with other valuation rules.

The special provisions related to determination of value of such specific supplies

are discussed below:

Purchase or
sale of foreign Booking of
tickets for
currency
air travel by
including an air travel
money agent
changing

SPECIAL
VALUATION Life
METHODS insurance
FOR 5 business
SUPPLIES

Value of
Value of
redeemable
supply of
vouchers/
second
stamps/
hand
coupons/
goods
tokens

(i) Special provision relating to determination of value of service of purchase

or sale of foreign currency including money changing [Sub-rule (2)]
The value of service in relation to purchase or sale of foreign currency,
including money changing, is determined by either of the two methods:

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 VALUE OF SUPPLY 7.47

Method-1
Case 1: Transaction where one of the currencies exchanged is Indian
Rupees
The value of supply is difference between buying rate or
selling rate of currency and RBI reference rate for that
currency at the time of exchange multiplied by total units
of foreign currency.
However, if RBI reference rate for a currency is not
available then value of supply is 1% of the gross amount
of Indian Rupees provided/ received by the person changing the money.
(27) On 10th May, Mr. Doshi converted USD $ 100 into ` 7,400 @
` 74 per USD through Eastern Money Changers. RBI reference
rate on 10th May for US $ is ` 75 per US $. The value of supply in
this case is (` 75 – ` 74)* $ 100 = ` 100 and GST will be levied on
this amount.
If the RBI reference rate is not available, then 1% of ` 7,400 i.e., ` 74 will be
the value of supply of service.
Case 2: Transaction where neither of the currencies exchanged is Indian
Rupees
The value of supply is 1% of the lesser of the two amounts the person
changing the money would have received by converting (at RBI reference
rate) any of the two currencies in Indian Rupees.
(28) US $ 9,000 are converted into UK £ 4,500. RBI reference rate
at that time for US $ is ` 74 per US dollar and for UK £ is ` 98 per
UK Pound. In this case, neither of the currencies exchanged is
Indian Rupee.
Hence, in the given case, value of taxable service would be 1% of the lower
of the following:-
(a) US dollar converted into Indian rupees = $ 9,000 × ` 74 = ` 4,41,000
(b) UK pound converted into Indian rupees = £ 4,500 × ` 98 = ` 6,66,000
Value of supply of service = 1% of ` 4,41,000 = ` 4,410

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 7.48 GOODS AND SERVICES TAX

Method-2
The person supplying the service may also exercise the following option (based
on slab rates) to ascertain the value of service, however, once opted he cannot
withdraw it during the remaining part of the financial year:

S. Currency Value of supply

No. exchanged
1. Upto ` 1,00,000 1% of the gross amount of currency
exchanged
OR
` 250, whichever is higher
2. Exceeding ` ` 1,000 + 0.50% of the (gross amount of
1,00,000 and upto ` currency exchanged - ` 1,00,000)
10,00,000
3. Exceeding ` ` 5,500 + 0.1% of the (gross amount of
10,00,000 currency exchanged - ` 10,00,000)
OR
` 60,000, whichever is lower

ILLUSTRATION 3
X Pvt. Ltd., a money changer, has exchanged US $ 10,000 to Indian rupees @ ` 74
per US $. X Pvt. Ltd. wants to value the supply in accordance with rule 32(2)(b) of
CGST Rules.
Determine the value of supply made by X Pvt. Ltd.
ANSWER
As per rule 32(2)(b) of CGST Rules, the value in relation to the supply of foreign
currency, including money changing, is deemed to be-
(i) 1% of the gross amount of currency exchanged for an amount up to
` 1,00,000, subject to a minimum amount of ` 250;
(ii) ` 1,000 and 0.5% of the gross amount of currency exchanged for an
amount exceeding ` 1,00,000 and up to ` 10,00,000.
Therefore, the value of supply, made by X Pvt. Ltd., under rule 32(2)(b) of
CGST Rules is computed as under:

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 VALUE OF SUPPLY 7.49

Particulars ` `

Value of currency exchanged in Indian rupees [` 74 x 7,40,000

US $ 10,000]
Upto ` 1,00,000 1,000
For ` 6,40,000 [0.50% x ` 6,40,000] 3,200
Value of supply 4,200

(ii) Special provision relating to determination of value of service of

booking of tickets for air travel by an air travel agent [Sub-rule (3)]
Value of service of booking of tickets for air travel by an air travel agent is 5% of
basic fare in case of domestic travel and 10% of basic fare in case of international
travel.

Internati-
Domestic
onal air
air travel
5% of travel 10% of
basic fare basic fare

BASIC Air fare on which to the air tarvel

FARE commisison is agent by the
normally paid airlines

ILLUSTRATION 4
UB & Sons is an air travel agent. Compute the value of supply of service made
by the firm during a month with the help of following particulars furnished by
it:

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 7.50 GOODS AND SERVICES TAX

Particulars Basic fare Other Taxes Total value of

(` ) charges (` ) tickets (` )
and fee
(` )
Domestic Bookings 1,00,900 9,510 4,990 1,15,400
International 3,16,880 20,930 15,670 3,53,480
Bookings

ANSWER
Computation of value of supply of services made by UB & Sons in a month

Particulars ` `

Basic fare in case of domestic bookings 1,00,900

Value of supply @ 5% [A] Refer Note below 5,045

Basic fare in case of international bookings 3,16,880

Value of supply @ 10% [B] Refer Note below 31,688

Value of supply [A] + [B] (rounded off) 36,733

Note:
As per rule 32(3) of CGST Rules, the value of the supply of services in relation to
booking of tickets for travel by air provided by an air travel agent is 5% of the
basic fare in the case of domestic bookings, and 10% of the basic fare in the case
of international bookings.
(iii) Special provision relating to determination of value of service in relation
to life insurance business [Sub-rule (4)]
Value of life insurance service varies with nature of insurance policy. The details
are as follows:

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 VALUE OF SUPPLY 7.51

•Taxable value = Gross premium charged

Policy with dual
less amount allocated for
benefits of risk
investments/savings if such allocation is
coverage and
intimated to the policy holder at the time
investment
of collection of premium

•Taxable value = 10% of the single premium

Single premium charged from the policy holder where
annuity policy allocation for investments/savings is not
intimated to the policy holder

•Taxable value = 25% of premium charged

from the policy holder in the 1st year and
Other cases
12.5% of premium charged for subsequent
years

Policy with ONLY risk •Taxable value = Entire premium charged from
cover the policy holder

ILLUSTRATION 5
Arihant Life Insurance Company Ltd. (ALICL) has charged gross premium of
` 180 lakh from policy holders with respect to life insurance policies in the
2020-21; out of which ` 100 lakh have been allocated for investment on behalf
of the policy holders.
Compute the value of supply of life insurance services provided by ALICL:
(i) if the amount allocated for investment has been intimated by ALICL to
policy holders at the time of supply of service.
(ii) if the amount allocated for investment has not been intimated by ALICL
to policy holders at the time of providing of service.
(iii) if the gross premium charged by ALICL from policy holders is only towards
risk cover.
Note: ALICL has started its operations in the year 2020-21. Thus, the entire
gross premium of ` 180 lakh is the premium for the first year of all the policies.
ALICL has not issued any single premium annuity policy.

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 7.52 GOODS AND SERVICES TAX

ANSWER
As per rule 32(4), of the CGST Rules, value of supply of services in relation to
life insurance services is
(a) the gross premium reduced by the amount allocated for investment on
behalf of the policy holder, if such an amount is intimated to the policy
holder at the time of supply of service;
(b) in all other cases, 25% of the premium in the 1st year and 12.5% of the
premium in subsequent years
However, where the entire premium paid by the policy
holder is only towards risk cover, such gross premium
is the value of supply of life insurance services.
In the light of the aforesaid provisions, value of supply
of life insurance services provided by ALICL in financial
year 2020-21 will be computed as follows:
(i) Amount allocated for investment intimated to policy holder at the time
of supply of service
Value of service = ` (180-100) lakh = ` 80,00,000
(ii) Amount allocated for investment not intimated to policyholders at the
time of supply of service
Value of service = 25% of ` 180 lakh = ` 45,00,000
(iii) Gross premium received is only towards risk cover
Value of service = ` 180 lakh
(iv) Special provision relating to determination of value of second hand
goods by a dealer of second hand goods – Margin Scheme [Sub-rule (5)]
Normally GST is charged on the transaction value of the goods. However, in
respect of second hand goods, a person dealing in such goods may be
allowed to pay tax on the margin, i.e. the difference between the value at
which the goods are supplied and the price at which the goods are purchased,
if ITC is not availed. If there is no margin, no GST is charged for such supply.

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 VALUE OF SUPPLY 7.53

The purpose of the margin scheme is to avoid double

taxation as the goods, having once borne the incidence of
tax, re-enter the supply chain.

The taxable value of supply of second hand goods, i.e. used goods as such or
after such minor processing which does not change the nature of goods is
the difference between the purchase price and the selling price, provided no
ITC has been availed on purchase of such goods. However, if the selling price
is less than purchase price, that negative value is ignored.

VALUE OF SECOND HAND GOODS

When ITC is not availed

When ITC is availed
[Margin Scheme]
• Value = Selling price - Purchase • Normal valuation as per other
price applicable provisions
• Selling price < Purchase price
⇒ Ignore negative value
• CGST on second hand goods
received from unregistered
supplier exempt

(29) A company X Ltd., which deals in buying and selling of second

hand cars, purchases a second hand Maruti Alto Car of March, 2015
make (Original price ` 5 lakh) for ` 3 lakh from an unregistered
person. It incurs ` 30,000 on minor furbishing and sells the car for ` 3,50,000.
The company does not avail any ITC. The value for GST purpose shall be ` 50,000,
i.e. the difference between the selling and the purchase price of the company.

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 7.54 GOODS AND SERVICES TAX

✪Persons who purchase second hand goods after

payment of tax to supplier of such goods, are governed
by this valuation rule only when they do not avail ITC on
such input supply. If ITC is availed, then such supply is
governed by normal GST valuation provisions.
✪ Margin scheme is available only for supply of used goods by a person
dealing in buying and selling of second-hand goods.

Old and used motor vehicles 5:

Different rates of taxes have been prescribed for old and used vehicles
depending upon the size and engine capacity of such motor vehicles and
value of supply in such case, when ITC is not availed, is value that represent
margin of the supplier, on supply of such goods determined as follows
(i) In case of a registered person who has claimed depreciation under
section 32 of the Income-Tax Act,1961on the said goods,
• Value = Consideration received - Depreciated value on the date of
supply,
• Consideration < Depreciated value ⇒ Ignore negative value
(ii) In any other case
• Value= Selling price - Purchase price
• Selling price < Purchase price ⇒ Ignore negative value
When ITC is availed
Normal valuation as per other applicable provisions
Purchase value of supply of goods repossessed from a defaulting
borrower
Many a times goods taken on loan are repossessed by the lender in the event of
default in payment of the loan. The purchase value of such repossessed asset is-

5
vide Notification No. 8/2018 CT(R) dated 25.01.2018

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 VALUE OF SUPPLY 7.55

If the defaulting borrower is If the defaulting borrower is

un-registered registered
Purchase value = Purchase
price in the hands of such The repossessing lender
borrower reduced by 5% for agency will discharge GST
every quarter or part thereof, at the supply value without
between the date of purchase any reduction from
and the date of disposal by the actual/notional purchase
person making such value
repossession

(v) Special provisions relating to determination of value of redeemable

vouchers/stamps/coupons/tokens [Sub rules (6)]
The value of a token, voucher or coupon, or a stamp (other than postage
stamp) which is redeemable against a supply of goods and/or services is
equal to the money value of the goods and/or services redeemable against
such token, voucher, coupon or stamp.
(30) If ` 1,500 worth of meal coupons are supplied by the taxable
person, the value of supply of such coupons under GST law will also
be ` 1,500.
(vi) Special provisions relating to determination of value of services
provided by notified service providers between distinct persons [Sub
rules (7)]
Value of taxable services provided by notified class of service providers,
without consideration, between distinct persons [as referred to in Para 2 of
Schedule 1 of CGST Act], is deemed to be NIL if ITC is available.
No such services have been notified so far.

Rule 33 – Value of supply of services in case of pure agent

Supply as a pure agent is an independent concept relevant

for valuation. It may happen sometimes that a supplier
making a supply also incurs some expense for the recipient
which is not a part of the supply made by him. If such
expense is incurred by the supplier as a pure agent of the

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 7.56 GOODS AND SERVICES TAX

recipeint, it is not includible in the value of supply; if not incurred as pure agent,
the same is includible in the value of supply.
Broadly speaking, a pure agent is one who while making a supply to the recipient,
also receives and incurs expenditure on some other supply on behalf of the
recipient and claims reimbursement (as actual, without adding it to the value of his
own supply) for such supplies from the recipient of the main supply. While the
relationship between them (provider of service and recipient of service) in respect
of the main service is on a principal to principal basis, the relationship between
them in respect of other ancillary services is on pure agent basis.
(31) A is an importer and B is a custom broker. A approaches B for
customs clearance work in respect of an import consignment. The
clearance of import consignment and delivery of the consignment to A
would also require taking service of a transporter. So A, also authorises B, to incur
expenditure on his behalf for procuring the services of a transporter and agrees to
reimburse B for the transportation cost at actuals.
Here, B is providing customs brokers service to A, which would be on a principal to
principal basis. The ancillary service of transportation, is procured by B on behalf
of A as a pure agent and expenses incurred by B on transportation should not form
part of value of customs broker service provided by B to A. This, in sum and
substance is the relevance of the pure agent concept in GST.
The important thing to note is that a pure agent does not use the goods or services
so procured for his own interest and this fact has to be determined from the terms
of the contract. In the illustration of importer and customs broker given above,
assuming that the contract was for clearance of goods and delivery to the importer
at the price agreed upon in the contract, the customs broker would be using the
transport service for his own interest (as the agreement requires him to deliver the
goods at the importers place) and thus, would not be considered as a pure agent
for the services of transport procured.
Another important fact is that, the person who provides any service as a pure agent
receives only the actual amount for the services provided. Coming back to our
example of importer and customs broker, the agreement provides reimbursement
of transport services utilised at actuals.
In this case, let’s say the value of transport service was `10,000/-.If the customs
broker charges any amount more than `10,000/-, then he will not be considered as

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 VALUE OF SUPPLY 7.57

a pure agent for the services of transport and the value of transport service will be
included in the value of his customs broker service.
Relevance of pure agent under GST: Expenditure/costs incurred as pure agent
excluded from value of supply
Subject to fulfilment of certain conditions, the expenditure and costs incurred by
the supplier as a pure agent of the recipient of supply of service, has to be
excluded from the value of supply.
The preceding paras explained who is considered as a pure agent. The valuation
rules provide that expenditure incurred as pure agent, are excluded from the value
of supply, and thus, also from aggregate turnover. However, such exclusion of
expenditure incurred as pure agent is possible only and only if all the conditions
required to be considered as a pure agent and further conditions stipulated in the
rules are satisfied by the supplier in each case.
Expenditure or costs incurred by the supplier of services (‘S’) as pure agent of the
recipient of services (‘R’) is excluded from the value of supply, if all the following
conditions (in addition to the conditions required to be satisfied to be considered
as a pure agent) are satisfied:
 The payment arises out of a contract between ‘R’ and a third party, and ‘S’
acts as pure agent of ‘R’ when he makes the payment;
 ‘R’ authorizes ‘S’ to make payment on his behalf;
 ‘S’ shows the payment separately in the invoice issued by him to ‘R’;
 The supplies procured by ‘S’ from the third party as pure agent of ‘R’ are in
addition to the supplies that he provides on his own account.
‘Pure agent’ here means a person ‘S’ who -
 enters into contractual agreement with ‘R’ to act as
his pure agent to incur expenditure/costs in the
course of supply of goods and /or services;
 does not hold or intends to hold any title to the
goods and / or services so procured or supplied as
pure agent of ‘R’;
 does not use for his own interest such goods or services so procured; and

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 7.58 GOODS AND SERVICES TAX

 receives only the actual amount incurred to procure such goods or services
(apart from the amount for the services provided on his own account)
The supplier needs to fulfil ALL the above conditions in order to qualify as a pure
agent. In case the conditions are not satisfied, such expenditure incurred is
included in the value of supply under GST.
The following illustration will make the concept clearer:
(32) 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 Registrar of the Companies.
 The fees charged by the Registrar of the Companies for 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.

Some examples of expenditure/costs incurred as pure agent are:

(33) Port fees, port charges, custom duty, dock dues, transport charges
etc. paid by customs broker on behalf of the owner of goods.
(34) Expenses incurred by C&F agent and reimbursed by principal such as freight,
godown charges.
(35) Suppose a customs broker issues an invoice for reimbursement of a
few expenses and for consideration towards agency service rendered to an
importer. the amounts charged by the customs broker are as below:
S.No. Component charged in invoice Amount
1 Agency income ` 10,000/-
2 Traveling expenses; Hotel expenses ` 15,000/-
3 Customs duty ` 55,000/-
4 Docks dues ` 5000/
In the above situation, agency income and travelling/ hotel expenses shall be added
for determining the value of supply by the customs broker whereas docks dues and

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 VALUE OF SUPPLY 7.59

the customs duty shall not be added to the value, provided the conditions of pure
agent are satisfied.
The pure agent concept is very important for businesses as it has direct implications
on the value of taxable supply. It has direct bearing on the amount of GST charged
on a particular supply. It also has bearing on the aggregate turnover of the supplier
and therefore, on calculating the threshold limit for registration.
Whenever the supplier intends to act as a pure agent, care should be taken to
ensure that the conditions specified for such pure agents and other conditions
given in the valuation rules are also met so that only the real value of the service
provided is subjected to GST.
Taxability of airport levies collected by airlines as pure agent - Circular No.
115/34/2019 GST dated 11.10.2019
Services provided by an airport operator to passengers against consideration in the
form of user development fee (UDF) and passenger development fee (PSF) are
liable to GST 6. PSF and UDF are collected by the airlines as an agent and is not a
consideration for any service provided by the airlines. Thus, airline is not
responsible for payment of GST on UDF or PSF provided the airline satisfies the
conditions prescribed for a pure agent under rule 33 of the CGST Rules. It is the
licensee, that is the airport operator which is liable to pay GST on UDF and PSF.
The airline acting as pure agent of the passenger should separately indicate actual
amount of PSF and UDF and GST payable on such PSF and UDF by the airport
licensee, in the invoice issued by airlines to its passengers. The airline shall not
take ITC of GST payable or paid on PSF and UDF. The airline would only recover
the actual PSF and UDF and GST payable on such PSF and UDF by the airline
operator. The amount so recovered will be excluded from the value of supplies
made by the airline to its passengers.
In other words, the airline shall not be liable to pay GST on the PSF and UDF (for
airport services provided by airport licensee), provided the airline satisfies the
conditions prescribed for a pure agent under rule 33 of the CGST Rules. The
registered passengers, who are the ultimate recipient of the airport services, may

6
The chargeability of USF and PSF has been explained in detail by Circular No. 115/34/2019
GST dated 11.10.2019. The same has been discussed in Chapter 3: Charge of GST of this Study
Material.

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 7.60 GOODS AND SERVICES TAX

take ITC of GST paid on PSF and UDF on the basis of pure agent’s invoice issued by
the airline to them.

Rule 34 – Rate of exchange of currency, other than Indian rupees,

for determination of value

Goods: The relevant rate of exchange for determining the value of taxable goods
is the rate notified by CBIC under section 14 of the Customs Act, 1962, prevalent
on the date of time of supply of said goods.
Services: The relevant rate of exchange for determining the value of taxable service
is the rate determined as per GAAP, prevalent on the date of time of supply of said
service.

Rule 35 – Value of supply inclusive of integrated tax, central tax, State

tax, Union territory tax

Where the value of supply is inclusive of GST, the tax amount is determined in the
following manner:

Tax amount = (Value inclusive of taxes x GST rate in %) [IGST or CGST,

SGST/UTGST] / (100 + sum of GST rates in %)

(36) If the value inclusive of tax is ` 100/- and applicable GST rate is
18% [IGST or CGST, SGST/UTGST] then,
Tax amount = (100x18)/(100+18)= 1800/118=` 15.25

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 VALUE OF SUPPLY 7.61

LET US RECAPITULATE

VALUE OF SUPPLY

Supply made to
unrelated person Supply where Supply is a
Supply made to
where price is the price is not the notified supply
related person
sole sole consideration u/s 15(5)
consideration

Value of supply
=
Transaction value u/s 15(1) Value to be determined under Chapter IV:
Determination of Value of Supply of CGST
Rules

Inclusions in value u/s 15(2)

⇒ Taxes other than GST
⇒ Third party payments made by recipient in relation to supply, which supplier
was liable to pay and were not included in the price
⇒ Incidental expenses including anything done by the supplier in respect of the
supply till delivery of goods/supply of services, if charged to recipient
⇒ Subsidies directly linked to price of supply other than the ones given by
Central/State Governments
⇒ Interest/late fee/penalty for delay in payment of consideration

Exclusions from value u/s 15(2)

⇒ Discounts given before or at the time of supply and recorded in the invoice
⇒ Post supply discount/incentive, if known in advance & linked with invoices
and proportionate input tax credit reversed by the recipient

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 7.62 GOODS AND SERVICES TAX

VALUATION RULES

RULE 27: Consideration RULE 28: Supply between RULE 29: Supply
not wholly in money distinct/ related persons, made/received
Value shall be either of the other than agent through an agent
following in the given order: Value shall be either of the Value shall be either of
• open market value following in the given order: the following in the
• total of consideration in • open market value given order:
money + amount equal to • value of supplies of like kind • open market value or
the consideration not in and quality 90% of price charged
money • value as per rule 30 or 31 in by recipient to his
• value of supplies of like that order. unrelated customer
kind and quality ♦Option to supplier to value for supplies of like
• consideration in money + goods sold as such by kind and quality;
money value of non- recipient⇒Value= 90% of • value as per rule 30
monetary consideration price charged by recipient to or 31 in that order.
computed as per rule 30 or its unrelated customer
31 in that order. ♦Recipient eligible for ITC ⇒
invoice value = open market
value (taxable value)

RULE 31A: Value of supply of lottery, chance to win RULE 30: Value based on cost
in betting/ gambling/ horse racing in race club Value shall be 110% of cost of
production/acquisition/
Lottery organised by State Government - 100/128 of
provision of goods or services
the face value of ticket OR 100/128 of the price as
notified in the Official Gazette by the organising State,
whichever is higher
RULE 31: Residual method
Actionable claim in form of chance to win in betting, (Best Judgement Method)
gambling or horse racing in a race club - 100% of the Value shall be determined
face value of the bet or the amount paid into the using reasonable means
totalisator consistent with the principles
Organising State - State Government which conducts and general provisions of
the lottery either within the State or outside the State section 15 & valuation rules.
For services, rule 31 can be
adopted before rule 30.

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 VALUE OF SUPPLY 7.63

VALUATION RULES

RULE 32: Value in respect of certain specific supplies

⇒ Purchase/sale of foreign currency: 1st method-Value = [Buying/Selling rate - RBI reference
rate at that time] x total units of currency. If no RBI reference rate, value = 1% of INR
received/provided. If the currencies exchanged are not in INR, value = lesser of the 2 amounts
that would have been received by converting any of currencies into INR at RBI reference rate
OR 2nd method
Currency Value
Upto ` 1,00,000 1% or ` 250 whichever is higher
From `1,00,001 to ` ` 1,000 + 0.5%
10,00,000
From ` 10,00,001 ` 5,500 + 0.1% subject to maximum of ` 60,000
⇒ Booking of tickets by air travel agent: Value = 5% of basic fare for domestic bookings and
10% of the basic fare for international bookings.
⇒ Life insurance business: If amount allocated for investment is intimated - Value = Gross
premium less amount allocated for investment; Single premium annuity policies where amount
allocated for investment is not intimated - Value = 10% of single premium; Other cases – Value
= 25% of premium in 1st year and 12.5% of premium in subsequent years; Policy only towards
risk cover – Value = Entire premium
⇒ Buying & selling of second hand goods: Value = Selling price – Buying price (ignore if
value is negative); Purchase value of goods repossessed from unregistered borrower = Purchase
price- 5% per quarter or part thereof from date of purchase till the date of disposal by the person
making repossession
⇒ Coupon/voucher: Value = money value of supplies redeemable against such voucher/
coupon
⇒ Notified services between distinct persons without consideration: Value = Nil, if ITC is
available

RULE 33: Supply as a pure agent

Costs incurred by the supplier as a pure agent of recipient shall be excluded from value

RULE 34: Rate of exchange for determination of value

Goods = Rate notified by CBIC under Customs Act on the date of time of supply of such goods;
Services = Rate as per GAAP on the date of time of supply of such services

Rule 35: Value inclusive of taxes

Where value of supply is inclusive of CGST, SGST/UTGST or IGST, the tax amount is calculated
by making back calculations. Tax amount = (Value inclusive of GST x GST rate in % of IGST or
CGST, SGST/UTGST)/100 + sum of applicable GST rates in %)

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 7.64 GOODS AND SERVICES TAX

TEST YOUR KNOWLEDGE

1. Income tax collected at source should be included in value of the supply in
terms of section 15(2)(a). Examine the correctness of the statement.
2. How should the supply made by a component manufacturer be valued, when
he uses moulds and dies owned by the original equipment manufacturer sent
free of cost to him? Explain.
3. Examine whether the following discounts ought to be excluded to determine
the value of supply:
(i) Company offering 20% discount for single purchase above ` 10,000
(ii) Company offering additional discount of 1% on purchase of 10,000 pieces
in a year
(iii) After selling a product, the company re-valued the product at a lower
value and issued credit note to the buyer for the differential amount.
4. Rajesh & Co., a partnership firm, provides financial and management
consultancy to a group of companies for an annual retainership fee of ` 15
lakh. Further, the firm is provided with a car (along with a driver) for its
exclusive use throughout the year. The fuel cost is also borne by the Group.
Rajesh & Co. pays GST on the amount of ` 15 lakh.
Is the value for the service provided by Rajesh & Co. correct under GST law? If
not, please elaborate.
5. The supplies of commodity ‘y’ to the market are channelled through a State
Marketing Corporation which conducts an auction each day to arrive at the
price. Gupta and Co. supplies commodity ‘y’ through the State Marketing
Corporation.
How will the supply of ‘y’ made by Gupta and Co. to State Marketing
Corporation be valued for paying tax?
6. Easy Coupons Ltd. sells coupons that are redeemable against specified luxury
food products at retail outlets. Each coupon is sold for value of ` 900 but is
redeemable for supplies worth ` 1000.
What is the value of supply of such coupon under GST law?
7. A pharmaceutical company supplies a drug intermediate to its own unit in
another State for conversion into formulations. The drug intermediate is
exclusive to this company, and there is no market sale in India of this drug

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 VALUE OF SUPPLY 7.65

intermediate. Goods of like kind and quality are also not available. After
conversion, the finished product is sold from the said unit itself by the company.
How will the value of the supply of this drug intermediate be determined under
GST law?
8. Dushyant rents out a commercial building owned by him to Bharat for the
month of December, for which he charges a rent of ` 19,50,000. Dushyant pays
the maintenance charges of ` 1,00,000 (for the December month) as charged
by the local society. These charges have been reimbursed to him by Bharat.
Also, Dushyant has paid municipal tax of ` 2,85,000 which he has not charged
from Bharat.
You are required to determine the value of supply and the GST liability of
Dushyant for the month of December assuming CGST and SGST rates to be 9%
each.
Note: All the amounts given above are exclusive of GST.
9. Vayu Ltd. provides you the following particulars relating to goods supplied by
it to Agni Ltd.:

Particulars Amount
(`)

List price of the goods (exclusive of taxes/duties and 76,000

discounts)

Special packing at the request of customer to be charged to 5,000

the customer

Duty levied by local authority on the sale of such goods 4,000

CGST and SGST charged separately in invoice 14,400

Subsidy received from an NGO in relation to the goods sold 5,000

(The price of ` 76,000 given above is after considering the
subsidy)

Vayu Ltd. offers 3% discount on the list price of the goods which is recorded in
the invoice for the goods.
Determine the value of taxable supplies made by Vayu Ltd.

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 7.66 GOODS AND SERVICES TAX

10. Binaca Electronics Ltd. (hereinafter referred to as BEL) is engaged in

manufacturing televisions. It is registered in the State of Haryana. It has
appointed distributors across the country who sell the televisions manufactured
by it. The maximum retail price (MRP) printed on the package of a television
is ` 12,000. The applicable rate of GST on televisions is 18%. BEL dispatches
the stock of televisions to its distributors ordered by them on a quarterly basis.
In order to promote its sales, the Sales Head of BEL has formulated a sales
promotion scheme on 1st April. Under this scheme, BEL offers a discount of 10%
(per television) on televisions supplied to the distributors if the distributors sell
500 televisions in a quarter. The discount is offered on the price at which the
televisions are sold to the distributors (excluding all charges and taxes).
It appoints Shah Electronics (an unrelated party as per GST Law) as its
distributor in Haryana on 1st April and dispatches 750 televisions on 8th April
as stock for the quarter April-June. BEL has sold the televisions to distributor -
Shah Electronics at ` 8,400 per television (exclusive of applicable taxes). Shah
Electronics has requested BEL for a special packing of the televisions delivered
to it for which BEL has charged ` 1,200 per television.
Shah Electronics places a purchase order of 1,000 televisions with BEL for the
quarter July-September. The distributor reports sales of 700 televisions for the
quarter April-June and 850 televisions for the quarter July-September. The
discount policy offered by BEL as explained above is also available to Shah
Electronics as per the distributorship agreement.
While Shah Electronics reverses the input tax credit availed for the quarter July-
September, it has failed to reverse the input tax credit availed for the quarter
April-June.
Examine the scenario with reference to section 15 and compute the taxable
value of televisions supplied by BEL to Shah Electronics during the quarters
April-June and July-September assuming the rate of tax applicable on the
televisions as 18%.
11. Prada Forex Private Limited, registered in Delhi, is a money changer. It has
undertaken the following purchase and sale of foreign currency:
(i) 1,000 US $ are purchased from Nandi Enterprises at the rate of ` 74 per
US $. RBI reference rate for US $ on that day is ` 74.60.
(ii) 2,000 US $ are sold to Menavati at the rate of ` 74.50 per US$. RBI
reference rate for US $ for that day is not available.

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 VALUE OF SUPPLY 7.67

Determine the value of supply in each of the above cases in terms of rule
32(2)(a) and rule 32(2)(b).
12. Rolly Polly Manufacturers Ltd., registered in Mumbai (Maharashtra), is a
manufacturer of footwear. It imports a footwear making machine from USA.
Rolly Polly Manufacturers Ltd. enters into a contract with Rudra Logistics, a
licensed customs broker with its office at Ahmedabad (Gujarat), to meet all the
legal formalities in getting the said machine cleared from the customs station.
Apart from this, Rolly Polly Manufacturers Ltd. authorises Rudra Logistics to
incur, on its behalf, the expenses in relation to clearance of the imported
machine from the customs station and bringing the same to the warehouse of
Rolly Polly Manufacturers Ltd. which shall be reimbursed by Rolly Polly
Manufacturers Ltd. to Rudra Logistics on the actual basis in addition to agency
charges.
Rudra Logistics provided following details in the invoice issued by it to Rolly
Manufacturers Ltd.:

S. No. Particulars Amount

(` )

(i) Agency charges 5,00,000

(ii) Unloading of machine at Kandla port, Gujarat 50,000

(iii) Charges for transportation of machine from Kandla 25,000

port, Gujarat to its Rudra Logistics’ godown in
Ahmedabad, Gujarat

(iv) Charges for transportation of machine from Rudra 28,000

Logistics’ Ahmedabad godown to the warehouse of
Rolly Polly Export Import House in Mumbai,
Maharashtra

(v) Prepared and submitted Bill of Entry and paid 5,00,000

customs duty

(vi) Dock dues paid 50,000

(vii) Port charges paid 50,000

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 7.68 GOODS AND SERVICES TAX

(viii) Hotel expenses 45,000

(ix) Travelling expenses 50,000

(x) Telephone expenses 2,000

Compute the value of supply made by Rudra Logistics with the help of given
information.
Would your answer be different if Rudra Logistics has charged ` 13,00,000 as
a lump sum consideration for getting the imported machine cleared from the
customs station and bringing the same to the warehouse of Rolly Polly
Manufacturers Ltd.?
13. Rustagi & Co. manufactures customized products at its unit situated and
registered in Madhya Pradesh. Cost of production of 1,000 products for Rustagi
& Co. is ` 20,00,000. These products require further processing before sale, and
for this purpose products are transferred from its Madhya Pradesh unit to its
another unit situated and registered in Himachal Pradesh. The value declared
on the invoice for such transfer is the cost of production of such products.
The Himachal Pradesh unit, apart from processing its own products, engages
in processing of similar products of other persons who supply the products of
the same kind and quality. Thereafter, the Himachal Pradesh unit sells these
processed products to wholesalers. There are no other factories in the
neighbouring area which are engaged in the same business as that of Himachal
Pradesh unit.
1,000 units of the products of same kind and quality are supplied to Himachal
Pradesh unit, at the time when goods are sent by Madhya Pradesh unit, by
another manufacturer located in Himachal Pradesh. The ex-factory price of
such goods is ` 19,00,000. The Himachal Pradesh unit of Rustagi & Co. is
eligible for full ITC.
Determine the value of 1000 products supplied by Rustagi & Co. to its Himachal
Pradesh unit.
14. Dev Enterprises is the supplier of water coolers. Dev Enterprises supplied water
coolers to an unrelated party, Vimal Traders for consideration of ` 2,95,000
(inclusive of GST @ 18%). Vimal Traders also gave some materials to Dev

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Enterprises [valuing ` 10,000 (exclusive of GST)] as an additional consideration

for such supply.
At the same time, Dev Enterprises has supplied the same goods to another
unrelated person at price of ` 2,97,360 (inclusive of GST@18%).
You are required to:
(1) Determine the value of goods supplied by Dev Enterprises to Vimal
Traders.
(2) What would your answer be if price of ` 2,97,360 is not available at the
time of supply of goods to Vimal Traders? Explain briefly.
15. Chirayu Life Insurance Company Limited (CLICL) has collected premium from
policy subscribers. It does not intimate the amount allocated for investment to
subscribers of the policy at the time of supply of insurance services. The
company has provided the following details in relation to its receipts:

SI. No. Particulars Amount

1. Premium for only risk cover 25,00,000

2. Premium from new policy subscribers 40,00,000

3. Renewal premium 80,00,000

4. Single premium on annuity policy 1,00,00,000

All amounts are exclusive of tax. You are required to compute the value of
supply by CLICL in terms of rule 32(4).
16. Aviant Ltd., registered in Noida (Uttar Pradesh), is a supplier of machinery used
for making bottle caps. The supply of machinery is effected as under:
− The wholesale price of the machinery (excluding all taxes and other
expenses) at which it is supplied in the ordinary course of the business to
various customers is ` 42,00,000. However, the actual price at which the
machinery is supplied to an individual customer varies within a range of
± 10% depending upon the terms of contract of supply with the particular
customer.
− Apart from the price of the machinery, Aviant Ltd. charges from the
customer the following incidental expenses:

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 7.70 GOODS AND SERVICES TAX

♦ associated handling and loading charges of ` 10,000

♦ installation and commissioning charges of ` 1,00,000
− The machinery can be dismantled and erected at another site, if required.
The above charges are compulsorily levied in case of each supply of
machinery.
− Transportation of machinery to the customer’s premises is arranged by
Aviant Ltd. through a third-party service provider [Goods Transport
Agency (GTA)]. The customer enters into a separate service contract with
the GTA and pays the freight directly to it.
− A cash discount of 2% on the price of the machinery is offered at the time
of supply, if the customer agrees to make the payment within 15 days of
the receipt of the machinery at his premises. In the event of failure to
make the payment within the stipulated time, the company-
♦ recovers the discount at the time of payment received from the
customer (no separate amount of GST is recovered) given; and

♦ charges simple interest @ 1% per month or part of the month (no

separate amount of GST is recovered) on the total amount due from
the customer (towards the machinery supplied) from the date of
making the supply till the date of payment. However, no interest is
charged on the tax dues.
− For every machinery supplied, Aviant Ltd. receives a price linked subsidy
of ` 2,00,000 from its holding company Diligent Ltd.
Aviant Ltd. has supplied a machinery to an unrelated party, Daffodil Pvt. Ltd.
on 1st August at a price of ` 40,00,000 (excluding all taxes). Invoice was issued
on 1st August by Aviant Ltd. The corporate office of Daffodil Ltd., which is at
New Delhi, has entered into contract with Aviant Ltd. for supply of machinery.
However, the machinery has been installed at Daffodil Pvt. Ltd’s registered
manufacturing unit located in Gurugram (Haryana). Daffodil Pvt. Ltd. has paid
the freight directly to the GTA. Discount @ 2% on the price of machinery
excluding taxes was given to Daffodil Pvt. Ltd. as it agreed to make the payment
within 15 days. However, Daffodil Pvt. Ltd. paid the consideration on 31st
October.

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Assume the rates of taxes to be as under:

Bottle cap making machine

CGST – 6% SGST – 6% IGST – 12%
Service of transportation of goods
CGST – 2.5% SGST – 2.5% IGST – 5%
Other services involved in the above supply
CGST – 9% SGST – 9% IGST – 18%

Calculate the GST liability [CGST, SGST or IGST, as the case may be] with
respect to the supply of machinery and support your conclusions with legal
provisions in the form of explanatory notes.
Make suitable assumptions, wherever needed.

ANSWERS
1. The statement is not correct. CBIC vide Circular No. 76/50/2018 GST dated
31.12.2018 (amended vide corrigendum dated 7.03.2019) has clarified that
for the purpose of determination of value of supply under GST, tax collected
at source (TCS) under the provisions of the Income Tax Act, 1961 would not
be includible as it is an interim levy not having the character of tax.
2. Circular No. 47/21/2018 GST dated 08.06.2018 has clarified that while
calculating the value of the supply made by the component manufacturer
using moulds and dies owned by Original Equipment Manufacturers (OEM)
sent free of cost (FOC) to him, the value of such moulds and dies shall not be
added to the value of supply made by him because the cost of moulds/dies
was not to be incurred by the component manufacturer and thus, does not
merit inclusion in the value of supply in terms of section 15(2)(b).
However, if the contract between OEM and component manufacturer was for
supply of components made by using the moulds/dies belonging to the
component manufacturer, but the same have been supplied by the OEM to
the component manufacturer on FOC basis, the amortised cost of such
moulds/dies shall be added to the value of the components.
3. (i) The given case is a case of staggered discounts where rate of discount
increases with increase in purchase volume. Such discounts are shown

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on the invoice itself. Therefore, the same are excluded to determine the
value of supply.
(ii) The given case is a case of volume discount which are offered by the
suppliers to their stockists, etc. Such discounts are established in terms
of an agreement entered into at or before the time of supply which can
be specifically linked to the relevant invoices though not shown on the
invoice as the actual quantum of such discounts gets determined after
the supply has been effected and generally at the year end. Such type
of volume discounts are excluded/deducted to determine the value of
supply provided they satisfy the parameters laid down in section 15(3)
including the reversal of ITC by the recipient of the supply as is
attributable to the discount on the basis of document (s) issued by the
supplier.
(iii) This is a case of secondary discounts. These are the discounts which are
not known at the time of supply or are offered after the supply is already
over as per the agreement made at or before the time of supply.Therefore,
such discounts shall not be excluded while determining the value of
supply.
4. Rajesh & Co. gets a car along with driver (including the fuel) for the whole
year, which is an additional non-monetary consideration for its services. The
equivalent monetary value of such additional consideration must be added
to the retainership fee (` 15 lakh) in order to arrive at the value of the taxable
service provided by Rajesh & Co, as per rule 27 relating to valuation.
5. The State Marketing Corporation is an ‘agent’ in the meaning of the
expression as defined in section 2(5), which includes an auctioneer.
Therefore, the value of supply of ‘y’ will be determined in terms of rule 29
relating to valuation.
There is no open market for the first supply of commodity ‘y’, as it is compulsorily
supplied to the State Marketing Corporation. However, Gupta & Co. has the
option of valuing the supply of ‘y’ at 90% of price of goods of like kind and
quality sold by the State Marketing Corporation to its unrelated customers.
If the value cannot be determined by this method, it needs to be determined
on the basis of the cost plus 10% mark up as per rule 30 or on the basis of
Best Judgement Method as per rule 31, in that order.

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6. In terms of rule 32(6) relating to valuation, the value of a coupon is equal to

the money value of the goods redeemable against it. Therefore, though the
coupon is sold for ` 900, its value is ` 1000.
7. Since the supply is made to a distinct person, the same will be valued in
accordance with rule 28 relating to valuation.
There is no open market value of the drug intermediate as also there are no
like goods. Therefore, value of supply of such drug intermediate will be
determined in terms of clause (c) of rule 28 i.e., by using rule 30. Thus, the
value of supply of such drug intermediate will be 110% of its cost of
production or manufacture.
However, if the recipient unit is eligible for full ITC, the value declared in the
invoice by the supplier will be deemed to be the open market value of the
drug intermediate and thus, the invoice value will be the value of taxable
supply.
8. Computation of the value of supply and the GST liability of Dushyant for
the month of December

Particulars Amount
(`)

Rent of the commercial buiding 19,50,000

Maintenance charges paid to the local society, reimbursed 1,00,000

by Bharat [Note 1]

Municipal tax paid by Dushyant [Note 2] Nil

Value of supply 20,50,000

CGST @ 9% 1,84,500

SGST @ 9% 1,84,500

Notes:
(1) Since such charges are reimbursed by the tenant (Bharat), such charges
ultimately form part of the rent paid by Bharat to Dushyant and thus,
form part of the value as per section 15(2)(c).

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(2) Since municipal tax is paid by the supplier (Dushyant) and not charged
to the recipient, the same is not includible in the value.
9. Computation of value of taxable supplies by Vayu Ltd.
Particulars `

List price of the goods 76,000

Add: Special packing [Note 1] 5,000

Duty levied by local authority on sale of goods [Note 2] 4,000

CGST and SGST charged [Note 2] -

Subsidy received from an NGO [Note 3] 5,000

Less: Discount offered (2,280)

= 3% of List price = ` 76,000 × 3% [Note-4]

Value of taxable supplies 87,720

Notes:
1. Being incidental expenses charged by the supplier to the recipient of
supply, packing charges are includible in the value as per section
15(2)(c).
2. Taxes, duties, etc. levied under any law for the time being in force other
than CGST, SGST/UTGST, IGST are includible in the value as per section
15(2)(a).
3. Subsidy directly linked to the price received from a non-Government
body is includible in the value in terms of section 15(2)(e).
4. Since discount is known at the time of supply, it is deductible from the
value in terms of section 15(3)(a).
10. Section 15(3)(a) allows discounts to be deducted from the value of taxable supply
if the same is given before or at the time of the supply and if such discount has
been duly recorded in the invoice issued in respect of such supply. In other
words, pre-supply discounts recorded in invoices are allowed as deduction.
Further, post supply discounts are also allowed as deduction from the value
of supply under section 15(3)(b) if-

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(i) 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
(ii) 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.
In the given case, Shah Electronics is entitled for 10% discount on televisions
supplied by BEL for the quarters April-June as well as July-September as it has
sold more than 500 televisions in each of these quarters. However, since the
sales targets are achieved after the entire stock for the respective quarters of
April-June and July-September has been dispatched, the discounts on the
televisions supplied to Shah Electronics for the quarters of April-June and
July-September is a post-supply discount.
Such post-supply discount will be allowed as a deduction from the value of
supply since the discount policy was known before the time of such supply
and the discount can be specifically linked to relevant invoices (invoices
pertaining to televisions supplied to Shah Electronics for the quarters of April-
June and July-September) provided Shah Electronics reverses the input tax
credit attributable to the discount on the basis of document issued by BEL.
The value of supply for the quarters of April-June and July-September will
thus, be computed as under:
Computation of value of supply for the quarter - April-June

Particulars Amount
(`)
Price at which the televisions are supplied to Shah 8,400
Electronics [Note 1]
Add: Packing expenses [Note 2] 1,200
Less: Discount [Note 3] Nil
Value of taxable supply of one unit of television 9,600
Value of taxable supply of televisions for the quarter 72,00,000
April-June [` 9,600 x 750]

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Notes:
(1) The value of a supply is the transaction value, which is the price actually
paid or payable for the said supply, in terms of section 15(1) presuming
that the supplier and the recipient of supply are not related and price
is the sole consideration for the supply as the supplier and recipient are
not related parties.
(2) The value of supply includes incidental expenses like packing charges
in terms of section 15(2)(c).
(3) Since Shah Electronics has not reversed the input tax credit attributable
to such discount on the basis of document issued by BEL, the conditions
specified in section 15(3)(b) have not been fulfilled. Thus, the post-
supply discount will not be allowed as deduction from the value of
supply.
Computation of value of supply for quarter - July-September

Particulars Amount
(`)
Price at which the televisions are supplied to Shah 8,400
Electronics [Note 1]
Add: Packing expenses [Note 2] 1,200
Less: Discount [Note 3] (840)
Value of taxable supply of one unit of television 8,760
Value of taxable supply of televisions for the quarter 87,60,000
July-September [` 8,760 x 1,000]

Notes:
(1) The value of a supply is the transaction value, which is the price actually
paid or payable for the said supply, in terms of section 15(1) presuming
that the supplier and the recipient of supply are not related and price
is the sole consideration for the supply as the supplier and recipient are
not related parties.
(2) The value of supply includes incidental expenses like packing charges
in terms of section 15(2)(c).

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(3) Since all the conditions specified in section 15(3)(b) have been fulfilled,
the post-supply discount will be allowed as deduction from the value
of supply. The input tax credit to be reversed will work out to be
`1,51,200 [1,000 x (8,400 x 10%) x 18%].
11. Rule 32(2) prescribes the provisions for determining the value of supply of
services in relation to the purchase or sale of foreign currency, including
money changing.
Determination of value under rule 32(2)(a)
(i) Value of supply of services for a currency, when exchanged from, or to,
Indian Rupees, shall be equal to the difference in the buying rate or the
selling rate, as the case may be, and the Reserve Bank of India (RBI)
reference rate for that currency at that time, multiplied by the total units
of currency. Thus, value of supply is:
= (RBI reference for US $ - Buying rate of US $) × Total number of units
of US $ bought
= (74.6 – 74) × 1,000
= ` 600/-
(ii) When the 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. Thus, value of supply is:
= 1% of the gross amount of Indian Rupees received
= 1% of (74.50 × 2,000) = ` 1,490/-
Determination of value under rule 32(2)(b)
Rule 32(2)(b) provides that value in relation to the supply of foreign currency,
including money changing shall be deemed to be –

S. No. Currency exchanged Value of supply

1. Upto` 1,00,000 1% of the gross amount of currency

exchanged
OR
` 250 whichever is higher

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 7.78 GOODS AND SERVICES TAX

2. Exceeding ` 1,00,000 ` 1,000 + 0.50% of the (gross amount

and upto` 10,00,000 of currency exchanged - 1,00,000)

3. Exceeding ` 10,00,000 ` 5,500 + 0.1% of the (gross amount

of currency exchanged - 10,00,000)
OR
` 60,000 whichever is lower

Thus, the value of supply in the given cases would be computed as under:
(i) Gross amount of currency exchanged = ` 74 × 1,000 = ` 74,000.
Since the gross amount of currency exchanged is less than ` 1,00,000,
value of supply is 1% of the gross amount of currency exchanged i.e.
1% of ` 74,000 or ` 250, whichever is higher, i.e. = ` 740/-
(ii) Gross amount of currency exchanged = ` 74.50 × 2,000 = ` 1,49,000.
Since the gross amount of currency exchanged exceeds ` 1,00,000 but
is less than ` 10,00,000, value of supply is ` 1,000 + 0.50% of (` 1,49,000
- ` 1,00,000), i.e. = ` 1,245/-
12. As per explanation to rule 33, a “pure agent” means a person who-
(a) 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;
(b) 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;
(c) does not use for his own interest such goods or services so procured;
and
(d) 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.
The supplier needs to fulfil all the above conditions in order to qualify as a
pure agent.
In the given case, Rudra Logistics has entered into a contractual agreement
with recipient of supply, Rolly Polly Manufacturers Ltd., to incur, on behalf of
such recipient, the expenses mentioned in S. No. (ii) to (vii) incurred in

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relation to clearance of the imported machine from the customs station and
bringing the same to the warehouse of the recipient. Further, Rudra Logistics
does not hold any title to said services and does not use them for his own
interest.
Lastly, Rudra Logistics receives only the actual amount incurred to procure
such services in addition to agency charges. Thus, Rudra Logistics qualifies
as a pure agent.
Further, rule 33 stipulates that notwithstanding anything contained in the
provisions of Chapter IV – Determination of Value of supply, 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-
(I) 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;
(II) 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
(III) 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.
Since conditions (I) to (III) mentioned above are satisfied in the given case,
expenses (ii) to (vii) incurred by Rudra Logistics as a pure agent of Rolly Polly
Manufacturers Ltd. shall be excluded from the value of supply.
Accordingly, value of supply made by Rudra Logistics is as follows:

Particulars Amount
(`)

Agency charges 5,00,000

Add: Unloading of machine at Kandla port, Gujarat Nil

Charges for transport of machine from Kandla port, Nil

Gujarat to its godown in Ahmedabad, Gujarat

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 7.80 GOODS AND SERVICES TAX

Charges for transport of machine from Rudra Logistics’ Nil

Ahmedabad godown to the warehouse of Rolly Polly
Export Import House in Mumbai, Maharashtra

Customs duty Nil

Dock charges Nil

Port charges Nil

Hotel expenses 45,000

Travelling expenses 50,000

Telephone expenses 2,000

Value of supply 5,97,000

Yes, the answer would be different. If lump sum amount of ` 13,00,000 is paid
then the value of supply shall be ` 13,00,000 and tax shall be charged on
value of supply since individual cost are not given.
13. As per section 25(4), a person who has obtained or is required to obtain more
than one registration, whether in one State or Union territory or more than
one State or Union territory shall, in respect of each such registration, be
treated as distinct persons for the purposes of this Act. Therefore, units of
Rustagi & Co. in Madhya Pradesh and Himachal Pradesh are distinct persons
under GST.
As per rule 28, the value of the supply of goods between distinct persons,
other than where the supply is made through an agent, shall –
(a) be the open market value of such supply;
(b) if open market value is not available, be the value of supply of goods of
like kind and quality;
(c) if value cannot be determined under the above methods, be cost of the
supply plus 10% mark-up or be determined by other reasonable means,
in that sequence.
Rule 28 also provides 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

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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.
Further, rule 28 provides that where the recipient is eligible for full input tax
credit, the value declared in the invoice by the supplier shall be deemed to
be the open market value of the goods or services.
In the given case, the option of valuing the goods @ 90% of the price charged
by the recipient to his unrelated customer is not available as the goods are
not further supplied ‘as such’ but only after processing at Himachal Pradesh
unit. However, since the Himachal Pradesh unit is eligible for full ITC, the
value declared by the Madhya Pradesh unit in the invoice for transfer of such
products, i.e. ` 20,00,000 shall be deemed to be the open market value of the
products.
Thus, the value of 1000 products supplied by Rustagi & Co. to its Himachal
Pradesh unit in terms of rule 28 is the open market value of such products
which is ` 20,00,000.
14. (1) In the given case, price is not the sole consideration for the supply.
Apart from monetary consideration, the buyer has given some material
to the supplier as consideration for such supply. Hence, the value of the
supply cannot be determined on the basis of the transaction value in
terms of section 15(1).
Here, the value will be determined with the help of rule 27 which
specifies that where the consideration for a supply is not wholly in
money, the value will be the open market value.
Open market value of a supply means the full value in money, excluding
the applicable GST, where the supplier and the recipient of the supply
are not related and the price is the sole consideration, to obtain such
supply at the same time when the supply being valued is made.
Therefore, in the given case, the open market value of the goods
supplied is ` 2,52,000 (` 2,97,360 x 100/118) and is therefore, the value
of such goods.
(2) Rule 27 further provides that if open market value of the supply is not
known, the value of the supply will be the consideration in money plus

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 7.82 GOODS AND SERVICES TAX

the money equivalent to the non-monetary consideration, if such

amount is known at the time of supply.
Therefore, the value in the given case will be (` 2,95,000 x 100/118) +
` 10,000, which is ` 2,60,000.
15. As per rule 32(4), the value of supply of services in relation to life insurance
business, when the amount allocated for investment/ savings on behalf of the
policy holder is not intimated to the policy holder at the time of supply of
service, is-
(i) in case of single premium annuity policies,10% of single premium
charged from the policy holder;
(ii) in all other cases, 25% of the premium charged from the policy holder
in the first year and 12.5% of the premium charged from the policy
holder in subsequent years;
(iii) in case the entire premium paid by the policy holder is only towards the
risk cover in life insurance, the premium so paid.
Therefore, in the given case, the value of the services provided by CLICL will
be computed as under:
Computation of value of supply for CLICL

Particulars Amount (`)

Premium for only risk cover 25,00,000
Premium from new policy subscribers 25% of ` 40,00,000 10,00,000

Renewal premium 12.5% of ` 80,00,000 10,00,000

Single premium on annuity policy10% of ` 1,00,00,000 10,00,000
Total value of supply 55,00,000

16. Computation of GST liability of Aviant Ltd.

Particulars (`)

Price of machine [Note 1] 40,00,000

Add: Handling and loading charges [Note 2] 10,000

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 VALUE OF SUPPLY 7.83

Installation and commissioning charges [Note 3] 1,00,000

Transportation cost [Note 4] Nil

Price linked subsidy from Diligent Ltd. [Note 5] 2,00,000

Total price of the machine 43,10,000

Less: 2% cash discount on price of machinery (80,000)

= ` 40,00,000 × 2% [Note 6]

Taxable value of supply 42,30,000

Tax liability for the month of August [Note 10]

IGST @ 12% [Note 7 and Note 8] – [A] 5,07,600

Tax liability for the month of October [Note 10]

Add: Interest collected @ 3% on ` 41,10,000 [Note 9] 1,23,300

Cash discount recovered [Note 9] 80,000

Value of interest and cash discount inclusive of tax 2,03,300

IGST = (` 2,03,300/112) x 12% - [B] 21,782

Total IGST payable on the machinery [A] + [B] 5,29,382

Notes:
(1) As per section 15(1), the value of a supply is the transaction value i.e.,
the price actually paid or payable for the said supply when the supplier
and the recipient of the supply are not related and the price is the sole
consideration for the supply.
(2) All incidental expenses charged by the supplier to the recipient of a
supply are includible in the value of supply in terms of section 15(2)(c).
(3) Any amount charged for anything done by the supplier in respect of the
supply of goods at the time of, or before delivery of goods is includible
in the value of supply in terms of section 15(2)(c).

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(4) Transportation cost has not been included in the value of supply of the
machinery as it is a separate service contract between the customer and
the third-party service provider. The customer pays the freight directly
to the service provider.
The supplier (Aviant Ltd), in this case, merely arranges for the transport
and does not provide the transport service on its own account.
Therefore, there will be no impact from valuation point of view on
transport expenses incurred for supply of machinery as the supplier is
not the party to such supply of services.
(5) Subsidies directly linked to the price excluding subsidies provided by
the Central Government and State Governments are includible in the
value of supply in terms of section 15(2)(e).
(6) Cash discount was deducted by Aviant Ltd. upfront at the time of supply
on 1st August, and hence, the same is excluded from the value of supply
as it did not form part of the transaction value.
(7) In the given case-
♦ the location of the supplier is in Noida (UP); and
♦ the place of supply of machinery is the place of installation of
the machinery i.e., Gurugram (Haryana) in terms of section
10(1)(d) of the IGST Act, 2017.
Therefore, the given supply is an inter-State supply as the location of
the supplier and the place of supply are in two different States [Section
7(1)(a) of IGST Act, 2017]. Thus, the supply will be leviable to IGST in
terms of section 5(1) of the IGST Act, 2017.
(8) The given supply is a composite supply involving supply of goods
(machinery) and services (handling and loading and installation and
commissioning) where the principal supply is the supply of goods.
As per section 8(a), a composite supply is treated as a supply of the
principal supply involved therein and charged to tax accordingly. Thus,
tax rate applicable to the goods (machinery) has been considered.
(9) Interest for the delayed payment (which excludes subsidy related
amount of Rs 2,00,000 as the same was not recoverable from the
recipient) of any consideration for any supply is includible in the value
of supply in terms of section 15(2)(d). Further, cash discount recovered

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will also be includible in the value of supply as now the transaction value
i.e., the price actually paid for the machinery is devoid of any discount.
The cash discount recovered and interest respectively are inclusive of
tax. Thus, tax payable thereon has to be computed by making back
calculations in terms of rule 35.
(10) Invoice for the supply has been issued on 1st August . Thus, the time of
supply of goods is 1st August in terms of section 12(1)(a).
As per section 12(6), the time of supply in case of addition in value by
way of interest, late fee, penalty etc. for delayed payment of
consideration for goods is the date on which the supplier receives such
addition in value. Thus, the time of supply of interest received and cash
discount recovered on account of delayed payment of consideration is
31st October, the date when the full payment was made. The supplier
may issue a debit note for such interest and cash discount recovered.

Examples and Questions and Answers given in the Chapter are based on the position
of GST law existing as on 30.04.2021.

© The Institute of Chartered Accountants of India