CHAP TER

VALUE OF SUPPLY
LEARNING OBJECTIVES 9.1 INTRODUCTION

In any fiscal statute, the determination of tax may

be based
After studying this chapter, youshall
on value of item or on some other basis (like quantity,
length,
be able to understand the following: is determined as a
number, square meter, etc.). When tax
General Valuation Mechanism terms), it is
percentage of value (expressed in monetary
tax is levied
Notified Supplies Valuation called as ad valorem basis. Under GST laws, the
of the value of supply, whether of goods or
as a percentage
Value of Taxable Supplies of services. In other words, GST is payable
on ad valorem

know the mecha-

Concept of Transaction Value
Inclusions in Transaction Value
Treatment of Discount in Trans-
action Value
Determination of Value in Special
Cases
Money Changing Services
basis. Therefore, it becomes inmportant to
on which tax is
nism for determining the value of a supply
to be paid. This chapter describes
the statutory provisions,
which are given in CGST
related rules and their analysis,
Act and CGST Rules.
OF VALUE OF
9.2 METHODS OF CALCULATION
TAXABLE SUPPLY (AN OVERVIEW):

Air Travel Agent 2017 gives the basis of charge.

The Section 9 of CGST Act,
shall be levied on the basis of
Life Insurance Services As per this section, the GST
determined under section
taxable Supply of goods, services
Second Hand Goods Taxable
15.The section 15 contains the provisions "Valueof
of
these provisions.
Supply". The following is the overview of
Transaction Value is the value of Supply
Section 15(1)
Inclusions in the Value of Supply
Section 15(2)
Section 15(3) | Discount not to be included
is not applicable (Rule 27
Section 15(4) When section 15(1)
to Rule 31)
Section 15(5) | About notilied Services/Goods (Rule 32)

9.1
Para 9.3
VALUE OF SUPPLY
9.2
VALUE OF SUPPLY

Notified Supplies Valuation

General Valuation Mechanism

Supply Satisfying
Basic Conditions
1. Supplier & Recipient are
not related.
2. Price is the sole consideT
ation for supply.
Valuation
Sec. 15(1), 15(2) & 15(3)
of CGST Act, 2017
Supplies Notified by
Supply NOT Satisfying
Central Government
Basic Conditions
On recommendation
Supply NOT Satisfying
Basic Conditions of GST Council
Valuation Valuation
As per Rules 27-31 As per Rule 32 of
of CGST Rules, 2017 CGST Rules, 2017
Section 15(4) of CGST Section 15(5) of CGST
Act, 2017 Act, 2017

It may be noted that

1. The provisions of value of supply under CGST Act have also been made applicable to IGST Act vide section
20 of the IGST Act.
2. In most of the cases of regular normal trade, the invoice value is the taxable value. However, when value
cannot be determined under section 15 and for certain specitic transactions, the value is determined using
CGST Rules, 2017.

CGST Rules at a Glance

The Chapter IV of CGST Rules Contains the following in relation with Valuation.
Rule 27 Where consideration is not wholly in money
Rule 28 Supply between distinct or related persons
Rule 29
Supply through an Agent
Rule 30 Value based on Cost
Rule 31 Residual Method

9.3 VALUE OF TAXABLE SUPPLY ISECTION 15(1)1

As per section 15(1) of CGST Act, 2017, "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
the sole consideration for the supply." supply are not related and the prices
The following are the important interences:
(a) There are two basic conditions tor
application of section 15(1):
1. Supplier and recipient are not related.
2. The price is the sole consideration for the
supply.
(b) If these two conditions are met, then

Value of Supply Transaction Value

Certain Elements
[Price paid or payable]
[Given in Section 15(2)]
The price pavable refers to price that 1S agreed to be paid tor the goods/services.
.3 VALUE OF TAXABLE SUPPLY Para 9.3

Meaning of Relevant Terms

Transaction Value: The transaction value refers to the price which is the price actually paid or pavable for
the supply of goods and/or services where the supplier and the recipient of the supply are not related and
the price S the sole consideration for the
supply. It includes any amount which the supplier is liable to pay
but which has been incurred by the
recipient of the supply.
Related Persons [Explanation to Section 15]: The persons shall be deemed to be "related persons" The tern
"related persons" is defined by explanation to section 15. Bv virtue of this definition, person shall be deemed
to be "related person" if-
() such personsofhces or directors of one another's businesses;
are

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

(ii) such persons are
employer and employee;
(V) any persondirectly or indirectly owns, controls or holds 25% or more of the outstanding voting stock
or shares of both of them;
(1) one of them directly or indirectly controls the other;
(vi) both of them are directly or indirectly controlled by a third person;
(vi) together they directly or indirectly control a third person; or
(Vviin they aremembers of the same family;
The Clause (5) of the explanation prescribes that person also includes legal persons. As per clause
(C), the 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.

9.3.1 Inclusions in Transaction Value [Section 15(2)]

When the value of supply is assessed on the basis of transaction value, the taxable value includes
certain elements in addition to price actually paid or payable for the supply. These ingredients are
as follows:
(i) Any taxes, duties, Cesses, fees and charges except GST. [Refer Example 9.1]
in relation to
(ii) Any payments made to third parties by the recipients on behalf of the supplier
the supply. [Refer Example 9.2]1
(iii) The incidental expenses, such as, commission and packing, charged by the supplier or any-
thing else done by the supplier in relation to the supply at the time of or before the delivery
of goods or supply of services. [Refer Example 9.3]

(iv) Interest, late fee and penalty for delayed payment of any consideration tor any supply and

(v) Any subsidy directly linked to the price excluding

subsidies provided by the Government
(Central/ State). [Refer Example 9.4]
ascertainment of GST TCS under Income-tax Act, 1961
Valuation Methodology for on

For the purpose of determination of value of supply under GST, tax collected at source (TCS)
under section 206C of the Income-tax Act, 1961 is not includible as it is an interim levy not having
the character of tax. [Circular No. 76/50/2018 GST dated 31-12-2018 amended vide corrigendum
dated 7-3-2019]
9.1: (Treatment of Municipal and other taxes)
Example
The list price of the goods is 40,000 (exclusive of taxes). The tax levied by Municipal authority is R 2,00
The CGST/SGST chargeable on the goods is @ 18%. Now, since the value includes any taxes, duties (other
than GST), etc., the Value of Supply shall be F 42,000 in the given case. Hence, GST payable
will be 18o ot
F 42,000 i.e. 7,560.
Para 9.3 VALUE OF SUPPLY 9.4

Example 9.2: (Payment on behalf of supplier)

Chitra Advertisers conceptualized and designed the advertising campaign for a new product launched by
to Massom Limiled. It has also
HLL for a consideration of 7 8,00,000. Chitra Advertisers had to pay 7 40,000 Chitra Advertisers. The
this 40,000 liability of
Deen agreed between the parties that HLL will discharge of this additional payment to be made by HLL
price of T8,00,000 has been agreed upon afterconsideration section 15(2), this direct payment to third
directly to Massom Limited on behalf of Chitra Limited. As per Iheretore in this
to the transaction value. case
party on behalt of supplier by the recipient has to be added i.e. 7 8,40,000.
the value of supply shall be aggregate of 7 8,00,000 and 40,000
Example 9.3: (Treatment ofincidental expenses)
Arun of Delhi supplied 50 tons of Chemical to Barun of Kolkata at the rate of 4,000 per ton. Besides he

R16,000, packing charges 7,000, weighing charges 2,500 and inspection charges 8,000
charged freight15(2)(iii),
As per Section the incidental expenses are also included in value of Supply. Therefore, the value
of Supply will be calculated as follows:

Amount (R)

(a) 50 tons of Chemical (F 4,000 X 50) 2,00,000

(b) Freight 16,000
Packing charges 7,000
(d) Weighing charges 2,500
(e) Inspection charges 8,000
Value of Supply of 50 tons of chemical 2,33,500

Example 9.4:(Subsidylinked to price)

Chhaya Enterprises has quoted the price of R66,000 (exclusive of taxes) for sale of a machine. The Chhaya
Enterprises has receiveda subsidy on sale of such goods from Government at 4,000. The benefit of this
subsidy has been passed by the supplier in the above price of 66,000. As per section 15(2), this subsidy will
not be added in the value of
supply as it has been received from the Government. Therefore the value of
supply will remain at 66,000. If this subsidy had been received from a non-government agency, then such
subsidy will be included in the transaction value. The value of supply would then be 7 70,000.

9.3.2 Exclusion of Discount from Transaction Value

As per section 15(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
in respect of such supply; and duly recorded in the invoice issued
(b) after the supply has been effected, if
(a) Such discount is established In terms of an agreennent entered into at
or before the time
of such supply and specifically linked to relevant invoices; and
(b) Input tax credit as is attributable to the discount on the basis
supplier has been reversed by the recipient of the supply" of document issued by the
ANALYSIS OF SECTION 15(3)
The analysis of above provision deciphers the
following
(1) If discount is duly recorded in the invoice either
betore/ at the time of
supply, discount is
excluded (means not included in the value of
supply). [Refer Examples and 9.6]
9.5
(2) If the discount is provided after the supply is effected, then
discount may still be excluded
from the value of supply, if following conditions are fulfilled:
a. Such discount is given under an agreement entered into at
supply and can be Worked out invoice-wise; and
(or before) the time of sucn
9.5 VALUE OF TAXABLE SUPPLY Para 9.3

b. Input tax credit (as is attributable to the discount on the basis of document issued by
the
supplier) has been reversed by the recipient of the supply.
[Refer Example 9.7]
The provisions relating to discount can be depicted by way of following diagram:

DISCOUNT GIVEN

Before or at the time of supply After the Supply

NOT Included INCLUDED NOT Included INCLUDED

(In Value of Supply) (In Value of Supply) (InValue of Supply) In Value of Supply)
cONDITION cONDITION 2 CONDITIONS cONDITIONS
If Shown in If 'NOT shown in Fulfilled Not fulfilled
the invoice the invoice Mentioned above
Mentioned above
Example9.4A : (Comprehensive Illustration on Subsidy)
Reliance ADAG Groupowns an institute Reliance Education Limited (REL). The Company imparts certificate
courses in the field of animation and film editing. The institute is situated in Andheri, Mumbai. The REL fees
for the course offered are 7 1,70,000 per student for the entire course. However, this course is subsidized
by thefollowing:
Particulars Amount R) per student

Subsidy from Maharashtra Government 10,000

(a)
(b) Subsidy from Cine Association, Mumbai 15,000

(c) Subsidy from Warren Brothers of Hollywood 8,000

(d) Subsidy from US Government 17,000
The benefit of all the four types of subsidies is passed on to the student. Consequently, REC charges
7 1,20,000 plus GST per student.
Find out:
(Value of Taxable Supply as per Section 15.

(i) GST Payable if rate of GST is 18%.

(ii) Amount receivable from the students of Reliance Education Limited (REL).

Solution:
(Value of Taxable Supply: The Subsidies given by different institutions are directly linked to the price
charged by REL. As per section 15(2)(v), the subsidy provided by Central/State Government are ex-
cluded. Therefore, the subsidy from Maharashtra Government will not form part of value of Supply.
But, the other three subsidies would be included.
Determination of Value of Supply (Per Student):

Particulars Amount (]|

(a) Transaction Value 1,20,000
(b) Subsidy from Maharashtra Government Not includible
(c) Subsidy from Cine Association, Mumbai 15,000

(d) Subsidy from Warren Brother of Hollywood 8,000

(e) Subsidy from US Government 17,000

Value of Taxable 1,60,000

Supply
Para 9.3 VALUE OF SUPPLY 9.6

i) GST Payable:
CGST Payable @ 9% of 1,60,000 =T 14,400
SGST Payable @ 99% of 7 1,60,000 =7 14,400
ii) Amount to be Collected from Students:
Transaction Value (R 1,20,000) +GST R28,800)
= 1,48,800
Example 9.5: (Discout allowed at the time of supply)
Shubham Enterprises has sold goods with list price 7 5,000 to a customer. A discount of 20% is given to the
customer, which is reflected in invoice, to arrive at the final price of 4,000. Since the discount is allowed
at the time of supply and is shown in the invoice, the taxable value is 4,000.

Example 9.6:(Discount allowed at the time of supply)

A trader has provided the following information in his invoice dated 12th February 2018

1200 pieces of chairs @ 7 540 per piece 6,48,000

Less: Trade Discount @ 15% 97,200
Net Price (Taxes to be added)
5,50,80
In this case, the value ofsupply willbe 75,50,800 as discount is shown in the invoice and has been allowed
at the time of supply

|Example
Reliance
9.7:(Discount not known at thetime of supply)
Mega Mart
has appointed dealers for promotion and sale of their
products. The company has
announced turnover discount after review of dealer
performance during the year. This discount will be |
given on cash-back mode. Since, the discounts were not known at the time of delivery of supply of goods,
they cannot be shown in the invoices. Therefore, the discount will not be deducted from the taxable value
of the goods. |
The discount will not be included in the value of taxable
satisfied: Supply if the following two conditions are
(a) Such discount is given under an agreement entered into
Supply and specifically linked to relevant invoices; and
at (on or
before) the time of such

(b) Input Tax Credit (as is attributable to the discount on the basis of document issued
supplier) has been reversed by the recipient of the Supply. by the
Example 9.8: (Comprehensive problem on Section 15(1)(2)&(3))
India Machine Private Limited, Delhi
supplies plastic granulation machine to Shobraj Plastics Ltd., Delhi. It
furnishes the following details in respect of such
supply:
Particulars
List Amount R
price of the machine (exclusive of taxes and discounts)
1,00,000
Corrugated Boxes used for packing the machine (not included in price
Subsidy received from Delhi Government on sale of such machine
above) 1,000

(considered in price 5,000

above)
Discount @2% is offered on list
price of the machine (recorded in the invoice for the machine)
Determine the value of taxable supply made by India Machine Private
Limited.
9.7 DETERMINATION OF VALUE OF TAXABLE SUPPLY Para 9.4

Solution
Computation of value of taxable supply
Particulars
List price of the goods (exclusive of taxes and discounts) 1,00,000
Add: Corrugated Boxes used for packing the machine 1,000
[Includible in the value as per section 15(2)X))
Add: Subsidy received from Delhi Government on sale of such machine
Subsidy received from State Government is not included in the value in terms of
section 15(2)(e)]
Total 1,01,000
Less: Discount @2% on List Price ie 1,00,000 (2,000)
Since discount is known at the time of supply, it is deductible from the value in terms
of section 15(3)(a)]

Value of taxable supply 99,000

9.4 DETERMINATION OF VALUE OF TAXABLE SUPPLY WHERE SECTION 15(1) IS NOT

APPLICABLE (SECTION 15(41

The section 15(4) provides that where the value of the supply of goods and/or services cannot be
determined as per section 15(1), the same shall be determined in such manner as may be prescribed.
It means if the transaction is with a related party and/or price is not the sole consideration for
the supply of goods and/or services, then the value will be determined as per valuation principles
prescribed in CGST Rules, 2017.

9.4.1 Valuation Principles in CGST Rules, 2017

As regards the determination of value of supply, the rules are given under Chapter IV of CGST
Rules, 2017. The following are the related rules:
Rule 27 Consideration is not wholly in money
Rule 28:Supply between distinct or related persons
Rule 29:Supply through an Agent
Rule 30: Valuation based on cost
Rule 31: Residual Method

9.4.2 Valuation Rule Where the Consideration is Not Wholly in Money [Rule 27]
Where the supply of goods or services is for a consideration not wholly in money, the value of
the supply shall be the open market value of such supply. However, if the open market value is
not available, then the value of the supply shall be the sum total of consideration in money and
monetary equivalent of non-monetary consideration provided such amount is known at the time
of supply. If this method does not work, then the value of "like kind and quality" shall be used. If
this method also fails, then 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.
 Para 9.4 VALUE OF SUPPLY 9.8
manner:
This Rule 27 may be tabulated for more conceptual clarity in the following

Manner in which Value of supply will be determined

Order of Situation
Application value
Whenthe open market value The open market
A
ofsupply is available Consideration in money
B Ifthe open market value of
supply is not available PLUS
non-monetary consideration
(i.e. the situation 'A' is not Monetary equivalent of
applicable) is known at the time of supply)
(Provided such amount

of goods and/or services of "like kind and

C When both the above situa- The value of supply
quality"shall be used.
tions are not applicable.
(i.e. the situation 'A' and B
arenot applicable)
Consideration in money
D Whenall the above situations
are not applicable. PLUS

i.e. the situation A", 'B' and non-monetary consideration

Monetary equivalent of
C all are not applicable) Rule 30 Rule 31 in that
(As determined by the application of
or

order.)

Example 9.9 (Given in CGST Rules, 2017)

Where a new phone is supplied for R 20,000 along withthe exchange of an old phone and if the price of the |
new phone without exchange is F 24,000, the open market value of the new phone is 7 24,000.

Example 9.10 (Given in CGST Rules, 2017)

is supplied for the barter of a printer that is manufactured by the re-
40,000 along with
Where a laptop
the open market value of the|
cipient and the value of the printer known at the time of supply is 4,000 but
7

laptop is not known, the value of the supply of the laptop is 7 44,000.

Meaning of "Open Market Value" as per Explanation (a) to Rule 35

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;

Meaning of "Supply of goods or services or both of like Kind and Quality"

as per Explanation (b) to Rule 35
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
of
components, materials. and the reputation or the goods services both first
or
or closely or substantially resembles, that supply of goods or services or both.
mentioned, is the same as.

9.4.3 Value of Supply of Goods or Services or Both Between Distinct or Related Persons,
Other than Through an Agent [Rule 28]
The rule 28 is applicable in the following cases:

()When the supply is between distinct persons or

related
() Where the supplier and recipient are

do not cOver supplies made through an agent.

Note: These cases
Para 9.4 VALUE OF SUPPLY 9.8
This Rule 27 may be tabulated for more conceptual clarity in the following maniner

Manner in which Value of supply will be determined

Order of Situation
Application
A Whenthe open market value The open market value

of supply is available
Consideration in money
B If the open market value of
supply is not available PLUS
i.e. the situation 'A' is not
Monetary equivalent of non-monetary consideration
applicable) (Provided such amount is known at the time of supply)
When both the above situa-| The value of supply of goods and/or services of "like kind and
C
tions are not applicable. quality" shall be used.
(i.e. the situation 'A' and 'B
arenot applicable)
D When all the above situations Consideration in money
are not applicable. PLUS
(i.e. thesituation 'A', B' and|
Monetary equivalent of non-monetary consideration
C' all are not applicable)
(As determined by the application of Rule 30 or Rule 31 in that
order.)
Example9.9 (Given in CGST Rules, 2017)
Where a new phone is supplied for 7 20,000 along with the exchange of an old phone and if the price of the
new phone without exchange is 24,000, the open market value of the new phone is 7 24,000.

Example 9.10 (Given in CGST Rules, 2017)

Where a laptop is supplied for 7 40,000 along with the barter of a printer that is manufactured by the re-
cipient and the value of the printer known at the time of supply is 4,000 but the open market value of the
laptopis not known, the value ofthe supply of the laptop is 7 44,000.

Meaning of "Open Market Value" as per Explanation (a) to Rule 35

"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;

Meaning of "Supply of goods or services or both of like Kind and Quality"

asper Explanation (b) to Rule 35
"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,
components, materials, and the reputation of the goods or services or both firstquality, is thefunctional
quantity,
mentioned, same as,
or closely or substantially resembles, that supply of go0ods or services or both.

9.4.3 Value of Supply of Goods or Services or Both Between Distinct or

Related Persons,
Other than Through an Agent [Rule 28]
The rule 28 is applicable in the following cases
() When the supply is between distinct persons or

(i) Where the supplier and recipient are related

Note: These cases do not cover supplies made through an agent.
 9.9 DETERMINATION OF VALUE OF TAXABLE SUPPLY Para 9.4

The rules 28 prescribe that in above cases, the value of the supply shall be the open market value
of such supply, However, it the open market value is not availablc, then the value of "likc kind and
quality" shall be used. If this method fails, then the value is determined by the applicalion ol rule
30 or rule 31 in that order.
FURTHER SUPPLY BY THE RECIPIENT
() The hurst proviso to rule 28 provides that where the goods are intended for further supply as
such bythe recipient, the value shall, at the
option of the supplier, be an amount cquivalent
to 90% of the price charged for the of
supply goods of like kind and quality by the recipient
to his customer not
being related person:
a

() Thesecond proviso to this rule provides 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 ot the
goods or services. [Refer Example 9.12]
The following is the tabular presentation of Rule 28.

Order of Situation Manner in which Value of supply will be determined

Application
A When the open market value | The open market value is taken as the value of supply of goods
of supply is available. and/or services.
Deemed Open Market Value: If the recipient is eligible to take
full Input Tax credit then the value declared in the invoice shall
be deemed to be the open market value of goods or services.
B If the open market value of The value of supply of goods and/or services of "like kind and
supply is not available. quality" shall be used.
(i.e. the situation 'A' is not
applicable)
C When both the above situa- The value is determined by the application of rule 30 or rule
tions are not applicable. 31 in that order.
i.e. the situation 'A' and B
are not applicable)

Example9.11 [Supply between related persons]

X Limited and Y Limited are owned and controlled by Ms. Anjali in a manner that the companies are related
person as per explanation to section 15 of CGST Act, 2017. X Limited gets a contract for ? 10 Lakhs which it
passes on to Y Limited for 8,00,000. Similar services are provided by Y limited to outsiders for 9,50,000.
The value of supply by Y Limited to X Limited shall be basedon the open market priceie. 9,50,000.

Example 9.12 [Based on second provisoto Rule28]

StrongLinmited and Weak Limited are related persons. On 14th February 2021, Strong Limited supplied 100
units to Weak Limited for 7 35,000. The same units are offered by Strong Limited to unrelated parties for
610 per unit. Let us analyze Rule 28 in the following independent cases:
(a) When Weak Limited is NOT entitled to ITC: In accordance with Rule 28, the Value of Supply shall be
the Open Market Value (Money payable by another person tor the same units). Thus, value of supply
will be 61,000. (being 100 units @R 610 per unit).
(6) When Weak Limited is ENTITLED to ITC: As per second proviso to Rule 28, where the recipient iS
eligible for full ITC, the value declared in the invoice shall be deemed to be the Open Market Value of
the goods and services. Thus, in this case the Value of Supply will be the invoice price of 35,000
 Para 9.5 VALUE OF SUPPLY 9.10
9.4.4 Value of Supply of Goods Made or Received Through an Agent [Rule 29]
When the supply of goods is made or received through an agcnt, then Rule 29 is applicable. It is im.
portant to note that this rule cannot be applied in case of services. The rule has prescribed two cases

(a) Where Open Market Value of The value of supply of goods between the principal and his agent

supply of goods is available. shall be any one of the following:

1. The open market value of the goods being supplied.
OR
2. The 90 per cent 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.
(The choice between the two is left at the option of the supplier)
b)Where Open Market Value of The value is determined by the application of rule 30 or rule 31 in
supply of goods is NOTavailable. that order.

Example9.13 (Given in CGST Rules, 2017)

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 7 5,000 per quintal on the day of the supply. Another independent supplier
is supplying groundnuts of like kind and quality to the said agent at the price of F 4,550 per quintal. The
value of the supply made by the principal shall be R 4,550 per quintal or where he exercises the option, the
value shall be 90 per cent of F 5,000 i.e., 7 4,500
per
quintal.
9.4.5 Value of Supply of Goods or Services or Both Based on Cost [Rule 30]
Where the value of a supply of goods or services or both is not determinable
rules of this Chapter, the value shall be 110% of the cost of
by any of the preceding
production manufacture or the cost
of acquisition of such goods or the cost of provision of such services.
or

Example 9.14 [Based on Rule 30]

Suppose X and Y are related parties and X sold goods to Y. The market value of Like and Kind
available. The cost of production to X was 2,50,000 as Goods' is not
per Cost Accounting Standard 4. In this case, rule
will be applicable and the value of
supply will be 1106 of cost of production i.e. 7 2,75,000 (7 2,50,000 30|
plus 10%)
9.4.6 Residual Method for Determination of Value
of Supply of Goods or Services or
Both [Rule 31]
Where the value of supply of goods or services or both
cannot be determined under
30, the same shall be determined using reasonable means rules 27 to
consistent with the principles and the
general provisions of section 15 and the provisions of Chapter IV of CGST
proviso provides that in the case of supply of services, the Rules, 2017. The first
ignoring rule 30. supplier may opt for this rule 31 directly,

9.5 VALUE OF SUPPLY IN CASE OF LOTTERY, BETTING, GAMBLING AND HORSE

RACING IRULE 31A]
In respect of specihc Supplies, the Rule 31A has been inserted
Rules vide Notitication No. 03/2018-CT dated 23/01/2018.
by Central Government in CGS
() As per Sub-Rule (1) of Rule 31A, "Notwithstanding anything contained in the
this Chapter, the value in respect of supplies specified shall be determined in the
provisions o
manner." These Supplies are specified
9.11 VALUE OF SUPPLY IN CASE OF LOTTERY, BETTING, GAMBLING & HORSE RACING Para 9.5

(a) Lottery,
(b) Betting,
(c) Gambling
(d) Horse racing
2) This Rule 31A is over-riding rule as no other rule can be applicd in respect ofsupplies specified
under this rule.
Note: The Rule has been discussed in detail in Para 9.5.1 and 9.5.2.

9.5.1 Value of Supply in case of lottery [Rule 31A(2)]:

The Rule 3IA(2) has been amended vide CGST (Second Amendment) Rules, 2020. As per revised
sub-rule, 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 Organizing State, whichever is higher.
The following are the relevant points as regards this sub-rule:
(1) It is related with the supply of lottery by the Organizing State.
(2) Organising State means the State Government which conducts the lottery either in its own
territory or sells its tickets in the territory of any other State.
(3) The higher of the following amounts to be deemed as the value of supply of lottery
(a) 100/128 of the face value of ticket
OR
(b 100/128 of the price as notified in the Official Gazette by the Organising State.

Example 9.15 [Based on Rule 31A(2)]

The Sikkim Government runs a lottery where face value of a lottery ticket is 500.
(a) If the price notified by the State Government in the Official Gazette is R 448:

On the basis of face value of ticket 500X 100/128 390.625

On the basis of price notified in the Official Gazette 448 X 100/128 350.000
Deemed value ofsupply oflottery as per Rule 31A(2) 390.625
(b) If the price notified by the State Government in the Official Gazetteis 530:
On the basis of face value of ticket 500X 100/128 390.625
On the basis of price notified in the Official Gazette 530X 100/128 7 414.063
Deemed value of supply oflottery as perRule 31A(2) 7 414.063
(a) Lottery run by State Government:
It is a lottery not allowed to be sold in any State other than the organizing State. n this case,
the value of Supply shall be deemed to be 100/1 12 of the face value of the ticket or the price
notified in the official Gazette, whichever is higher.
Example 9.16 (Lottery run by State Government)
During April 2018, Sikkim Government issues 840 lottery tickets to a distributor. The face value per
ticket is 5,000, whereas the price notified by official Gazette is 7 4,200. This lottery cannot be sold by
the distributor outside Sikkim. GST rate is 12%. The location of recipient of Supply is Rangpo, East

district of Sikkim. Calculatevalue of Supply and also find out the amount of GST.
 Para 9.5 VALUE OF SUPPLY
9.12
Solution:
Nature The nature of Supply is Intra-State
GST Since it is Intra-State in Sikkim, CGST and SGST are applicable.
:Since this lottery is not allowed to be sold in any State other than the orga-
Nature of Lottery
State Government.
nizing State (i.e. Sikkim), it is lottery run by the
calculated as under:
Value of Supply :As per Rule 31A(2)\), the value of Supply shall be
Value of Supply = No. of Tickets x Face Value x 100/112

840 xT 5,000 x 100

112
= R 37,50,000

6% of 7 37,50,000 = 7 2,25,000
CGST Payable
SGST Payable = 6% of T 37,50,000 =7 2,25,000

(b) Lottery authorised by State Government:

As per the explanation to Rule 31A (2), "the lottery authorised by State Government" is a
lottery which is authorised to be sold in State(s) other than the organizing State also.
As per Rule 31A(2X), in this case the value of Supply shall be deemed to be oof the face
128
value of ticket or of the price as notified in the Official Gazette by the organizing States,
whichever is higher.

Example9.17 (Lottery authorised by State Government)

Goa Government has issued 1,600 tickets of Mahalakshmi weekly lottery (Face Value per ticket is
1,000 whereas the priceas notifiedby official Gazette is T 800) to Bhuvan Limited, who is one of its
lotterydistributor. This lottery can be sold by Bhuvan Limited even outside Goa. The applicable GST
rate is 28%. The recipient of Supply is Head Office of Bhuvan Limited located at Pune, Maharashtra.
Determine the value of Supply as per relevant sub-rule of Rule 31A of CGST Rules, 2017.
Solution:
Nature :The nature of Supply is Inter-State
GST :BeingInter-State Supply, IGST is applicable.
Value of Supply
As per Rule 31A(2)(a), the value of Supply shall be deemed to be
o
128
f the
face value of ticket or of the price as notified in the Official
Gazette by the
organizing States, whichever is higher.
Value of Supply =No. of Tickets Face Value x0
=
1600 xR 100 x 128
128
=71,25,000
IGST Payable 28% of the Value of Supply
28% of 1,25,000
=735,000
Subsequent Supply of Lottery:
It is important to note that on
subsequent supply of lottery tickets by an authorised lottery distributor
to the retail agent, GST will not be payable subject to certain conditions, which are specified in box
given below.
 iax Ications in Case of Lottery

(1) The Supply of lottery is covered under Supply of Goods.

(2) In exercise of power Central Government under section 9(3) of CGST Act, 2017,|
given to
of Goods on
the Central Government has notified "Supply of Lottery" as one of the supply
which RCM is applicable. It means the recipient is liable to pay GST.
from
3) As per Notification No.2/2017-CT dated June 28, 2017, the Supply of lottery is exempt
GST if the following conditions are satisfied:

(a) The Supplier of lottery is any person other than Government/Union territory/Local
authority.
(b) The appropriate GST was paid when lottery was supplied by Government/Union
territory/Local authority to the authorized distributor.

Example 9.18 ( Subsequent Supply of Lottery)

Kerala Government has issued "Golden Jackpot lottery" tickets to its distributor "Vigneshwara Lottery"
The GST has been paid by distributor under Reverse Charge Mechanism (RCM). Later on. "Vigneshwara
its retail agent. Comment applicability of GST on the
Lottery" distributes some lottery tickets to one of on

subsequent Supply of lottery by the distributor.

Solution:
retail agent fulfils the conditions of exemption given in
This Supply of lottery tickets by distributor to
Notitication No. 2/2017, dated June 28,2017.Therefore, any subsequentsale of lottery tickets by "Vigneshwara
of lottery tickets to any person
Lottery" to any person will be exempt from GST. In other words, on Supply
by "Vigneshwara Lottery", GST is not payable.
9.5.2 Value of supply in case of betting, gambling & horse racing:
chance to
As per sub-rule (3) of Rule 31A, the value of Supply of actionable claim in the form of
win in betting, gambling of horse racing in a race shall be 100% of the face value of the bet or the
amount paid into the totalisator.

Totalisator is a computerised device that pools the wagers/bets (after deduction of charges and
and also divides the total wager amount to be
statutory taxes) of various persons placing the bet
distributed to the winning persons.

9.6VALUE OF NOTIFIED SUPPLIES ISECTION 15(5)1

Para 9.7 VALUE OF SUPPLY 9.14
Sub-Rule
Category Supply
32(2) Service
Money Changing Services (optional Method)
32(3) Service AirTravel Agent (Optional Method)
32(4) Service Life Insurance Business (Optional Method
32(5) Goods Dealer of second Hand Goods (Optional)
32(6) Services and/ Tokens/Vouchers/Coupons/Stamps(other than Postage Stamps) redeemable
or Goods against a supply of goods and/or services
32(7) Services Services by notified class of service providers

9.7.1 Services in relation to purchase or sale of foreign currency, including money

changing [Rule 32(2)1
Rule 32(2)Xa) of the CGST Rules, 2017 provides the manner of determination of the value of taxable
service so far pertains to purchase or sale of foreign currency, including money changing. There
are two options given under rule
32(2):
OPTION I
On the basis of RBI reference Rate of Rule 32(2)
[Clause (a)
OPTION II
On the basis of Gross amount of currency exchanged [Clause (b) of Rule 32(2)]
Option once exercised to apply for that financial year cannot be withdrawn: A person supplying
the services in relation to purchase or sale of
foreign currency, including money changing may
exercise the Option I, in order to ascertain the value for a financial year and such option shall not
be withdrawn during the remaining part of that financial year. Hence, It is clear that:
Option I is a default option, for which no adoption of option is required.
Option II is a voluntary option to be adopted at the discretion of supplier.
If option II is exercised, then such option shall not be withdrawn during the
of that financial year. remaining part
OPTION I
On the basis of RBI reference Rate
[Clause (a) of Rule 32(2)]
The value of supply of services in relation to the
purchase or sale of
money changing, shall be determined by the supplier of services in theforeign currency, including
For
following manner, namely
(a) a currency, when
exchanged from, or to, Indian Rupees (INR)
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
India reference rate for that currency at that time, may be, and the Reserve Bank of
multiplied by the total units of currency.
Value of Supply =(Difference between RBI reference rate &
Actual X rate) Total units
Example 9.19 (RBI reference Rate is available)
Mr. Dhirender who has entered into a roll over contract
the rate of 7 64 per US $. RBI reference rate tor US $ isapproached
ICICI Bank for selling US $40,000
at
65 at that time.
declared by CBIC for the day is 66 per USS. Now, since RBI reference However, rate of exchange
rate is available, the value
of supply of service will be equal to the ditterence in the
selling rate and the Reserve Bank of India
reference rate for that currency at that time, multiplied by the total units of currency. Hence, the
value of taxable service will be equal to the following:
= (RBI reference rate for $ - Selling rate for S) x Total units
= (65 - 64) x $ 40,000 = 7 40,000
 Para 9.7
DETERMINATION OF VALUE IN RESPECT OF CERTAIN SUPPLIES
9.15
(b) Where the RBI reference rate for a currency is not available
Where the Reserve Bank of India reference rate for a curreney is not available, the valuesna
be 1% of the gross amount of Indian Rupees provided or received by the person changing
money. [Refer example 9.18]
Value of Supply = 1% of Indian Rupees provided or received.

Example9.20 (RBI reference Rate is Not available)

Maharaja Ltd. exported some goods to Johnson Inc. of USA. It received US $ 2,500 as consIderation
reference rate for
for the same and sold the foreign currency @ 62 per US dollar. At that time, RBI
US dollars is not available. In this case, the value shall be 1 9% of the gross amount of Indian Rupees
the given case, value ot taxable
provided or received, by the person changing the money. Hence, in
service would be as follows:
Value of Supply = 19% of 62 x 2,500)= 1,550

(c) Where neither of the currencies exchanged is Indian Rupee

equal shall be to one
Where neither of the currencies exchanged is Indian Rupees, the value
the would have received
amounts the person changing money
per cent of the lesser of the two reference rate
of the two currencies into Indian Rupee on that day at the
by converting any in the following steps:
provided by the Reserve Bank of India. The method may simplified
be

Find out value converted into Indian Rupees

Step-I
Value 1= First Currency converted into Indian Currency
Indian Currency
Value 2- Second Currency converted into
I
Take lesser ofthe two amounts as calculated in Step
Step-II
Lower of Value 1 and Value 2

Step-III Find Value of Supply

Value of Supply =
1% of value determined in Step II

currencies exchanged Rupee) is Indian

Example 9.21 (Neither of the RBI reference rate at that time for US $ is 7 63 per US
into UK £ 4,500. The
The US $ 9,000 a r e converted follows:
The value of supply will be calculated
as

dollar and for UK £ is 7 101 per UK Pound.

into Indian Rupees

Find out value converted
Step-I Indian Currency
Value 1 =
US Dollar converted into
= US $ 9,000@ 63 =75,67,000
converted into Indian Currency
Value 2=UK Pound
= UK £ 4,500 @ 101 = 7 4,54,500

two amounts as calculated in Step I

Step-II Take lesser of the
of T 5,67,000 or R 4,54,500 i.e. 7 4,54,500
Lower

Value of Supply =
1% of value determined in Step II
Step-I1I
= 1% of T 4,54,500 =7 4,545
-

OPTION II
On the basis of Gross amount of currency exchanged [Clause (b) of Rule 32(2)1
As per Rule 32(2)(b) of CGST Rules, 2017, at the option of the supplier of services, the value in relation
the following
to the of foreign currency, including money changing, shall be deemed to be
supply
 DETERMINATION OF VALUE IN RESPECT OF CERTAIN SUPPLIES Para 9.7
9.15
(b) Where the RBI reference rate for a currency is not available
Where the Reserve Bank of India 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. [Refer example 9.18]
Value of Supply = 1% of Indian Rupees provided or received.

Example 9.20 (RBI reference Rate is Not available)

Maharaja Lid. exported some goods to Johnson Inc. of USA. It received US $ 2,500 as consideration
forthe same andsold the foreign currency @762 per US dolar. At that time, RBI reference ratelor
US dollars is not available. In this case, the value shall be 1 % of the grossamount of Indian Rupces
received, by the person changing the money. Hence, in the given case, value of taxable
provided or

service would be as follows:

Value of Supply = 1% of ( 62 x 2,500) =7 1,550

(c) Where neither of the currencies exchanged is Indian Rupee

shall be equal to one
Where neither of the currencies exchanged is Indian Rupees, the value
the money would have received
per cent of the lesser of the two amounts the person changing the reterence rate
by converting any of the two currencies into Indian Rupee on that day at
the following steps:
provided by the Reserve Bank of India. The method may be simplified in
Find out value converted into Indian Rupees
Step-I
Value 1= First Currency converted into Indian Currency
Indian Currency
Value 2- Second Currency converted into
in Step I
Step-II Take lesser of the two amounts as calculated
Lower of Value 1 and Value 2

Find Value of Supply:

Step-III
Value of Supply =
16 of value determined in Step II

is Indian Rupee)
Example 9.21 (Neither of the currencies exchanged rate at that time for US $ is 7 63 per US |
converted into UK£ 4,500. The RBI reference
The US $ 9,000 are
will be calculated as follows:
UK Pound. The value of supply
dollar and for UK £ is 101 per

into Indian Rupees

Find out value converted
Step-I
Value 1= US Dollar converted into Indian Currency
= US $ 9,000 @ 63 =R5,67,000
into Indian Currency
Value 2-UK Pound converted
= UK £ 4,500 @ 101 =74,54,500

Take lesser of the two amounts as calculated in Step I

Step-II
Lower of 7 5,67,000 or 7 4,54,500 i.e. 7 4,54,500

Value of Supply = 1% of value determined in Step II

Step-III
1% of 4,54,500 = 7 4,545

OPTION II

On the basis of Gross amount of currency exchanged [Clause (b) of Rule 32(2)1
the option of the supplier of services, the value in relation
As per Rule 32(2)6) of CGST Rules, 2017,
at
following:
to the supply of foreign currency, including money
changing, shall be deemed to be the
 VALUE OF SUPPLY
Para 9.7 9.16
If gross amount of Value of Supply
currency exchanged is

(1) up to 1,00,000 16 of gross amount of currency (GAC) exchanged

OR
7 250
Whichever is Higher
(i) Exceeding 7 1,00,000 R1,000
but up to R 10,00,0000 Plus
for an amount in excess of
0.56 of gross amount of currency exchanged
T 1,00,000
exchanged for an amount
(iti) Exceeding 7 10,00,000 7 5,500 plus 0.1% of gross amount of currency
in excess of F 10,00,000

OR
60,000
Whichever is Lower

Example9.22 [Compounding Scheme for Money Changer] New Delhi. The Company Provides
Transcorp International Limited (TIL) is located at Barakhamba Road,
services in relation to money changing. The company sold US $ 20,000 at the rate of R 65 per US$. The RBI
reference rate for that day for US$ is 7 64.50. TIL has opted for compounding scheme as per Rule 32(2)(b).
The value of Supply shall be calculated as follows:
Amount

No. of units exchanged US S 20,000

(a)
(b) RBI reference rate 64.50

Actual rate of exchange () 6500

(c)
Gross amount of currency exchanged (GAC)
GAC 20,000 x 7 65=7 13,00,000

Value of Supply Amount

1. Up to 7 10,00,000 5,500

2. GAC in excess of 7 10,00,000 [ie. (13,00,000-10,00,000) x 0.1%] 300

Value of taxable supply 5,800

9.7.2 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 [Rule 32(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 amount calculated at the rate of 5% of the basic fare in
the case of domestic bookings, and at the rate of 10% of the basic fare in the case of international
bookings of passage for travel by air. For this purposes, 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. The re

may be summarized in the

form of following table.
1. In the case of domestic bookings (by air) 5% of the basic fare
10% of the basic fare
2. In the case of international bookings (by air)
 DETERMINATION OF VALUE IN RESPECT OF CERTAIN SUPPLIES Para 9.7
9.17

Example9.23 (Air Travel Agent)

Mr. Vinod is an air travel agent. Forthe month of March 2018, he has collected 60,00,000 (Basic Fare for|
and R (Basic Fare for International Booking). The value of supply shall be
Domestic Booking) 90,00,000
12,00,000 (ie.aggregate of 59% of 60,00,000 and 109% of 7 90,00,000).
9.7.3 The value of supply of services in relation to life insurance business shall [Rule
32(4)]
The insurance company charges premium from the policy holder. This premium may be towards the
risk premium, allocation for investment or for saving on behalf of the policy holder. When the entire
premium paid by the policy holder is towards the risk cover in life insurance, then this rule is NOT
APPLICABLE. Because in that case the amount of premium charged reflects the value of supply.
ixample 9.24 (When Rule 32(4)is not applicable)
A life insurance company has collected Risk Premiums aggregated to 7 230 lakhs and the entire premium
is for risk cover only. In this case the value of supply of service is 230 lakhs and there is no need to apply
anyspecific rule.

When premium paid is not for the risk cover exclusively

In this case, the value of supply of service by insurance company has to be calculated as per Rule
32(4). As per this rule, the value of supply of services in relation to life insurance business shall be
calculated as follows:

(a) Where the amount allocated for investment, or The gross premium charged from a policy holder|
savings on behalf of the policy holder is intimated reduced by the amount allocated for investment,
to the policy holder at the time of supply of service or savings on behalf of the policy holder
(6) In case of single premium annuity policies other 10% of single premium charged from the policy
holder
than(a),
(c) 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.

[Refer Illustration 9.10

9.7.4 The value of taxable supply provided by a person dealing in buying and selling
of second hand goods
Statutory Provisions
Rule 32(5)
Where a taxable supply is provided by a person dealing in buying and selling of second hand goods
Le, 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.
Proviso to Rule 32(5)
The purchase value of goods repossessed froma defaulting borrower, who is not registered, for the
purpose of recovery of a loan or debt shall be deemed to be the purchase price of such goods by ihe
defaulting borrower reduced by five percentage points for every quarter or part thereof, between Ihe
daie of purchase and the date of disposal by the person making such repossession.
Para 9.7 VALUE OF SUPPLY
9.18
Analysis of Rule 32(5)
should not be taxed again who
ne purpose of rule 32(5) is to avoid double taxation as the goods hen
they re-enter in the supply chain as second hand goods. The reason being the GSTmust have already
been paid, at the time of original sale. This rule basically covers the following 15Stues
1. Buying and Selling of second hand goods: In respect of second hand goods, the value of Sup
ply shall be the difference between the selling price and the purchase price (1.c. the margin).
If the selling price is less than the purchase price, the value of taxable Supply is zero.

VALUE OF SUPPLY (VOS)

Selling Price> Purchase Price Selling Price s Purchase Price

VOS Selling Price Purchase Price VOS = Nil

Conditions for applicability of this Rule

The rule 32(5) is applicable if the following conditions are satisfied:
(1) The taxable Supply is provided by a person who deals in buving and selling of second
hand goods. The Goods may be sold after minor processing which does not change the
nature of goods.
(2) The Input tax Credit has not been availed on the Purchase of such goods.

Example 9.25
Carnation Limited deals in buying and selling second hand goods. It has
purchased a second hand
washing machine for 7,000. After some minor repairs and changes, the same was sold at 7 11,200.
No ITC has been availed the
of CGST Rules, 2017.
on
purchase of such goods. Find out value of Supply as per Rule 32(5)|

Solution
As per Rule 32(5), the value of
Supply is the difference between the selling price and the
price. Therefore, the value of Supply shall be as follows: purchase
Value of Supply= F 1 1,200-7 7,000 =
7 4,200
2. Goods Repossessed from defaulting Borrower
Sometimes, the goods are repossessed from the borrower due to
default made by him in
repayment of loan or debt. The proviso to Rule 32(5) provides
following conditions:
(a) The goods are repossessed from a defaulting borrowe.
(b) Such defaulting borrow is not registered under GST.
(c) Goods are
repossessed for the purpose of recovery of loan or debt.
If all the above three conditions are satisfied, then the value
of such
on the basis of
purchase value of goods as reduced by percentage points Supply shall be calculated
which is as follows: based on time period
9.19 DETERMINATION OF VALUE IN RESPECT OF CERTAIN SUPPLIES Para 9.7

Amount
Purchase Price (by defaulting Borrower) XXX
Less: 5% points for every quarter (or part thereof) between the date of purchase and the XXX
date of disposal by the person making such
repossession.
Purchase price for Value of
Supply XXX
If the defauting borrower is registered, the repossesing lender agency will discharge GST
at the supply value without any reduction from actual/notional purchase value.

Example 9.26
Consider the following information:

Original Purchase Price (On 27th September, 2017) T 2,00,000

Date of Repossession 11thJanuary, 2018
Date of disposal after Repossession 8th April, 2018
Scling Price T 2,80,000
Find out the value of Taxable supply.

Solution:
Determination of number of Quarters for reduction percentage As per section 2(92) of the CGST|
Year 2017 2quarters (from purchase) Act, 2017, 'Quarter"shall meana
period comprising three consec
Year 2018 2quarters (up to disposal) utive calendar months, ending
Total 4 quarters on the last day of March, June,
September and December of a
Amount deductible for 4 Quarters =20% of Purchase price. calendar year.

Determination of Value of Taxable Supply

2,80,000
Selling Price
Less: Original Purchase Price 2,00,000
()20% normal wear &tcardeduction. (5%per quarterfor 4Quarters) (40,000)(1,60,000)
Value of Supply 1,20,000

9.7.5 The value of a token, or a voucher, or a coupon, or a stamp (other than postage
stamp) [Rule 32(6)1
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.

Example 9.27 [Based on Rule

32(6)]
Mr. and Mrs. Sharma purchased 20 gift vouchers of R250 each from "Maya Toys" and gives them as return
gifts to children for their daughter's birthday party. Now, in this case the value of supply would be the money
value of goods redeemable against the voucher. Thus,thevalue will be R5,000 (i.e. 20 vouchers @7 250 each)
When Vouchers are issued at discount:
ometimes, the vouchers are issued at discount. It means the money value of goods or services
redeemable against the vouchers is more than the price at which they have been issued for.
 Para 9.8 VALUE OF SUPPLY
9.20
Example 9.28
Mr. A purchases a voucher of 10,000 from Big Bazar at a discount of 8% ie. at 9,200. The voucher s
redeemable against purchase of any article up to 7 10,000 from Big Bazar outlet at V3S Mal, Laxmí Nagar,|
Delhi. Now, since the money value of goods against the voucher is 10,000, the value or taxable Supply
shall be 10,000 as per Rule 32(6).

9.7.6 The value of taxable services provided by such class of service providers as may
be notified by the Government [Rule 32(7)1
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
Tof the CGST Act between distinct persons (as referrcd to in section 25), where input tax creditis
available, shall be deemed to be NIL.

9.8 VALUE OF SUPPLY OF SERVICES IN CASE OF PURE AGENT [RULE 331

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
) Acts as Pure Agent: 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. For example: When
a CA pays tax or other
payments to the government, such payments are made on behalf of
his client. In other words, CA is acting as pure
agent of his client.
(ii) Amount separately indicated in invoice: 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. For
example: In the example of C.A. given in hirst point, suppose
the amount to be charged
comprises 4,00,000 as consultancy and 7 1,20,000 towards taxes
paid on behalf of client. Now, in order to avail the benefit of this rule, the
and taxes paid should be consultancy charges
separately shown in the invoice issued by the C.A.
(ii) Services supplied on his own are in addition to Pure
Agent Service: The supplies
the pure agent from the third
party as a pure agent of the recipient of supply areprocuredby
in addition
to the services he
supplies on his own account.
Meaning of Pure Agent" [As per Explanation to Rule
For the purposes of this rule, the 33]
expression "pure agent" means a person who
(a) enters into a contractual agreement with the recipient of
penditure or costs in the course of supply to act as his pure agent to incur ex-
supply of goods or services or
both;
(b) neither intends to hold nor holds any title to the goods or services or both
pure agent of the recipient of supply; so
procured or supplied as
(c) does not use for his own interest such goods or services so
procured; and
(d) receives only the actual amount incurred to
received for procure such goods or services in addition
supply
he provides on his own account. to the amount

Example 9.29 [As given in CGST Rules, 2017]

Corporate services firm A is engaged to handle the legal work
B. Other than its service fees, A also pertaining to the incorporation of Company
recovers ftrom B,
the company paid to the Registrar of registration tee and approval fee for the name o
Companies.
The fees charged by the Registrar of Companies for the
registration
and approval of the name are
compulsorily levied on B. A is
the pavment of those fees. merely acting as a pure agent
Therefore, A's recovery of such expenses is a disbursement and not part of the value of
supply made by A to B.
 VALUE OF SUPPLY INCLUSIVE OF INTEGRATED TAX Para 9.10
9.21

Example 9.30
Mr. X owns a vintage car "Rolls Royce, 1942 Model" purchased by his grandfather. He approaches a vintage
eardealer to sell the same in lieu of commission 5% of sale price realised. In addition, adverisement
expenses incurred by dealer will be chargeable in invoice. The dealer raised the following bill.

Commission on Sales (R 1.8 crores @ 59%) 9,00,000

Add Advertisement expenses
Domestic 29,000
International 91,000
Total Amount 10,20,000
Mr.X contends to apply GST rate
CGSTRules, 2017.
on 7 9,00,000 only. Comment in the light of parameters of Rule 35 ot
Solution:
As per rule 33, the payments made by the pure agent on behalf of the recipient of Supply shall be excluded
from the Value of Supply, subject to specific conditions. In the given case, the advertisement expenses
GSTis
paid by the dealer are part of service and are not in addition to the services he supplies. Therefore,
chargeable on total amount of bill including advertisement expenses as dealer did not pay it as a pure agent.
Hence, value of Supply is 10,20,000 at which GST is payable.

9.9 RATE OF EXCHANGE OF CURRENCY, OTHER THAN INDIAN RUPEES, FOR DETER-
MINATION OF VALUE IRULE 34]
receivable in
When the consideration, in lieu of Supply of goods or services or both, is received or
to be applied. The
foreign Currency, then a question arises about the rate of exchange of currency
rule 34 provides the answer to this question. The following are the provisions in this regard:

(1) In of Supply of Goods:

case

The rate of exchange for determination of value of taxable goods shall be the applicable rate
date of
of exchange (as notified by the Board under section 14 of the Customs Act) for the
time of Supply of such goods.
(2) In case of Supply of services:

The rate of exchange for determination of value of taxable services shall be the applicable
rate of exchange determined as per the generally accepted accounting principles (GAAP)
for the date of time of Supply of such services. It means the exchange rate adopted for the

purpose of accounting can be followed for the purpose of GST in case of supply of services.

9.10VALUE OF SUPPLY INCLUSIVE OF INTEGRATED TAX, CENTRALTAX, STATE TAX,

AND UNION TERRITORY TAX [RULE 35]
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,-

GST Rate in %
Tax amount =
Value inclusive ot Gdl ^
100 +GST rate in 6)
(Value inclusive of taxes X tax rate in % of 1GST or, as the case may be, CGST, SGST or UTGST) +

(l00+ sum of tax rates, as applicable, in 6)

 Para 9.11 VALUE OF SUPPLY
9.22
Example 9.31 [Based on Rule 35
from "Suresh Enterprises". The servi
Suppose "KMB Consultancy Services" have charged 7 2,78,716 ice is
Tax has not been shown separately, Th
chargeable to GST@ 18%. The amount is inclusive of GST and Then,
as per rule 35, the tax will be calculated as follows:

GST Rate in % = 2,78,716 X 8 =7 42,516

Tax amount =
Value inclusive of GSTX (J00 +GST rate in 6) (100 +18) 42,516
Example 9.32
Flex Ltd. provides services pertaining to retail packing of goods. The Service includes waxing, retail packing
labelling, etc. On 28th May, 2018, the Company entered into an agreement with Hindustan Lever Limited
(HLL) at total price of 7 8,00,000 (plus GST @ 18%) in respect of a particular consignment. The work will
be completed within 2 months. HLL has paid 7 2,00,000 as an advance payment on the date of agreement
itselt. Find out the amount of GST included in such advance, in the light of provisions of Rule 35 of the

CGST Rules, 2017.

Solution
Total amount of Advance =2,00,000
Rate of GST = 18%

Value of Taxable Supply =7 2,00,000 =71,69,492

Computation of GST Payable (included in advance):
CGST = 99% of 1,69,492 = T 15,254

SGST = 9% of 7 1,69,492 =R 15,254

9.11 TREATMENT OF SALES PROMOTION SCHEMES UNDER GST

[Circular No. 92/11/2019 GST dated 07.03.2019]
This Circular is related with the taxability of various sales promotion schemes offered by the taxable
persons to increase sales volume and to attract new customers for their products.
(1) Free samples and gifts:
Concept: It is a common practice among certain sections of trade and industry, such
as, pharmaceutical companies which often provide drug samples to their stockists,
dealers, medical practitioners, etc. without charging any consideration.
Not regarded as supply: The goods or services or both which are supplied free of cost
(without any consideration) shall not be treated as 'supply' under GST (except in case
of activities mentioned in Schedule I of the said Act). Accordingly, it is clarified by the
Circular that samples which are supplied free of cost, without any consideration, do
not qualify as 'supply' under GST, except where the activity falls within the ambit o
Schedulel of the said Act.
No ITC: The section 17(5%h) of CGST Act provides that ITC shall not be
available
respect of goods lost, stolen, destroyed, written off or disposed of by way of gift or free
samples. Thus, the Circular clarifies that input tax credit shall not be available to the
supplier on the inputs, input services and capital goods to the extent they are used
relation to the gitts or free samples distributed without any consideration.
However, where the activity of distribution of gifts or free samples falls within the scope
supply' on account of the provisions contained in Schedule I of the said Act, the supplc
would be eligible to avail of the ITC.
 TREATMENT OF SALES PROMOTION SCHEMES UNDER GST Para 9.11
9.23

get one free offer:

(2) Buy one

Concept: Sometimes, companies announce offers like 'Buy One, Get One free'. For
example, "buy one soap and get one soap free" or "Get one tooth brush free along with
the purchase of tooth paste".
I t is not Supply without consideration: It may appear at first glance that these ofters
are
supply without any consideration. But, in fact, it is not an individual supply of
free
goods but a case of two or more individual supplies where a single price is being charged
tor the entire supply. It can at best be treated as supplying two goods for the price of
One.

Taxability as per Section 8: Taxability of such supply will be dependent upon as t

whether the supply is a composite supply or a mixed supply and the rate of tax shall
be determined as per the provisions of section 8 of the said Act.
ITC is available: It is also clarified that ITC shall be available to the supplier for the
inputs, input services and capital goods used in relation to supply of goods or services
or both as part of such offers.
(3) Discounts including 'Buy more, save more' offers:
I t may be of two types namely staggered discount or Volume Discount.
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 above7 5,000, 20% discount for
purchases above? 10,000 and 30% discount for purchases above 7 20,000.
Invoice: Such discounts are shown on the invoice itself.
Deductible under section 15(3): Such discounts are excluded to determine the value
of supply as provided in section 15(3).
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.
Modus operandi: Such 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. Such discounts are passed on by the supplier through eredit notes.
Deductible under section 15(3): 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.
ITC admissible: The Circular also clarifies that the supplier shall be entitled to avail
the ITC for such inputs, input services and capital goods used in relation to the
supply
of goods or services or both on such discounts.
4) Secondary Discounts
Concept: These are the discounts which are not known at the time of supply or are
offered after the supply is already over.