65

CHAPTER

Value of Supply
4.1 Introduction
As GST is levied as a percentage of the value of supply, whether of goods or of services, it becomes important to know
how to arrive at the value on which GST is to be paid.

Section 15 of the CGST Act provides common provisions for determining the value of goods and services. It 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 of the supply. When value cannot be determined under section 15, the same is
determined using Chapter IV of CGST Rules, 2017: Determination of Value of Supply (Rule No. 27 to 35).

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

4.2 Relevant Definitions

[Section 2(31)] : 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, 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 the deposit as consideration for the said supply.

[Section 2(73)] : 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(75)] : 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.

4.3 Value of Supply [Section 15]

Statutory Provisions
Sec. 15 Value of taxable supply
Sub-sec. Particulars
66 Indirect Taxation - Goods and Services Tax (GST) Authored by CA. Yashvant Mangal

(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;
(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.
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 per cent 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 they are members of the same family;
(b) the term “person” also includes legal persons;
 Value of Supply 67

(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

Relevant Provisions - Chapter IV of CGST Rules, 2017

Rules Particulars
Rule 27 Value of supply of goods or services where the consideration is not wholly in money
Rule 28 Value of supply of goods or services or both between distinct or related person, other than
through an agent
Rule 29 Value of supply of goods made or received through an agent
Rule 30 Value of supply of goods or services or both based on cost
Rule 31 Residual method for determination of value of supply of goods or services or both
Rule 31A Value of supply in case of lottery, betting, gambling and horse racing
Rule 32 Determination of value in respect of certain supplies
Rule 32A Value of Supply in cases where Kerala Flood Cess is applicable
Rule 33 Value of supply of goods or services in case of pure agent
Rule 34 Rate of exchange of currency, other than Indian rupees, for determination of value
Rule 35 Value of supply inclusive of Integrated tax, Central tax, State tax, Union territory tax

ANALYTICAL VIEW OF THE TOPIC

1. The value of taxable supply of goods and services shall ordinarily be 'the transaction value' which is the price paid
or payable by the recipient to the supplier, 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.
Illustration 1 :

There are separate valuation provisions for CGST, SGST and IGST and for Goods and Services. Examine the correctness
of the statement.
Solution :

No, the said statement is not correct. Section 15 of CGST Act determines the value of supply of goods or services or both.
Further, section 15 is applicable for determining value of taxable supply under IGST as well vide section 20 of IGST Act.
Section 20 of IGST Act inter alia provides that the provisions of CGST Act relating to time and value of supply shall
mutatis mutandis apply in relation to integrated tax as they apply in relation to central tax. Thus, section 15 is common
for all three taxes and also common for goods and services.

2. Inclusions in transaction value [Section 15(2)] : Under assessment based on “transaction value”, the taxable value
includes certain elements in addition to price. The ingredients of “taxable value” based on transaction value are
enumerated and discussed below:
(a) Taxes other than GST, if charged separately by the supplier [Section 15(2)(a)] : GST and GST cess are not
part of taxable value, but other taxes/cesses/fees etc. will form part of the value of taxable supply.
Examples :
(1) If a supplier of goods pays a municipal tax in relation to the goods being supplied and charge the same in
the bill separately, such tax will form part of the value of taxable supply.
68 Indirect Taxation - Goods and Services Tax (GST) Authored by CA. Yashvant Mangal

(2) Central excise duty is leviable on manufactured tobacco along with GST, hence Central excise duty will
be included in transaction value for supply of tobacco for chargeability of GST.
(3) In the rent contract, the tenant is required to pay municipal taxes either directly to the local body or to the
owner of the premises. Such municipal taxes will form part of transaction value for the supply of renting
service.
(4) Power to levy entertainment tax is still available with local bodies. The tickets purchased in any
entertainment event will include the entertainment tax amount. However, as per the above provisions,
entertainment tax included in the ticket will also form part of transaction value.
(5) What is the correct valuation methodology for ascertainment of GST on Tax collected at source (TCS)
under the provisions of the Income Tax Act, 1961? [Circular No. 76/50/2018-GST, dated 31.12.2018]
1. Section 15(2) of CGST Act specifies that the value of supply shall include “any taxes, duties cesses,
fees and charges levied under any law for the time being in force other than this Act, the SGST Act,
the UTGST Act and the GST (Compensation to States) Act, if charged separately by the supplier.”
2. It is clarified that as per the above provisions, taxable value for the purposes of GST shall not include
the TCS amount collected under the provisions of the Income Tax Act since it is not a levy of tax on
supply of such goods. It is an interim levy not having the character of tax.
(b) 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 value 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
taxable supply.
Examples : XYZ has placed order for supply of certain goods to PQR. As per the contract, PQR is required to
deliver the goods to the premises of XYZ. PQR hires a transporter for transportation of the goods. However,
the lorry receipt indicates that the freight is payable by XYZ. In this case, PQR was the required to make the
payment to the transporter as it was the obligation of PQR to deliver the goods to the premises of XYZ. As
against PQR making the payment to the transporter, the payment will form part of transaction value of the
goods supplied.
Thus, in a contract, the obligation undertaken by the supplier for supplying goods needs to be determined. All
the expenses in respect of such obligation must be incurred by the supplier. In case any amount has been
incurred by the recipient of supply in connection with the supply, the same will be included in the transaction
value.
(c) 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 the delivery of
goods or supply of services must be added to value.
Examples :
(1) 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.
(2) Packing: if charged by the supplier to the recipient, is similarly part of the value of the supply.
(3) Product Designing charges are another element that may be added to the value, if billed to the recipient
of supply.
(4) 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.
 Value of Supply 69

(5) Freight: A has purchased certain goods from B. As per the terms of contract, B is required to deliver the
goods to the premises of A. For delivery of the goods, B hires the services of a transporter, who charges
Rs. 10,000/- as freight. B has recovered this amount of freight from A by charging the amount of freight
separately in the invoice. This amount of Rs. 10,000/- will be included in the value of the supply of goods
[Sec. 15(2)(c)].
Further, in the same case, if the lorry receipt issued by the transporter indicates that the freight is payable by A
on delivery of the goods, then also, the amount of freight will be included in the value of the supply of goods.
Because, as per the terms of contract, it is the obligation of B to deliver the goods to the premises of A [Sec.
15(2)(b)].
Thus, to determine whether any particular amount will be included in the value of supply or not, the
obligation undertaken by the supplier for supplying the goods needs to be determined. All the expenses in
respect of such obligation will be included in the value of supply even if such expenses are directly paid by the
recipient.
Illustration 2 :
Mrs. X went to Fashion boutique for facial purpose. The details of the charges paid to the boutique were as
follows:

Particulars Rs.
Value of Service 700
Cost of Cream consumed during facial 300
Other cost allocated 200
Total 1,200
Pay GST @ 18% on Rs. 1,200/- (not only on Rs. 700/-) 216
Grand Total 1,416

Although, value of the service is written as Rs. 700 on the invoice, but for the purpose of charging GST, the
value of service shall be Rs. 1,200 because as per Section 15(2)(c), the value of service includes all expenditures
or costs incurred by the service provider in the course of providing taxable service. (It is not income tax which
is levied on the income/profit; it is service tax which is charged on the entire value of the service provided.)
Note : The value of any taxable service is the total amount of consideration consisting of all components of the
taxable service and it is immaterial that the details of individual components of the total consideration is
indicated separately in the invoice.
(d) Interest, late fee and penalty for delayed payment [Section 15(2)(d)] : The value for a taxable supply will
include not only the base price but also the charges for delay in payment.
Note : In this case, a Debit Note (supplementary invoice) will be required to be issued by the supplier to
recipient in respect of additional consideration in the form of such interest, etc. plus applicable GST.
Illustration 3 :
A supply priced at Rs. 10,000 is made, with a credit period of 1 month for payment. Thereafter interest of @ 1%
P.M. is charged. The payment is received after the lapse of 3 months from the date of supply. The amount of
interest @ 1% P.M. for 2 months on Rs. 10,000 for 2 month after the free credit period is Rs. 200. Such interest
will be added to the value and thus, the value of taxable supply will work out to be Rs. 10,200.
(e) Subsidies [Section 15(2)(e)] : Subsidy is a sum of money given to keep the price of a service or commodity
low. If the subsidy is given by the State or Central Government; the lower price, after adjusting the subsidy, is
the taxable value. If the subsidy is given by a person or entity other than the State or Central Government,
then it will be added back to the value of supply of the supplier who receives the subsidy.
Illustration 4 :
 70 Indirect Taxation - Goods and Services Tax (GST) Authored by CA. Yashvant Mangal

The selling price of a notebook is Rs. 50. For notebooks sold to students in Government schools, a company
uses its CSR funds to pay the seller Rs. 30, so that the students pay only Rs. 20 per notebook. The taxable value
of the notebook will be Rs. 50, as this is a non-government subsidy. If the same subsidy is paid by the Central
Government or State Government, the taxable value of the notebook would be Rs. 20.
3. Exclusion of discounts from transaction value [Section 15(3)] : The principle here is that price as established at the
time of supply forms the basis of taxable value. Discounts that are allowed 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,
recorded in the invoice and thus, GST is charged on the gross value less discount recorded in the invoice.
(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:
 Discount is in terms of an agreement that existed at the time of supply and can be worked out invoice-
wise; and
 Proportionate input tax credit is reversed by the recipient - The buyer would have availed input tax
credit (ITC) of GST payable on the gross value specified in the invoice. Thus, when a credit note 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 the 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 for the value of discount. In such a scenario, the buyer
will not be required to reverse any input tax credit.

Illustration 5 : Discount Deductible from Value of Supply

 Value of Supply 71

Royal Biscuit Co. gives a discount of 30% on the list price to its distributors. Thus, for a carton of Spicebisk, in the
invoice the list price is mentioned as Rs. 200, on which a discount of 30% is given to arrive at the final price of Rs. 140.
The taxable value is Rs. 140, as the discount is allowed at the time of supply and shown in the invoice.
Illustration 6 : Discount Deductible from Value of Supply
The agreement of Raju Electrical Appliances with its dealers is that sale of rice cookers over 100 pieces in the Deepawali
month will entitle them to discount of 5% per cooker sold in the next month. The next month's stock has already been
dispatched when the sales figures for the Deepawali month are worked out. However, as the agreement was in
existence at the time of supply, and the discount can be worked out for each invoice, the taxable value will be billed
price minus 5%. The dealer must reverse the proportionate input tax credit on the relevant stock to bring it in line with
the reduced tax.
Illustration 7 :
Whether post-supply discounts or incentives are allowed as admissible deduction under section 15 of the CGST Act? If
yes, what are the necessary conditions to be complied with for availing such deduction?
Solution :
Yes, post-supply discounts or incentives are allowed as admissible deduction under section 15 of the CGST Act. Where
the post-supply discount is established as per the agreement which is known at or before the time of supply and where
such discount specifically linked to the relevant invoice and the recipient has reversed input tax credit attributable to
such discount, the discount is allowed as admissible deduction under Section 15(3)(b) of the CGST Act.
Illustration 8 : Non-Deductible Discount
A company announces turnover discounts after reviewing dealer performance during the year. The discounts are based
on performance slabs, which are not disclosed at the time of supply 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 taxable value of those goods.
INCLUSIONS & EXCLUSIONS FROM THE VALUE OF SUPPLY

Inclusion in Value of Supply [Section 15(2)] Exclusion from Value of Supply [Section 15(3)]
(i) Any taxes, duties, cesses, fees & charges levied under (i) Discount given before or at the time of supply
any law other than GST law if charged separately by through invoice.
the supplier
(ii) Any Amount (ii) Discount given after the supply through credit
 Liable to Pay – Supplier note but
 Incurred By - Recipient and  Such discount is established in terms of an
agreement entered into at or before the
 Not included in the price actually paid or payable
for the supply time of such supply and specifically
linked to relevant invoices
(iii) Incidental expenses i.e. Packing & Commission etc.
(iv) Interest, Late Fee or Penalty for delayed payment.
(v) Subsidies directly linked to the price, provided by any
person other than State or Central Government

S. N. Item Add/Less
1. Consultancy Charges in relation to installation Add
2. Design, drawing and engineering charges Add
3. Testing Charges Add
4. Freight (from sellers premise to buyers premise) Add
5. Insurance Charges Add
6. Interest/penalty charged by seller for delayed payment Add
7. Interest/penalty charged by seller for delayed payment but waived later on Do not add
 72 Indirect Taxation - Goods and Services Tax (GST) Authored by CA. Yashvant Mangal

8. Inspection Charges Add

9. Loading and weighment charges Add
10. Primary Packing charges Add
11. Protective Packing charges Add
12. Subsidy (directly in relation to price) from Central government or State government Do not add
13. Subsidy (directly in relation to price) from any other person Add
14. Taxes charged separately by the supplier (other than CGST/SGST/UTGST/IGST) Add
15. Discount allowed at the time of supply Less

Illustration 9 : A manufacturer of machinery supplied a special machine to LM Furnishers. Following details are
provided in relation to amounts charged:

S.N. Particulars Amount (Rs.)

(i) Price of machinery excluding taxes (before cash discount) 6,00,000
(ii) Transit insurance 11,000
(iii) Packing charges 9,000
(iv) Extra charges for designing the machine 20,000
(v) Freight 12,000

Charges mentioned in (ii) to (v) are not included in (i) above. Other information furnished is
(a) Cash discount @ 2% on price of machinery has been allowed to the customer at the time of supply and also
recorded in invoice.
(b) GST rate – 18%.
Calculate value of supply of the special machine.
Solution : Computation of Value of Special Machine

Particulars Amount in Rs.

Price of machinery 6,00,000
Add: Transit insurance [Note 1] 11,000
Packing charges [Note 2] 9,000
Extra design charges [Note 3] 20,000
Freight [Note 1] 12,000
Total 6,52,000
Less: 2% cash discount on price of machinery [Rs. 6,00,000 x 2%] [Note 4] 12,000
Value of Taxable Supply 6,40,000

Notes :
(1) The given supply is a composite supply involving supply of goods (special machine) and services (transit insurance
and freight) where the principal supply is the supply of goods.
As per section 8(a) of the CGST Act, 2017, 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 (special machine) has been
considered.
(2) All incidental expenses including packing charged by the supplier to the recipient of a supply are includible in the
value of supply in terms of section 15(2)(c) of CGST Act, 2017.
 Value of Supply 73

(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) of CGST Act, 2017. Thus, extra
designing charges are to be included in the value of supply.
(4) Cash discount was given at the time of supply and also recorded in invoice, so the same is not to be included while
computing value of supply in terms of section 15(3)(a) of CGST Act, 2017.

Illustration 10 :
Mr. Mangal, a Job worker of Marble work, provides services to Soni Marbles for a consideration of Rs. 8,00,000. Mr.
Mangal owed Rs. 50,000 to one of its vendors in relation to the Job work service provided by it to Soni Marbles. Such
liability of Mr. Mangal was discharged by Soni Marbles. Soni Marbles delayed the payment of consideration and thus,
paid Rs. 45,000 as interest.
Determine the value of taxable supply made by Mr. Mangal. (Assuming all figures are exclusive of taxes)
Solution : Computation of Value of Taxable Supply

Particulars Amount (Rs.)

Service charges 8,00,000
Payment made by Soni Marbles to vendor of Mr. Mangal [Liability of the supplier being discharged
by the recipient, is includible in the value in terms of section 15(2)(b)] 50,000
Interest for delay in payment of consideration [Includible in the value in terms of section 15(2)(d)] 45,000
Value of Taxable Supply 8,95,000

Illustration 11 : Mr. Solanki sold 1,500 unit of Markers to Mr. Gupta for Rs. 30,000 (exclusive of GST). Total units sold
during the year to Mr. Gupta including these units is 11,000 unit. Further, as per the terms of the agreement, Mr. Solanki
will pass a discount of 10% on all the supplies made to Mr. Gupta if he buys more than 10,000 units of Markers in a year.
Assuming Rate of GST is 18%. What will be the implication of this discount under GST?
Solution : In this case, discount is given after sales on the basis of fulfilment of condition related to quantity purchased
during the year. The discount will be given on the supply which has already been made. For giving this discount, Mr.
Solanki will issue a credit note with the amount of discount Rs. 22,000 and GST on such discount is Rs. 3,960. This credit
note will reduce the GST liability of Mr. Solanki by Rs. 3,960 in the month of issue of credit note, subject to the condition
that Mr. Gupta reduces his Input Tax Credit by Rs. 3,960 in the same month.
Illustration 12 : Maahi Ltd. of Bhopal (Madhya Pradesh) is a supplier of machinery. Maahi Ltd. has supplied
machinery to ABC Enterprises in Indore (Madhya Pradesh) on 1st October, 2017. The invoice for supply has been issued
on 1st October, 2017. Maahi Ltd. and ABC Enterprise are not related and price is the sole consideration for the supply.
Following information is provided:
Basic price of machinery excluding all taxes is Rs. 20,00,000. In addition to the basic price, Maahi Ltd. has collected the
design and engineering charges of Rs. 20,000 and loading charges of Rs. 10,000 for the machinery.
Maahi Ltd. provides 1 year mandatory warranty for the machinery on payment of additional charges of Rs. 1,00,000.
Maahi Ltd. has collected consultancy charges in relation to pre-installation planning of Rs. 10,000 and freight and
insurance charges from place of removal to buyer's premises of Rs. 20,000.
Maahi Ltd. received subsidy of Rs. 50,000 from Central Government for supplying the machinery to backward region
since receiver was located in a backward region. Maahi Ltd. also received Rs. 50,000 from the joint venture partner of
ABC Enterprises for making timely supply of machinery to the recipient.
A cash discount of 1% on the basic price of the machinery is offered at the time of supply, if ABC Enterprises agrees to
make the payment within 30 days of the receipt of the machinery at his premises. Discount @ 1% was given to ABC
Enterprises as it agreed to make the payment within 30 days.
The machinery attracts CGST and SGST @ 18% (9% + 9%) and IGST @18%.
Compute the CGST and SGST or IGST payable, as the case may be, on the machinery. [MTP – CA Final]
 74 Indirect Taxation - Goods and Services Tax (GST) Authored by CA. Yashvant Mangal

Solution : Computation of GST payable

Particulars Rs.
Basic Price of the machinery [Note 1] 20,00,000
Add: Design and engineering charges [Note 2] 20,000
Loading charges [Note 3] 10,000
Warranty cost [Note 4] 1,00,000
Consultancy charges in relation to pre-installation planning [Note 5] 10,000
Freight and insurance charges [Note 4] 20,000
Subsidy received from Central Government [Note 6] Nil
Receipts from Joint Venture of ABC Enterprises [Note 6] 50,000
Less: 1% discount on basic price = Rs. 20,00,000 x 1% [Note 7] (20,000)
Value of supply 21,90,000
CGST @ 9% [Note 8] 1,97,100
SGST @ 9% [Note 8] 1,97,100

Notes:
(1) In terms of section 15(1) of the CGST Act, 2017, the value of the supply is the transaction value i.e., price actually
paid or payable for the machinery by ABC Enterprises.
(2) Design and engineering charges are includible in the value of supply as 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 so includible in terms of
section 15(2)(c) of CGST Act, 2017.
(3) Further, loading charges being incidental expenses charged by the supplier to the recipient of supply, are includible
in the value as per section 15(2)(c) of the CGST Act, 2017.
(4) Supply of machinery (goods) with supply of ancillary services like warranty and freight and insurance is a
composite supply, the principle supply of which is the supply of machinery. [Section 2(30) of the CGST Act, 2017
read with section 2(90) of that Act]. Thus, value of such ancillary supply is includible in the value of composite
supply.
(5) 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) of CGST Act, 2017.
(6) Subsidies provided by the Central Government and State Governments are not includible in the value of supply in
terms of section 15(2)(e) of the CGST Act, 2017. However, subsidy directly linked to the price received from a non-
Government body is includible in the value in terms of section 15.
(7) Cash discount has been given to ABC Enterprises upfront at the time of supply and thus would have been recorded
in the invoice and hence, the same is excluded from the value of supply in terms of section 15(3)(a) of the CGST
Act, 2017.
(8) In the given case- the location of the supplier is in Bhopal (Madhya Pradesh); and the place of supply of machinery
is the location of the machinery at the time at which the movement of the same terminates for delivery to the
recipient i.e., Indore (Madhya Pradesh) vide section 10(1)(a) of IGST Act, 2017. Therefore, as per section 8(1) of
IGST Act, 2017, the given supply is an intra-State supply as the location of the supplier and the place of supply are
in the same State. Thus, the supply will be leviable to CGST and SGST.
Illustration 13 :

Vayu Ltd. provides you the following particulars relating to goods supplied by it to Agni Ltd.

Particulars Rs.
 Value of Supply 75

List price of the goods (Exclusive of Taxes and discounts) 76,000

Special packing at the request of customer to be charged to the customer 5,000
Duty levied by local authority on the sale of such goods 4,000
CGST and SGST charged in invoice 14,400
Subsidy received from a NGO (The price of 76,000 given above is after considering the subsidy) 5,000

Vayu Ltd. offers 3 % discount of 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. [CA Final, May 2018 - Old] (Marks 5)
Solution : Calculation of the Value of Taxable Supplies made by Vayu Ltd.

Particulars Rs.

List price of the goods (Exclusive of Taxes and discounts) 76,000

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

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

Subsidy received from a NGO [Subsidy directly linked to the price received from a non-government body
is includible in the value in terms of section 15(2)(e) of CGST Act, 2017] 5,000

Total 90,000

Less: Discount on list price @ 3% of Rs 76000 (2,280)

Value of taxable supply 87,720

4. Supplies where value cannot be determined u/s 15(1) and notified supplies [Sub-sections (4) and (5) of section
15] : Section 15(4) lays down that where sub-section (1) is not applicable, that is, 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, which means as stipulated in the rules for valuation. Further, 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.

5. Valuation Rules [Relevant Provisions- Chapter IV of CGST Rules, 2017 (Rule no. 27 to 35)] :
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.
RULE 27 : VALUE OF SUPPLY OF GOODS OR SERVICES WHERE THE CONSIDERATION IS NOT WHOLLY IN MONEY
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;
 76 Indirect Taxation - Goods and Services Tax (GST) Authored by CA. Yashvant Mangal

↓
(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 14 : 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.
Illustration 15 : 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.
Illustration 16 : Compute the taxable value of supply of goods in the following cases. (Assume GST rate is 18% and all
figures are exclusive of GST.)
(i) Balaji Mobiles sold iPhone to Ram Mobile for a consideration of Rs. 70,000 plus a camera (costing Rs. 30,000). What
will be the value if Balaji Mobile sells the same product to other customers for Rs. 1,10,000 ?
(ii) Kitchen King sold goods to Kirana Samrat for a consideration of Rs. 1,40,000 plus a product of Kirana Samrat worth
Rs. 60,000. The open market value of the goods sold by Kitchen King is not known.
(iii) Bansal Pvt. Ltd. imported a machine worth Rs. 5,00,000 from London, which is not available in India. It sold the
machine to a buyer against some non-monetary consideration whose value is unascertainable. Further, open
market value of such machine is also not available. But, importer supplies same type of identical machine for Rs.
5,50,000.
Solution :
(i) As per rule 27 of CGST Rules, 2017, 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.
Thus, value of supply = 1,10,000.
(ii) As per rule 27 of CGST Rules, 2017, Where the supply of goods or services is for a consideration not wholly in
money and if the open market value is not available, then, the value of supply shall be the sum total of
consideration in money and any such further amount as is equivalent to the consideration not in money, if such
amount is known at the time of supply.
Thus, the value of supply = 1,40,000 + 60,000 = 2,00,000.
(iii) As per rule 27 of CGST Rules, 2017, if the value of supply can not be determined by clause (a) or (b), the value of
supply shall be the value of supply of goods or services or both of like kind or quality. Thus, in this case, value of
supply shall be Rs. 5,50,000.
Illustration 17 :
Mr. Laxman buy a mobile having open market value of Rs. 30,000 from registered dealer, in exchange of his old mobile
phone. The registered dealer agreed to accept Rs. 26,000 instead of his quote of Rs. 29,000, Open market value of old
mobile is Rs. 5,000. Determine GST implications of such transaction.
Solution :
As per Rule 27 of CGST Rules, 2017, where the supply of goods is for a consideration not wholly in money, the value of
the supply shall be the open market value of such supply. Therefore, Rs. 30,000 would be the value of the supply.
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-
 Value of Supply 77

(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:

↓ OR (option of the supplier)

Provided that where the goods are intended for further supply as such by the recipient, the value shall, at the option
of the supplier, be an amount equivalent to 90% of the price charged for the supply of goods of like kind and quality
by the recipient to his customer not being a related person:

Provided further that where the recipient is eligible for full input tax credit, the value declared in the invoice shall be
deemed to be the open market value of the goods or services.

Illustration 18 : Mr. Raj located in Delhi buys Machine for Rs. 5,00,000 from Rani Ltd. located in Mumbai. Mr. Raj's
daughter Ms. Rajrani is an employee in Rani Ltd. The open market Price of such Machine is Rs. 5,50,000. Rani Ltd.
Charge additionally Rs. 15,000 for delivering the Machine to the place of business of Mr. Raj.
Solution : Mr. Raj and Rani Ltd. would not be treated as related persons merely because the daughter of Mr. Raj is an
employee of the supplier. Therefore, in this case, Actual transaction value (i.e. Rs. 5,00,000) plus delivery charges (i.e. Rs.
15,000) shall be the value of the machine i.e. Rs. 5,15,000/-.
Illustration 19 : PQR manufacturers is the only Indian company making and selling product - P to buyers using this as
a raw material. However, the international prices of product - P dropped, and the buyers began to import it rather than
buying it from PQR manufacturers. Having regard to market scenario, the owners of the firm formed another firm ABC
manufacturers, which had a manufacturing unit requiring product - P as raw material. ABC manufacturers has common
management. PQR manufacturers began to supply product - P to this related concern ABC manufacturers at low
margins. ABC manufacturers was not eligible for full ITC of GST paid on the price charged by PQR manufacturers. Was
the value adopted by PQR manufacturers for product - P to its related concern, correct?
Solution : The actual transaction value adopted by PQR manufacturers is not correct as per section 15(1) of the CGST
Act, 2017, because, PQR manufacturers and ABC manufacturers are related persons in terms of explanation to Section 15
of the CGST Act, 2017. Further, as per second proviso to Rule 28 of the CGST Rules, 2017, actual transaction value can
not be deemed to be the open market value of the goods, because, buyer is not eligible for full ITC of GST paid on these
purchases.
Therefore, value of such supply will have to be determined using provisions of Rule 28 of the CGST Rules, 2017. As per
Rule 28(a) of the CGST Rules, the open market value of product - P shall be the value of the taxable supply of product -
P to the related concern.

In this particular case, the open market value is likely to be the purchase price of imported product - P plus customs
duties, which should be adopted for valuation after excluding the component of IGST on import as per the definition of
open market value in explanation (a) to the CGST Rules relating to valuation.

Illustration 20 : What would be your answer in the above illustration, if the buyer i.e. ABC manufacturers (related
concern) is eligible to avail Full ITC of GST paid on purchase of product - P.
Solution :
 78 Indirect Taxation - Goods and Services Tax (GST) Authored by CA. Yashvant Mangal

In such case, invoice value (i.e. actual transaction value) itself would be accepted as assessable value. Because as per
second proviso to Rule 28 of the CGST Rules, 2017, actual transaction value shall be deemed to be the open market value
of these goods, as buyer (i.e. related concern) is eligible for Full ITC of GST paid on purchase of product - P.

Illustration 21 : If inter-state branch transfer of the goods without any consideration, then, can purchase value be taken
for the purposes of charging GST ?
Solution : As per Rule 28(a) of the CGST Rules, 2017, the purchase value can be taken as taxable value, being the open
market value in terms of Rule 28(a) of the CGST Rules 2017. (However, if the branch office is eligible to take full input
tax credit, any value may be declared in the tax invoice and that will be taken to be the open market value in terms of
the second proviso to the same rule.)
Illustration 22 : Mr. Sunil is the owner of M/s ABC & Co., Job worker of cloth. Mr. Sunil also holds 30% voting power
in XYZ Ltd. XYZ Ltd. is engaged in fabrication of Cloth. A factory contracts ABC & Co. for fabrication of Cloth, for a fee
of Rs. 12,00,000. ABC & Co. sub-contracts the work to XYZ Ltd. for Rs. 8,00,000, and ensures supervision of the work
performed by them. Generally, XYZ Ltd. charges a fixed sum of Rs. 2,200 per man hour to its clients; it spends 450 hours
on this project. Determine value of supply. ABC & Co. is not eligible for any Input Tax Credit.
Solution : Since, ABC & Co. and XYZ Ltd. are controlled by Mr. Sunil, the two businesses will be treated as related
persons. Therefore, Rs. 8,00,000, being the sub-contract price will not be accepted as assessable value and it shall be
determined using Rule 28. As per Rule 28, the value of the sub-contract would be the open market value, being Rs.
9,90,000 (i.e., Rs. 2,200 per hour x 450 hours). Therefore, in this case, the open market value i.e. Rs. 9,90,000 shall be the
value of supply.
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-

(a) (i) be the open market value of goods being supplied;

↓ OR (option of the supplier)

(ii) 90% of the price charged for the supply of goods of like kind and quality by the recipient to his customer
not being a related person, where the goods are intended for further supply by the said recipient.

↓ If not

(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.

Illustration 23 : 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 same groundnuts 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 per cent of five thousand rupees i.e., four
thousand five hundred rupees per quintal.
Illustration 24 : Unique Engineers Pvt. Ltd., Udaipur manufacturer of Air Conditioner (A.C.) Sold A.C. through 30
agents located across the State of Rajasthan (except Udaipur). The stock of A.C. is dispatched from Unique Engineers
Pvt. Ltd. to the locations of the agents, based on receipt of orders from various buyers. Unique Engineers Pvt. Ltd. is also
engaged in the wholesale supply of A.C. in Udaipur. An agent places an order for dispatch of 20 A.C. on 14-02-2018.
Unique Engineers Pvt. Ltd. had sold 20 A.C. to a retailer in Udaipur on 07-02-2018 for Rs. 10,80,000. The agent will sell
20 units to a buyer at a price of Rs. 55,000 per unit.
Solution : As per Para 3 of Schedule I of the CGST Act, 2017, Supplies between the principal and agent will be included
in the scope of the term “Supply” although it is without any consideration. And, hence, chargeable to GST. Therefore,
the transfer of goods by the principal (Unique Engineers Pvt. Ltd.) to its agent for further sales, on behalf of the principal
 Value of Supply 79

would be deemed to be a supply although made without consideration. In such case, the value shall be determined
using Rule 29 of the CGST Rules, 2017. As per Rule 29, Value would be either the open market value, or 90% of the price
charged by the recipient of the intended supply to its customers, at the option of the supplier. Thus, the value of the
supply by Unique Engineers Pvt. Ltd. to its agent would be either Rs. 10,80,000, or Rs. 9,90,000 (i.e., 90% × 55,000 × 20),
based on the option chosen by Unique Engineers Pvt. Ltd.
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
↓
110% of the cost of production or manufacture or the cost of acquisition of such goods or the cost of provision of such
services.

Illustration 25 : Bhavesh Oil Products transfers 15,000 litres of oil out of its stock from its Maharashtra branch to its Goa
branch (cost of production - Rs. 10,00,000) for further processing. The Goa branch after processing the same sells these
processed goods to wholesalers. There is no other supplier throughout the country of such kind of Oil. Compute the
amount of GST payable, if any, by Maharashtra Branch. GST rate = 18%.
Solution : As per Section 25(4) of the CGST Act, 2017, a person who has obtained 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 person for the purposes of this Act. As per provisions of Section 7 read with Para 2 of Schedule-I,
transfer of goods between two registered units of the same person (having the same PAN) will be treated as supply,
even if the transfer is made without consideration, as such persons will be treated as 'distinct persons' under the GST
law.
For this purpose, valuation of such goods shall be determined using Rule 28. Further, as per Rule 28, if Open Market
Value of the goods and Value of goods of like kind and quality is not determinable, then, the value shall be determined
by the application of Rule 30 or rule 31, in that order.
In this case, since, the value can be determined as per Rule 30, therefore, the value as per Rule 30 i.e. 110% of cost of
production shall be taken as the value of supply of these goods.
Therefore, the value of the supply, in this case would be 110% of Rs. 10,00,000, i.e., Rs. 11,00,000. GST payable 18% of Rs.
11,00,000 i.e. Rs. 1,98,000.
Illustration 26 : XYZ & Co. manufactured chemical. The details of expenses incurred in manufacturing chemical are as
follows :

Particulars Amount (Rs.)

(i) Direct Labour 60,000
(ii) Direct Material consumed (incl. of GST @ 10%) 1,10,000
(iii) Direct Expenses 50,000
(iv) R & D Expenses 40,000
(v) Quality Controls Cost 10,000
(vi) Other Factory Overheads 25,000
(vii) Administrative Overheads (30% related to production) 1,00,000
(viii) Value of non-taxable inputs received free of cost from related person for manufacture of 40,000
chemical
(ix) Interest and Other Finance Charges 30,000
(x) Selling and Distribution Expenses (including Advertising and Marketing) 25,000
(xi) Abnormal Losses (not included above) 20,000
 80 Indirect Taxation - Goods and Services Tax (GST) Authored by CA. Yashvant Mangal

(xii) Compensation to family of a deceased labour (not included above) 60,000

(xiii) Realisable value of waste and scrap produced during manufacture of chemical 30,000

Compute the value of chemical using Rule 30 of CGST Rules, 2017.

Solution : As per rule 30 of CGST Rules, 2017, in case of a manufacturer, the value of a supply of goods shall be 110% of
cost of production or manufacture.
Calculation of Cost of Production (COP) in terms of Rule 30 of CGST Rules, 2017

Particulars Amount Rs.

(i) Direct Labour 60,000
(ii) Direct Material consumed (Net of GST, assuming that ITC of inputs has been availed) 1,00,000
(1,10,000 × 100/110)
(iii) Direct Expenses 50,000
(iv) R & D Expenses 40,000
(v) Quality Controls Cost 10,000
(vi) Other Factory Overheads 25,000
(vii) Administrative Overheads (only related to production will form "COP") 30,000
(i.e. 30% of 1,00,000)
(viii) Value of non-taxable inputs received free of cost from related person for manufacture of 40,000
chemical
(ix) Interest and Other Finance Charges (do not form part of "COP") -
(x) Selling and Distribution Expenses (do not form part of "COP") -
(xi) Abnormal Losses (do not form part of "COP") -
(xii) Compensation to family of a deceased labour (do not form part of COP, as it is non-recurring -
cost, arising due to abnormal occurrence of events)
(xiii) Realisable value of waste and scrap produced during manufacture of chemical (30,000)
Total Cost of Production of Chemical (as per CAS-4 issued by ICWAI) 3,25,000
Add: 10% Notional profit margin as per Rule 30 32,500
Assessable Value of Chemical 3,57,500

Illustration 27 : Mr. X, a trader of marker buys markers for Rs. 1,00,000/-. Compute value as per rule 30 of CGST Rules,
2017?
Solution : As per Rule 30 of CGST Rules, 2017, in case of a trader, the value of a supply of goods shall be 110% of cost of
acquisition of such goods. Therefore, in this case, value shall be Rs. 1,10,000 (i.e. 110% of 1,00,000).
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:
↓
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
 Value of Supply 81

the Official Gazette by the organising State, whichever is higher.

(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 31A inserted by NN 03/2018 – CT, w.e.f. 23.01.2018]

RULE 31B : VALUE OF SUPPLY IN CASE OF ONLINE GAMING INCLUDING ONLINE MONEY GAMING

Notwithstanding anything contained in this chapter, the value of supply of online gaming, including supply of
actionable claims involved in online money gaming, shall be the total amount paid or payable to or deposited with
the supplier by way of money or money’s worth, including virtual digital assets (like Cryptocurrencies, etc.), by or on
behalf of the player.
However, any amount returned or refunded by the supplier to the player for any reasons whatsoever, including player
not using the amount paid or deposited with the supplier for participating in any event, shall not be deductible from
the value of supply of online money gaming.
[Rule 31B inserted by NN 51/2023 – CT, w.e.f. 01.10.2023]

RULE 31C : VALUE OF SUPPLY OF ACTIONABLE CLAIMS IN CASE OF CASINO

Notwithstanding anything contained in this chapter, the value of supply of actionable claims in casino shall be the
total amount paid or payable by or on behalf of the player for –
(i) purchase of the tokens, chips, coins or tickets, by whatever name called, for use in casino; or
(ii) participating in any event, including game, scheme, competition or any other activity or process, in the casino,
in cases where the token, chips, coins or tickets, by whatever name called, are not required.
However, any amount returned or refunded by the casino to the player on return of token, coins, chips, or tickets, as
the case may be, or otherwise, shall not be deductible from the value of the supply of actionable claims in casino.
Explanation.- For the purpose of rule 31B and rule 31C, any amount received by the player by winning any event,
including game, scheme, competition or any other activity or process, which is used for playing by the said player in
a further event without withdrawing, shall not be considered as the amount paid to or deposited with the supplier by
or on behalf of the said player.
[Rule 31C inserted by NN 51/2023 – CT, w.e.f. 01.10.2023]

RULE 32 : DETERMINATION OF VALUE IN RESPECT OF CERTAIN SUPPLIES

(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:-

Option 1 : [Rule 32(2)(a)]

If RBI reference rate for a currency is Value shall be = {[Buying rate/Selling rate] – [RBI reference rate for that
available when exchanged from, or currency at that time]} × Total Units of currency exchanged
to, Indian Rupees
If RBI reference rate for a currency is Value shall be = 1% of the gross amount of Indian Rupees provided or
not available received, by the person changing the money
Where neither of the currencies Value shall be = 1% of the lesser of the two amounts receivable if the two
exchanged is Indian Rupee currencies are converted into Indian Rupee on that day at the reference rate
provided by RBI

Further, 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.
 82 Indirect Taxation - Goods and Services Tax (GST) Authored by CA. Yashvant Mangal

Option 2 : [Rule 32(2)(b)] [Optional Scheme]

For an amount upto Rs. 1,00,000/- Value shall be deemed to be = 1% of the gross amount of currency
exchanged for an amount upto Rs. 1,00,000/-, subject to a minimum amount
of Rs. 250/- per transaction

For an amount exceeding Rs. Value shall be deemed to be = Rs. 1,000/- and 0.5% of the gross amount of
1,00,000/- and upto Rs. 10,00,000/- currency exchanged for an amount exceeding Rs. 1,00,000 and upto Rs.
10,00,000/-

For an amount exceeding Rs. Value shall be deemed to be = Rs. 5,500/- and 0.1% of the gross amount of
10,00,000/- currency exchanged for an amount exceeding Rs. 10,00,000/-, subject to
maximum of Rs. 60,000/- per transaction

Illustration 28 : Compute independently in each of the following cases the taxable value of services provided by an
authorized dealer in foreign exchange to its customers. Show working notes as may be required.
(i) 2,500 US $ are sold by Mr. Adani to the 'Sewak Cook', an authorised dealer @ Rs. 62.50 per US $. The RBI reference
rate is Rs. 63.00 for that day.
(ii) Rs. 80,00,000 is changed into Canadian $ and the exchange rate offered is Rs. 50 per Canadian $. RBI reference rate
for conversion of INR into Canadian $ is not available.
(iii) On 01.09.2017 Mr. Exchange gets 1,00,000 Euro converted into 5,00,000 Dirham. As on 01.09.2017 RBI reference rate
is 1 Euro = Rs. 70, 1 Dirham = Rs. 16.

Solution :
(i) Taxable Value = No. of Currencies Exchange × (RBI Reference Rate – Broker Rate)
= 2,500 US $ × (63.00 – 62.50) = Rs. 1,250/-
(ii) Since, RBI Reference Rate is not available, value of service shall be 1% of the Gross Amount exchanged in Indian
Rupee. i.e. 1% of Rs. 80,00,000 = Rs. 80,000/-
(iii) If neither of the currencies exchanged is Indian Rupees, then, the value shall be 1% of the lower of the two
amounts, calculated by converting both the currencies into Indian Rupee using respective RBI Reference Rate.
(a) Euros = 1,00,000 × Rs. 70 = Rs. 70,00,000
(b) Dirham = 5,00,000 × Rs. 16 = Rs. 80,00,000
1% of Rs. 70,00,000 [i.e. lower of Rs. 70,00,000 and Rs. 80,00,000] = Rs. 70,000/-

Illustration 29 : In the following independent cases, find out Taxable Value of Services provided by M/s. RS Sons, a
Partnership Firm, which is a registered Service Provider as Foreign Exchange Dealer (Purchaser and Seller of Foreign
Currency):
(a) US $ 2,000 are purchased from Mr. John on 2nd September at the rate of Rs. 63 per US $. The Reserve Bank of India
Reference Rate of each US $ is Rs. 65.50 for that day.
(b) Rs. 1,40,000 is converted into Great Britain Pound (GBP) on 15th September and the Exchange Rate offered is Rs. 70
per GBP.
Solution :

Case Principle Computation Amount (Rs.)

(a) Taxable Value = No. of Currencies Exchanged 2,000 USD × (65.50 – 63.00) 5,000
(Buying Rate – RBI Reference Rate)

(b) Since RBI Reference rate is not available, value shall 1% of Rs. 1,40,000 1,400
be 1% of the Gross Rupee Value Exchanged
 Value of Supply 83

(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.

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.

Illustration 30 : M/s Holiday Makers is an air travel agent. Compute the value of supply of service made by him
during a month with the help of following particulars furnished by him:

Particulars Basic Fare Other charges and Fee Taxes Total value of tickets (Rs.)
(Rs.) (Rs.) (Rs.)
Domestic Bookings 2,00,000 7,000 6,000 2,13,000

International Bookings 4,00,000 15,000 12,000 4,27,000

Answer :

Computation of value of supply of services made by M/s Holiday Makers in a month

Particulars (Rs.) (Rs.)

Basic fare in case of domestic bookings 2,00,000
Value of supply @ 5%[A] Refer Note below 10,000
Basic fare in case of international bookings 4,00,000
Value of supply @ 10%[B] Refer Note below 40,000
Value of supply [A]+[B] 50,000
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.

(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), 10% of single premium charged from the policy
holder; or

(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:

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.

Illustration 31 : India First Life Insurance Company Ltd. (IFLICL) has charged gross premium of Rs. 570 lakh
from policy holders with respect to life insurance policies in the 2017-18; out of which Rs. 300 lakh have been
allocated for investment on behalf of the policy holders. Compute the value of supply of life insurance services
provided by IFLICL:
(i) if the amount allocated for investment has been intimated by IFLICL to policy holders at the time of supply
84 Indirect Taxation - Goods and Services Tax (GST) Authored by CA. Yashvant Mangal

of service.
(ii) if the amount allocated for investment has not been intimated by IFLICL to policy holders at the time of
providing of service.
(iii) if the gross premium charged by IFLICL from policy holders is only towards risk cover.
Note: IFLICL has started its operations in the year 2017-18. Thus, the entire gross premium of Rs. 570 lakh is the
premium for the first year of all the policies. IFLICL has not issued any single premium annuity policy.
Solution : As per rule 32(4), of the CGST Rules, 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 saving
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 charged from the policy holder in the 1st year and 12.5% 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 risk cover in life insurance, therefore 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 IFLICL in financial
year 2017-18 will be computed as follows:
(i) Amount allocated for investment intimated to policy holder at the time of supply of service Value of service
= Rs. (570-300) lakh = Rs. 2,70,00,000
(ii) Amount allocated for investment not intimated to policyholders at the time of supply of service Value of
service = 25% of Rs. 570 lakh = Rs. 1,42,50,000
(iii) Gross premium received is only towards risk cover Value of service = Rs. 570 lakh.
Illustration 32 :
LIC of India provides you the following information for the month of October 2018. You are required to compute
value of taxable Supply of services under Rule 32(4) of CGST Rules, 2017.
(i) General policies (insurance cum investment policy) : Total premiums collected Rs. 15,000 lakhs (Out of
which 1st year premium is Rs. 8,000 lakhs) [Investment amount is not intimated separately to policy holder]
(ii) Single premium annuity policies (insurance cum investment policy): Premiums collected Rs. 1,500 lakhs
[Investment amount is not intimated separately to policy holder]
(iii) Only Risk Cover Policies: Premiums collected Rs. 3,000 lakhs.
Solution :
As per Rule 32(4), of the CGST Rules, 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 saving
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 policy other than (a), 10% of single premium charged from the policy
holder; or
(c) in all other cases, 25% of the premium charged from the policy holder in the 1st year and 12.5% of the
premium charged from the policy holder in subsequent years.
Provided that nothing contained in this sub-rule shall apply where the entire premium paid by the policy holder
is only towards risk cover in life insurance, therefore such gross premium is the value of supply of life insurance
services.
 Value of Supply 85

Computation of Value of Taxable Supply of Services

Amount Taxable Value

Particulars Rate
(Rs. in lakhs) (Rs. in lakhs)
General Policies:
(i) First year premium 8,000 25% 2,000
(ii) Subsequent years i.e. policies issued in earlier years 7,000 12.5% 875
Single premium annuity policies 1,500 10% 150
Only Risk Cover Policies 3,000 100% 3,000
Total Taxable Value 6,025
(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:

Analysis: Normally GST is charged on the transaction value of 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.
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.
Person 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.
Value of Second hand goods:

When ITC is not availed [Margin Scheme] When ITC is availed

 Value = selling price – Purchase price  Normal valuation as per other applicable
 Selling price is less than Purchase price – provisions
Ignore negative value
Provided that the purchase value of goods repossessed from a defaulting borrower, who is not
registered, for the purpose of recovery of a loan or debt shall be deemed to be the purchase price of such
goods by the defaulting borrower reduced by 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.
Note : As per Sec. 2 (92) of CGST Act, 2017, "Quarter" shall mean a period comprising three consecutive
calendar months, ending on the last day of March, June, September and December of a calendar year.

Analysis:

If the defaulting borrower is un-registered If the defaulting borrower is registered

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

Illustration 33 : Navneet Car Bazar is engaged in buying and selling of second hand cars in Udaipur. During the
month of August, 2018, Navneet Motors supplied a second hand car after some processing at Rs. 8,40,000 which
he purchased from customer at Rs. 7,75,000 and no input tax credit has been availed on such purchase. Compute
the value of taxable Supply as per Rule 32(5) of CGST Rules, 2017. What would your answer be if purchase price
86 Indirect Taxation - Goods and Services Tax (GST) Authored by CA. Yashvant Mangal

of used car is Rs. 8,50,000.

Solution : As per Rule 32(5) of CGST Rules, 2017, 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 purchase of such goods, the
value of supply shall be the difference between the selling price and purchase price and where the value of such
supply is negative, it shall be ignored.
(i) Value of Taxable Supply of Second hand Car when purchase price is Rs. 7,75,000 will be Rs. 65,000 (i.e.
8,40,000 – 7,75,000) [i.e. difference between purchase and sale price].
(ii) Value of Taxable Supply of Second hand Car when purchase price is Rs. 8,50,000 will be NIL as the
difference between purchase and sale price is negative Rs. 10,000 [i.e. Rs. 8,40,000 – Rs. 8,50,000].
Illustration 34 : Mr. Sanjeev Kapoor not registered under GST purchased a Car on 15/09/2018 for Rs. 35,00,000.
80% of the purchase price of car was financed by Punjab National Bank. The loan was payable in 70 monthly
instalments beginning from 01/10/2018. Mr. Sanjeev Kapoor paid 3 instalments and then defaulted in
repayment of loan.
Therefore, Punjab National Bank repossessed the car on 01/04/2019. The car was disposed on 01/10/2019 for Rs.
27,00,000. Determine the value of taxable supply as per Rule 32(5) of CGST Rules, 2017. What would be your
answer, if disposal value of car is Rs. 21,50,000 ?
Solution : As per Rule 32(5) of CGST Rules, 2017, the purchase value of goods repossessed from a defaulting
borrower, who is not registered, for the purpose of recovery of a loan or debt shall be deemed to be the purchase
price of such goods by the defaulting borrower reduced by 5% points for every quarter or part thereof, between
the date of purchase and the date of disposal by the person making such repossession.
Computation of Purchase Value of Repossessed Car

Particulars Amount (Rs.)

Purchase price of car 35,00,000
Date of purchase of car 15-09-2018
Date when repossessed car is sold 01-10-2019
No. of quarters or part thereof [Note] 6
Percentage of reduction computed for the no. of quarters for which goods held prior to 30%
sale [6 x 5%]
Purchase value of repossessed Car [Rs. 35,00,000 – 30%] 24,50,000

Note : As per Section 2(92) of the CGST Act, 2017, “quarter” shall mean a period comprising three consecutive
calendar months, ending on the last day of March, June, September and December of a calendar year.
Computation of Value of Taxable Supply of Second hand Car
Particulars Amount (Rs.)
Sale price of Car 27,00,000
Purchase value of repossessed Car as computed above 24,50,000
Value of Taxable Supply as per Rule 32(5) of the CGST Rules, 2017 2,50,000

The value of Taxable Supply of Second hand Car, when disposal value of repossessed Car is Rs. 21,50,000, will be
NIL as the difference between purchase value of repossessed car and sale price is Negative Rs. 3,00,000 [i.e. Rs.
21,50,000 – Rs. 24,50,000].
(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.

Illustration 35 : Mr. and Mrs. Agrawal buys 10 gift vouchers for Rs. 1,000 each from Big Bazar and give them as
return gifts to friends on Mrs. Agrawal birthday. Determine the value of supply.
 Value of Supply 87

Solution : As per the provisions of Rule 32(6) of the CGST Rules, the value of supply would be the money value
of the goods redeemable against the voucher. Thus, in case of voucher from Big Bazar, the value would be Rs.
10,000 (i.e., Rs. 1,000 × 10).
Illustration 36 : Bobbi Brown sells coupons that are redeemable against specified cosmetic products at retail
outlets. Each coupon has a face value of Rs. 1,000 but is redeemable for supplies worth Rs. 1,100. What is the
value of supply of such coupon under GST laws?
Solution : As per provision of Rule 32(6) of the CGST Rules relating to valuation, the value of a coupon is the
money value of the goods redeemable against it. Therefore, though the coupon is sold for Rs. 1,000, its value is
Rs. 1,100.

(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 32A : VALUE OF SUPPLY IN CASES WHERE KERALA FLOOD CESS IS APPLICABLE
The value of supply of goods or services or both on which Kerala Flood Cess is levied under clause 14 of the Kerala
Finance Bill, 2019 shall be deemed to be the value determined in terms of section 15 of the Act, but shall not include
the said cess. [Rule 32A inserted by NN. 31/2019 – CT, w.e.f. 01.07.2019]

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.

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.

Note : If service provider has charged (or received reimbursement) amount in excess of what he has actually incurred as
agent on behalf of the client, then, entire amount of reimbursement will be included in the taxable value of the service
for the purpose of charging GST.
Illustration 37 : [Analytical illustration to understand the difference between concept of Pure Agent and Section
15(2)(c)]
M/s Rameshwaram Textiles, Kishangarh (RT) is an importer of certain articles. It has appointed Mr. Kapil as its
Custom's House agent for clearance of the imported goods from Mumbai Port and make it available to M/s Raj
Transporters, who will transport the goods from Mumbai Port to the factory of RT. As per terms of contract, the role of
Mr. Kapil is upto handing over the goods to M/s Raj transporter. For this role, commission of Rs. 5,00,000/- is fixed.
 88 Indirect Taxation - Goods and Services Tax (GST) Authored by CA. Yashvant Mangal

Now, suppose, at sometimes, M/s Raj Transporter is not available to transport the goods from Mumbai to Kishangarh
and in such case, at the personal request of RT, Mr. Kapil arranges for transport of such goods from Mumbai to
Kishangarh for which transport charges of Rs. 1,00,000/- are paid by Mr. Kapil to transporter and then, Mr. Kapil claims
the same for reimbursement from RT along with his commission of Rs. 5,00,000/- by indicating both the amounts
separately on the invoice. Then, such amount of reimbursement of Rs. 1,00,000/- will be excluded from the value of
service and GST will be payable only on Rs. 5,00,000/-.
But, if in the same case, as per terms of the contract, the role of Mr. Kapil would had been upto delivery of the imported
goods to factory of RT, and the consideration would had been fixed as Rs. 5,00,000 plus transportation expenses. Then,
the value of services shall be Rs. 6,00,000/-, even if Mr. Kapil would had issued invoice as under :

Value of services (commission) Rs. 5,00,000

Reimbursement of Transportation Rs. 1,00,000
Total Rs. 6,00,000

In such a situation, value of service shall be Rs. 6,00,000/- and GST will be charged on the same. Because, as per Section
15(2)(c), all the expenses or costs incurred by the service provider in the course of providing service, are included in the
value of the service for the purpose of charging GST. Further, transportation service will be eligible as input service for
Mr. Kapil for the purpose of availing Input Tax Credit.
Illustration 38 :
X contracts with Y, a real estate agent to sell his house and thereupon Y gives an advertisement in television. Y billed X
including charges for television advertisement and paid GST on the total consideration billed. In such a case,
consideration for the service provided is what X pays to Y. Y does not act as an agent behalf of X when obtaining the
television advertisement even if the cost of television advertisement is mentioned separately in the invoice issued by X.
Advertising service is an input service for the estate agent in order to enable or facilitate him to perform his services as
an estate agent.
Illustration 39 :
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.
Illustration 40 :
In the course of providing a taxable service, a service provider incurs costs such as travelling expenses, postage,
telephone, etc., and has indicated these expenses as reimbursable expenses separately on the invoice issued to the
recipient of service. In such a case, the service provider is not acting as a pure agent of the recipient of service but
procures such inputs or input service on his own account for providing the taxable service. Such expenses do not
become reimbursable expenditure merely because they are indicated separately in the invoice issued by the service
provider to the recipient of service. Hence, these expenses will be included in the value of supply.
Illustration 41 :
A contracts with B, an architect for building a house. During the course of providing the taxable service, B incurs
expenses such as telephone charges, air travel tickets, hotel accommodation, etc., to enable him to effectively perform
the provision of services to A. In such a case, in whatever form B recovers such expenditure from A, whether as a
separately itemised expense or as part of an inclusive overall fee, service tax is payable on the total amount charged by
B. Value of the taxable service for charging GST is what A pays to B.
Illustration 42 :
Company X provides a taxable service of rent-a-cab by providing chauffeur-driven cars for overseas visitors. The
chauffeur is given a lump sum amount to cover his food and overnight accommodation and any other incidental
expenses such as parking fees by the Company X during the tour. At the end of the tour, the chauffeur returns the
balance of the amount with a statement of his expenses and the relevant bills. Company X charges these amounts from
 Value of Supply 89

the recipients of service. The cost incurred by the chauffeur and billed to the recipient of service constitutes part of gross
amount charged for the provision of services by the Company X.

Clarification on issue of GST on Airport levies [i.e. Passenger Service Fee (PSF) and User Development Fee (UDF)]
[Circular No. 115/34/2019 – GST, dated 11.10.2019]

Various representations have been received seeking clarification on issues relating to GST on airport levies and to clarify
that airport levies do not form part of the value of services provided by the airlines and consequently no GST should be
charged by airlines on airport levies.
1. Passenger Service Fee (PSF) is charged under rule 88 of Aircraft Rules, 1937 according to which the airport licensee
may collect PSF from embarking passengers at such rates as specified by the Central Government. According to the
rule the airport license shall utilize the said fee for infrastructure and facilitation of the passengers. User
Development Fee (UDF) is levied under rule 89 of the Aircraft rules 1937 which provides that the licensee may levy
and collect, at a major airport, the User Development Fee at such rate as may be determined under clause (b) of sub-
section (1) of section 13 of the Airports Economic Regulatory Authority of India Act, 2008.
2. Though the rule does not prescribe the specific purpose of levy and whether it is to be charged from the airlines or
the passengers. However, it is seen from section 2(n) of Airports Economic Regulatory Authority of India Act, 2008,
that the authority which manages the airport is eligible to levy and charge UDF from the embarking passengers at
any airport.
3. Further, Director General of Civil Aviation has clarified vide order No. AIC Sl. No. 5/2010 dated 13.09.2010 that in
order to avoid inconvenience to passengers and for smooth and orderly air transport/airport operations, the User
Development Fees (UDF) shall be collected from the passengers by the airlines at the time of issue of air ticket and
the same shall be remitted to Airports Authority of India in the line system/procedure in vogue. For this, collection
charges of Rs. 5/- shall be receivable by the airlines from AAI, which shall not to be passed on to the passengers in
any manner.
4. The above facts clearly indicate that PSF and UDF are charged by airport operators for providing the services to
passengers.
5. Section 2(31) of the CGST Act states that “consideration” in relation to the supply of goods or services or both
includes 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. Thus, PSF
and UDF charged by airport operators are consideration for providing services to passengers.
6. Thus, services provided by an airport operator to passengers against consideration in the form of UDF and PSF are
liable to GST. UDF was also liable to service tax. It is also clear from notification of Director General of Civil
Aviation AIC Sl. No. 5/2010 dated 13.09.2010, which states that UDF approved by MoCA, GoI is inclusive of service
tax. It is also seen from the Air India website that the UDF is inclusive of service tax. Further in order No. AIC S.
Nos. 3/2018 and 4/2018, both dated 27.2.2018, it has been laid down that GST is applicable on the charges of UDF
and PSF.
7. PSF and UDF being charges levied by airport operator for services provided to passengers, 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 (AAI, DIAL, MIAL etc) which is
liable to pay GST on UDF and PSF.
8. Airlines may act as a pure agent for the supply of airport services in accordance with rule 33 of the CGST rules. Rule
33 of the CGST rules provides that 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.
 90 Indirect Taxation - Goods and Services Tax (GST) Authored by CA. Yashvant Mangal

“Pure agent” has been defined to mean 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.
9. Accordingly, 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 take ITC of GST paid on PSF and UDF on the basis of pure
agent’s invoice issued by the airline to them.
10. The airport operators shall pay GST on the PSF and UDF collected by them from the passengers through the
airlines. Since, the airport operators are collecting PSF and UDF inclusive of GST, there is no question of their not
paying GST collected by them to the Government.
11. The collection charges of Rs. 5 paid by airport operator to airlines are a consideration for the services provided by
the airlines to the airport operator (AAI, DAIL, MAIL etc) and airlines shall be liable to pay GST on the same under
forward charge. ITC of the same will be available with the airport operator.
RULE 34 : RATE OF EXCHANGE OF CURRENCY, OTHER THAN INDIAN RUPEES, FOR DETERMINATION OF VALUE

Goods : The rate of exchange for the determination of the value of taxable goods shall be the rate as notified by
Central Board of Indirect Taxes and Customs (CBIC) u/s 14 of the Customs Act, 1962, prevalent on the date of time
of supply of the said goods.
Services : The rate of exchange for the determination of the value of taxable service shall be the rate determined as
per Generally Accepted Accounting Principles (GAAP), prevalent on the date of time of supply of the said services.
Analysis of GAAP : As per Ind AS 21 [The Effects of Changes in Foreign Exchange Rates], the Rate of Exchange of
the Bank through which transactions are generally carried out by the assessee is relevant.

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 (Rate of GST) / (100 + Rate of GST)

Section 66 : Provisions of Special Audit

(1) If at any stage of scrutiny, inquiry, investigation or any other proceedings before him, any officer not below the
rank of Assistant Commissioner, having regard to the nature and complexity of the case and the interest of
revenue, is of the opinion that the value has not been correctly declared or the input tax credit availed is not
within the normal limits, he may, with the prior approval of the Commissioner, direct such registered person
by a communication in writing to get his records including books of account examined and audited by a
chartered accountant or a cost accountant as may be nominated by the Commissioner.

“Kar Har Maidaan Fateh”