Every fiscal statue contains provision for determining the value, as tax is normally payable on ad-valorem basis (i.e., based on assessed value). Under the GST ambit as well, tax is payable on ad-valorem basis i.e., applicable rate is charged on value of the supply of goods or services. 

Section 15 of the CGST Act, 2017 and respective rules of CGST Rules, 2017, contain provisions in relation to valuation of supply of goods or services made in different circumstances and to different persons.

Transaction Value (Value of Supply)

The provisions of Section 15 of the CGST Act inter-alia provide that taxable value is the transaction value i.e., price actually paid or payable, provided the supplier and the recipient are not related and price is the sole consideration. 

In most of the cases, invoice value is construed as the taxable value where supplier and the recipient are not related and price is the sole consideration. 

Mandatory Inclusions for the purpose of transaction value

The following shall be included in Value of supply:-

(i) Any taxes, fees, charges levied under any law other than GST law, 

(ii) expenses incurred by the recipient on behalf of the supplier, 

(iii) Incidental expenses like commission & packing incurred by the supplier, interest or late fees or penalty for delayed payment; and 

(iv) direct subsidies (except government subsidies) are also to be added to the price (if not already added) to arrive at the taxable value.

Exclusion for the purpose of transaction value

(i) Discount given by the supplier before or at the time of supply- Discounts like trade discount, quantity discount etc. are present in the normal trade and commerce. Therefore discounts recorded in the invoice issued to supplier have been allowed as exclusion while determining the taxable value.

(ii)Discount given by the supplier after the supply– Discount can also be excluded while determining the taxable value provided two conditions are met namely (a) discount is established in terms of a pre-supply agreement between the supplier and the recipient and such discount is linked to relevant invoices and (b) input tax credit attributable to the discounts is reversed by the recipient.

Applicability of Valuation Rules provided under CGST Rules, 2017

The CGST Rules have provided various provisions, which can be referred to for determining the value of supply on which GST has to be charged where the value of taxable cannot be determined as per the provisions of Section 15(1) of the CGST Act, 2017. The could be various circumstances where valuation is to be done as per the applicable provisions of the CGST Rules, for instance:

(i) consideration is not solely in money;

(ii) supply between distinct and related persons;

(iii) goods or services are supplied between Principal and his agent;

(iv) where supply is based on cost, etc.