How to Determine the Value of Supply when Consideration is not in Money

Valuation of goods and services is an important aspect which determines the amount of tax to be levied. If goods and services are undervalued, it leads to short-payment of tax, leading to non-compliance and resultant legal implications. Overvaluation will result in loss of revenue for businesses by way of additional taxes. In order eliminate ambiguities and avoid litigation due to inaccurate or flawed valuation of goods and services, valuation methods have been provided by the law which act as guidelines to businesses while determining the accurate taxable value.

In our earlier blog How is the Value of Goods & Services Determined under GST? we have discussed about the various valuation methods in the current regime, and also about determining the value of supply liable for levy of tax on the basis of transaction value under GST.

Transaction value can be applied as a method of valuation when price is the sole consideration for supply, and both the supplier and the recipient are not related (read this blog post on related parties transactions under GST).

However, in cases where price is not the sole consideration for supply or if supply happens between related persons or distinct persons (between 2 units belonging to the same PAN), the transaction value method cannot be applied. In such cases, different metrics have been defined under valuation rules to determine the taxable value of supply. The following are various scenarios:

Value of supply of goods or services where the consideration is not wholly in moneyValue of supply of goods or services or both between distinct or related personsValue of supply of goods made through an agent

In this blog, let us discuss about the valuation of supply of goods or services where the consideration is not wholly in money.

Valuation of supply of goods or services where the consideration is not wholly in money.

Before we infer ‘consideration for supply not wholly in money’, let us go back to the early days of civilization where trading was done for exchange of goods, popularly known as the ‘Barter System’. Under this system, people exchanged goods or/and services for other goods or/and services in return, without any consideration in money. Today the century old system of barter has comeback an improvised way- the “Exchange Offer”. Under this scheme, goods are sold in return for a consideration partially in money and partially in exchange of old goods. For an example, a washing machine is sold for Rs.25,000 after exchange with an old washing machine.

If you assume that Rs.25,000 is the transaction value in the above example, you will be in trouble and it may potentially lead to litigation. This is because Rs.25,000 is only a part of the price received as consideration for supply of the washing machine and it is not sole price which is required for applying transaction value. Hence, for such type of supplies, the value of supply should be derived by applying the following metrics:

Open Market Value of such supplyIf the open market value is not available, the sum total of consideration in money and the monetary value of consideration not in money, if such monetary value is known at the time of supply.If the value cannot be determined by applying steps 1 and 2, the value of supply of goods or/and services of like kind and quality will be considered

Let us understand each of these metrics for deriving the value of supply with examples.

1. Open market value of supply

Open market value of supply of goods or services is the full value in money, excluding the GST and cess payable by a person for a transaction.

Let us consider the example of a washing machine. A washing machine is supplied at Rs.25,000 for exchange with an old washing machine. If the price of the washing machine without exchange is Rs.30,000, then the open market value will be Rs.30,000, and hence, GST will be levied on this value.

2. Sum total of consideration in money and the monetary value of consideration not in money

This method of valuation is applicable when the open market value of goods or services is not available. To arrive at the taxable value, the amount received in money is added with the monetary value of the products or services received as consideration.

Taxable Value = Consideration in Money + Monetary value of consideration not in money

Example

Prestige Innovators supplied a new invertor AC to a loyal customer prior to its launch for Rs.45,000 along with an offer of exchanging an old AC. The value of the old AC at the time of supply was Rs.10,000, but the open market value of the invertor AC supplied is not available.

To arrive at the taxable value, Prestige Innovators cannot apply the transaction value as price is not the sole consideration. The open market value cannot be applied either as the market value is not available. In such a case, the taxable value will be the sum total of the consideration received in money plus the monetary value of the product or services received as consideration. Hence, the taxable value of supply of AC will be:

Consideration in money Rs.45,000 + Monetary Value of the AC Rs.10,000 = Rs.55,000

3. Value of supply of goods and/or services of like kind and quality

This method is applicable when the open market value of the goods or services is not available and the value cannot be determined by applying the consideration in money and the monetary value of consideration not in money. In such a case, the value of supply of goods and/or services will be determined based on the prices of products of the ‘like kind and quality’ of the product being supplied. The value of products of ‘like kind and quality’ is determined by considering factors like the goods and services supplied should have the same characteristics, quality, quantity, functional components, materials, and reputation or it must closely or substantially resemble goods or services in question.

Example

Modern Technologies Ltd has introduced a new product ‘IOT-Universal Remote Organiser’ which is being offered to customers as part of the product promotion. In this case, as the product is being introduced for the first time, the value cannot be determined by applying the ‘Open Market Value’ method or by considering the ‘consideration in money and the monetary value of the consideration not in money’. In this case, to determine the value, the last method – comparing with a product of ‘like kind and quality’ can be applied.

Innovative Solutions has a product which is being sold at Rs.10,000, which has similar configuration and functionalities, and with additional USB port. Hence, the value of ‘IOT-Universal Remote organiser’ will be valued at Rs.10,000 for the purpose of tax assessment.

If for any reason the above method cannot be applied for determining the value of supply, it will be determined by applying the cost of the product+ 10 % or by using the residual method. This will be explained in detail in our upcoming blogs.

Tally Solutions

MRP tag on old stocks, for GST.


On account of implementation of GST there may be instances where the retail sale price printed on a pre-packaged commodity is required to be changed. The Department has issued an order according to which, manufacturers/ packers/ importers of pre-packaged commodities are allowed to declare the revised retail sale price (MRP), by way of stamping or putting sticker or online printing, as the case may be, on the unsold stock manufactured/ packed/ imported prior to 1st July, 2017, if any, in addition to the existing retail sale price (MRP), for three months i.e. upto 30th September, 2017. Use of un-exhausted packaging material/ wrapper has also been allowed upto 30th September, 2017 after making the necessary corrections. 

Further, vide this advisory, it has been informed that for reducing the Retail Sale Price (MRP), a sticker with the revised lower MRP (inclusive of all taxes) may be affixed and the same shall not cover the MRP declaration made by the manufacturer or the packer, as the case may be, on the label of the package. 

Therefore, declaration of the revised retail sale price (MRP) on the pre-packaged commodities, by way of stamping or putting sticker or online printing, as the case may be, has already been allowed where on account of implementation of GST, the retail sale price of a pre-packaged commodity is required to be changed/ revised. 

This information was given by Shri C. R. Chaudhary, the Minister of State for Consumer Affairs, Food and Public Distribution, in a written reply to a question in Rajya Sabha, today

GTA vs GST

What's the correct situation ?
GTA not involved but GST payable ??

Check this link. Answered by CBEC.

https://twitter.com/SIIPACK/status/889720927155503105?s=08

GTA under GST

Benefits of GST for the Transport Sector 

The transport sector stands to benefit from the recently rolled out GST in several ways. Pre- GST, the complex tax structure and paper work forced the transport industry to spend a lot of resources on tax compliance and deposit of interstate sales tax. Monitoring and collection of sales tax at interstate check posts led to major traffic congestion at these points, resulting in slower movement of freight and passenger, and consequently higher costs and pollution. An average Indian truck covers only about 50,000-60,000 km a year as against 3 lakh km done by a truck in US.

 

The unified tax regime has obviated the need for inter state check posts.  This will result in reducing the travel time of long-haul trucks and other cargo vehicles by at least one-fifth. This, coupled with the proposed E-way bill that will require online registration for movement of goods worth more than Rs 50,000, will ease the movement of freight further, and bring in more transparency in the whole process. Efficient freight movement will also boost the demand for high tonnage trucks, which will in turn reduce the cost of transportation of freight.  

 

A single GST also means an optimized warehousing structure. Earlier, companies had to maintain warehouses in every state due to different taxation slabs. GST does away with the need to have a separate warehouse for every state. This means a leaner and smarter logistics chain. This will also encourage more investment in the warehousing business.

 

Pre- GST, the statutory tax rate for most goods worked out to about 26.5%. Post GST most goods are expected to be in the 18 % tax range . India currently has  very high logistics cost – about 14% of the total value of goods as against 6-8% in other major countries. GST will serve to bring down the logistics cost to about 10-12 % by facilitating efficient inter-state flow of goods and accelerating the demand for logistics services.

 

According to Shri Nitin Gadkari, the Minister for Road Transport & Highways and Shipping,  India’s logistics sector would gain the most from the Goods and Services tax as costs would fall by almost 20%. He has also said that logistics parks are being set up at various places across the country to act as freight aggregation and distribution hubs. These logistics parks will enable long haul freight movement between hubs on larger sized trucks, rail and waterways. This will not only reduce freight transportation costs, but also throw open many employment opportunities and reduce pollution levels.

 

The Ministry of Road Transport and Highways has prepared a booklet on the benefits of GST for the transport sector.

Click here to see the booklet.
Source: http://pib.nic.in/newsite/Mberel.aspx?relid=169021

 

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ஆரம்பம். GST நெளிவு, சுளிவுகள்...2


How multiple tax slabs provide smaller businesses a reason to invent a cash trail to dodge GST

Cash trails are more likely to emerge in the unorganised sector.

One trader revealed...
He said to save on GST, Person X will book a flat in the name of Y, who is his dummy. The instalments Y pays will actually be X’s money. When the last instalment is due, Y will notify the builder that he does not want to buy the flat, said the realtor. The builder will tell the regulating committee that Y has backed out, but he is fortunate to have a new purchaser in X.

The builder will refund Rs 80 lakh to Y, whose money it wasn’t anyway. X will then buy the now completed flat for Rs 1 crore and not pay GST, said the realtor....

And so on in other sectors and industry also....
Read more....Click here....

ITC for restaurants...

Now invoice can be printed by online generationan to be in GST compliant format. 
https://twitter.com/nsdlgst/status/888420172150710272?s=09

Lord Krishna, Arjuna speak on GST...

Rains of GST, enjoyment to registered and punishment to unregistered
Arjuna (Fictional Character): Krishna, rainy season has come. GST is also applicable from 1st July. So, in the rain of GST which people are going to wet and how?
Krishna (Fictional Character): Arjuna, in this rainy season at some places torrential rain is falling and because of this floods are coming, at some places drizzling rain is coming, and at some places no raining at all. In GST somehow is similar. GST is applicable to all traders. But some taxpayers wholly wet in the rain of GST and some are totally dry. So in the rain of GST which taxpayers and how preparations to be made that we will discuss.
Arjuna: Krishna, in the torrential rain of GST, how the taxpayer should make preparations?
Krishna: Arjuna, at many places torrential rain is falling, similarly on large enterprises heavy rain of GST is falling. Some businessman started doing superfast work after understanding provisions of GST. GST law has been applicable from 1st July, so all the traders have updated their systems as per GST and their purchases and sales also have been started. The government has introduced the concept of summary return for all the taxpayers for first two months. Every taxpayer has to file the summary return of the month of July before 20th of August in Form 3B. In Form 3B taxpayer have to give information about the total amount of inward supply, outward supply, output tax liability, input tax credit and GST will have to be paid. After that up to 5th September details of sales will have to be given and up to 10th September information about purchases will have to be verified. Similarly, these taxpayers have to do preparations for the transition. Because Form of transition has to be submitted within 90 days.      
Arjuna: Krishna, how the preparations for drizzling rain to be done and by which traders?
Krishna: Arjuna, drizzling rain of GST is falling on traders, small businessmen, etc. These taxpayers are trying to understand provisions of GST somehow. They are preparing bill books as per GST law. They are doing working of closing stock. Some traders are busy in computerization. Similarly, small traders also have been registered under the composition scheme. The last date of registration under the composition scheme is extended up to 16th August. It means small traders can be registered under composition scheme up to 16th of August. But traders doing interstate supply cannot opt for composition scheme. Composition taxpayer have to submit quarterly return.    
Arjuna: Krishna, How the raining of GST will be affected on the taxpayers which were not in the ambit of indirect taxes before this?
Krishna: Arjuna, Because of Strike of 15 days dealers in textile industry didn’t do any preparations. But now government is not going to give any exception to them from GST. It means they didn’t have faced raining of GST yet. But black clouds of rain are wondering on them. Textile dealer has to pay 5% GST on the Sale of cloth. But if the readymade clothes are sold and the sales value is less than Rs. 1000 then 5% GST and if the sales value is more than Rs. 1000 then 12% GST have to be paid. If the traders have not obtained registration then they should immediately take the GSTN. It means the black clouds of GST are wondering upon these all traders.
Arjuna: Krishna, What lesson the taxpayer should take from this?
Krishna: Arjuna, GST is the law. The taxpayers who will take registration, trading for them will be easy. The taxpayers who are unregistered and yet doing trading they may face the problems. Before this, there was no any system with Government to catch unregistered persons but now they cannot come outside the net of GST. It means to take registration in GST is just like a raincoat or an umbrella in the rain of GST
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Courtesy : Lord Krishna. Sorry. Umesh Sharma CA.