The concept of “Value of supply of goods or services GST ACT2017where the consideration is not wholly in Money” is actually covered under Rule 27 of the CGST Rules, 2017. This rule outlines four potential methods to determine the value of supply in such scenarios:

1. Open Market Value:

• If the goods or services being supplied have an established open marketGST ACT2017 value (what a willing buyer would pay to a willing seller in an arm’s length transaction), then this value will be considered for determining the tax liability.

2. Sum of Consideration in Money + Equivalent Value:

• If the open market value isn’t available, theGST ACT2017 value will be calculated as the sum of the monetary consideration received by the supplier and an additional amount representing the value of the non-monetary consideration. This additional amount needs to be determined in a way that reflects its fair market value.

3. Value of Similar Goods/Services:

• In cases where neither openGST ACT2017 market value nor equivalent value can be established, the value of supply will be considered equal to the value of similar goods or services of like kind and quality. This comparison should be based on objective factors like specifications, functionalities, and market demand.

4. Cost Method or Residual Method:

• If none of the above GST ACT2017methods are suitable, the value of supply can be determined using either the cost method (110% of the cost of production/acquisition/provision of goods/services) or the residual method (total output value minus value of all other supplies).

Important Points to Remember:

• The methods outlined in Rule 27 are applied sequentially. Only if the preceding method is not applicable do you move to the next one.
• The burden of proof lies with the taxpayer to demonstrate theGST ACT2017 value of supply using the appropriate method.
• Consulting a tax advisor is recommended for complex situations involving non-monetary consideration.

 

EXAMPLE

Case 1: Open Market Value

• A furniture store in Chennai GST ACT2017offers a brand-new sofa set for Rs. 50,000 but also accepts old furniture in exchange as part payment. The open market value of the new sofa set without exchange is Rs. 60,000.
• Value of Supply: Rs. 60,000 (as this is the open market value without exchange)

Case 2: Sum of Money and Equivalent Value

• A graphic designer in Chennai receivesGST ACT2017 Rs. 10,000 and a free website design from a client in exchange for creating their company logo. The market value of the website design is Rs. 5,000.
• Value of Supply: Rs. 15,000 (Rs. 10,000 cash + Rs. 5,000 equivalent value of website design)

Case 3: Value of Like Kind and Quality

• A farmer in a village near Chennai GST ACT2017supplies 100 kilograms of mangoes to a local trader in exchange for 50 kilograms of rice. The market value of both mangoes and rice in Chennai is Rs. 50 per kilogram.
• Value of Supply: Rs. 5,000 (equivalent value of both mangoes and rice based on Chennai market price)

Important Note:

• These are just a few examples, and the actual value of supply will depend on the specific circumstances of each transaction.
• It’s crucial to consult with a GST professional to ensure accurate determinationGST ACT2017 of the value of supply, especially in complex cases.

FAQ QUESTIONS

Q1. What are the scenarios where section 15 applies?

A1. Section 15 applies when the considerationGST ACT2017 for a supply of goods or services is not entirely in money, but a mix of money and other goods, services, or benefits. This includes situations like:

• Barter transactions where goods or services are exchanged without money.
• Freebies or discounts offered in exchange for other purchases.
• Employee benefits provided by companies (except monetary compensation).
• Services provided by related parties at concessional rates.

Q2. How is the value of supply determined under section 15?

A2. The value of supply is determined through a tiered approach:

1. Open Market Value (OMV):

• If the goods or services have a readily available OMV in the market, that becomes the taxable value.

2. Sum of Monetary and Equivalent Value:

• If OMV is not available, the value is calculated as the sum of:
  • Consideration received in money.
  • Monetary equivalent of the non-monetary consideration, if known at the time of supply.

3. Value of Similar Goods/Services:

• If the monetary equivalent is unknown, the value is based on similar goods or services of like kind and quantity.

4. Cost or Residual Method:

• As a last resort, the value is determined using the cost or residual method prescribed in the GST Rules.

Q3. Are there any specific rules for related party transactions?

A3. Yes, the GST law GST ACT2017closely scrutinizes transactions between related parties to prevent under-valuation. If the declared value seems abnormally low, the tax authorities can determine the value based on OMV or other methods.

Q4. Can the supplier charge GST on the non-monetary consideration?

A4. Yes, the GST liability applies to the entire value of supply, including theGST ACT2017 monetary equivalent of the non-monetary consideration.

Q5. What are some practical examples of applying section 15?

A5.

• A company provides free marketingGST ACT2017 services to a client in exchange for purchasing their software. The value of supply for the marketing services would GST ACT2017be calculated based on the prevailing market rates for similar services.
• An employer offers gym membershipsGST ACT2017 to employees as a fringe benefit. The value of supply for the gym memberships would be the actual cost incurred by the employer or the market value of similar memberships, whichever is higher.

CASE LAWS

Section 15 of the CGST Act, 2017, deals with the determination of the value of supply, including situations where the consideration is not wholly in money. However, there are no specific “case laws” under this section, as it primarily laysGST ACT2017 down the framework for valuation. The actual application of this framework is done through rules and regulations framed by the government, and it’s in these rules and regulations that you’ll find instances and interpretations relevant to specific scenarios.

Here’s a breakdown of how the value of supply isGST ACT2017 determined under Section 15(4) when the consideration is not wholly in money:

Method 1: Open Market Value (Rule 27(a))

• This is the preferred method. The value of supply is determined based on the price at which similar goods or services are sold in the open market for cash.

Method 2: Sum of Monetary Consideration GST ACT2017and Equivalent of Non-Monetary Consideration (Rule 27(b))

• If the open market value is not available, the value of supply is calculated by adding the considerationGST ACT2017 received in money to the monetary equivalent of the non-monetary consideration. Determining the “equivalent” value can be tricky and may involve negotiation or valuation by an independent expert.

Method 3: Value of Similar Goods or Services (Rule 27(c))

• If neither of the above methods is feasible, the value of supply can be GST ACT2017determined based on the price of similar goods or services of the same kind and quality.

Additional Methods (Rule 28)

• In situations involving related parties or other specific scenarios, the rules may prescribe alternative methods like cost-based valuation or the residual method.

Case Studies and Interpretations:

While there are no direct “case laws” under Section 15(4), rulings and precedents by various GST authorities can provide guidance in applying the methods outlined above