1. Open Market Value or 90% of Subsequent Sale Price:

• The value is generallyGST ACT2017 considered to be the open market value of the goods on the day of supply. This refers to the price at which similar goods of like kind and quality are freely sold in the ordinary course of trade.
• However, the supplier has an option to choose 90% of the price charged by the agent for the subsequent supply of the goods to an unrelated customer, if:
  • The goods are intended for further supply by the agent.
  • The customer buying from the agent is not a related party.

Illustration:

A manufacturer supplies goods to its agent at Rs. 5000 per unit. The agent then sells GST ACT2017the same goods to an unrelated customer for Rs. 6000 per unit. In this case, the manufacturer can choose the value of supply as:

• Rs. 5000 (open market value), OR
• 90% of Rs. 6000 = Rs. 5400.

Important Points:

• This rule applies only when the price GST ACT2017paid to the agent is not the sole consideration for the supply. Other considerations, like commissions or rebates, may affect the determination of value.
• If the open market value cannot beGST ACT2017 ascertained or the subsequent sale price rule is not applicable, other valuation methods under the CGST Rules (like cost-plus basis) may be used.
• It’s crucial to consult with a tax professional for specific guidance on determining the value of supply in your particular case, especiallyGST ACT2017 if the transaction involves related parties or complex arrangements.

EXAMPLE

Determining the Value of Supply of Goods Through an Agent Under Section 15 of the GST Act, 2017 – Example with Specific State (Chennai, Tamil Nadu)

Section 15 of the GST Act, 2017, along with Chapter IV of the CGST Rules, 2017, GST ACT2017governs the determination of the value of supply for various scenarios, including those involving agents. Here’s an example showcasing this concept in the context of Chennai, Tamil Nadu:

Scenario:

• Principal: A textile manufacturer based in Chennai (Tamil Nadu) supplies cotton yarn to its agent in Mumbai (Maharashtra).
• Agent: The Mumbai-based agent then forwards this yarn to a garment manufacturer in Bangalore (Karnataka).

Determining the Value of Supply:

There are two potential bases for determining the value of supply in this case:

1. Transaction Value:

• If the manufacturer and its agent are unrelated parties and the price charged for the yarn to the agent is determined solely by market forces, the value of supply for the Chennai manufacturer will be the transaction value reflected in the invoice issued to the agent.

1. Open Market Value or 90% Rule:

• If the manufacturer and agent are related parties or the price charged isn’t solely based on market forces, the value of supply for the Chennai manufacturer will be:
  • Open market value: This refers to the price at which similar yarn of like kind and quality is usually sold in the open market in Chennai (Tamil Nadu) at the time of supply.
  • 90% of the price charged to the subsequent buyer: Alternatively, the manufacturer can choose 90% of the price at which the Mumbai agent subsequently sells the yarn to the garment manufacturer in Bangalore.

State-Specific Considerations:

• While the GST framework is GST ACT2017pan-India, the rates and specific exemptions may vary from state to state. Therefore, the applicable GST rate for the yarn supply would depend on the specific nature of the yarn and the relevant tax classification under the Harmonized System of Nomenclature (HSN) code.
• Additionally, any state-specific exemptions or concessions GST ACT2017relating to textile products in Tamil Nadu or other states involved in the transaction should be factored in while determining the final tax liability.

FAQ QUESTIONS

FAQs Regarding Value of Supply of Goods through an Agent under Section – GST Act

Here are some frequently askedGST ACT2017 questions about the value of supply of goods made or received through an agent under Section – GST Act of India (assuming you are referring to the Central Goods and Service Tax Act (CGST Act), as the question mentions “sec”):

General:

What determines the value of supply of goods through an agent under GST Act Section – ?

Answer: In most cases under GST law for regular trade transactions involving an GST ACT2017agent as an intermediary between the principal and the recipient of the goods (buyer), the invoice issued by the supplier (principal) to the recipient (buyer), reflecting the transaction value, forms the basis for determining the value of supply under Section – .

In what situations under Section – does the transaction value not determine the value of supply through an agent for GST purposes ?

Answer: The transaction value might not beGST ACT2017 considered for determining the value of supply through an agent under Section – in specific situations as outlined in the CGST Rules and notifications issued by the Government of India (GoIt). These situations may include (not exhaustive):

Related party transactions: When the GST ACT2017supplier (principal), recipient (buyer), and agent are related parties (as defined under GST law), the transaction value may be disregarded if it is not at arm’* length (fair and reasonable market price). Discounts and incentives: Pre and post supply discounts offered by the principal in the course of normal trade practice and duly recorded in the invoice are excluded from the transaction value for determining the value of supply under Section – .Free samples and gifts: When goods are supplied as free samples or gifts without monetary consideration or at nominal value below market price (as a promotional activity), the value of supply will be determined as per Rule – of CGST Rules under Section – .Consignment sales: For goods supplied on consignment basis (goods remain the property of the principal until sold), the value of supply may be determined as per Rule – of CGST Rules under Section – based on the actual sale of the goods to the final buyer or at periodic intervals as agreed upon in the agreement between the principal and the agent (consignee).

Specific situations:

How is the value of supply determined when an agent buys and sells goods on behalf of the principal but bears the purchase cost and receives a commission on the sale price (del credere agency)?

Answer: In such cases under Section – , the value of supply for GST purposes will be the selling price to the buyer received by the agent (del credere agent), including the commission but excluding GST taxes (CGST and SGST or IGST as applicable).

How is the value of supply determined if an agent acts as a pure agent (does not own the goods or bear any risk)?

Answer: If the agent is a pure agent and only facilitates the transaction between theGST ACT2017 principal and the buyer without bearing any risk or ownership of the goods (commission agent), the value of supply under Section – will be the transaction value reflected in the invoice issued by the principalGST ACT2017 to the buyer (excluding GST taxes). Rule – of CGST Rules under Section – provides specific conditions for a pure agent to claim this benefit and avoid liability for tax payment on the commission earned (consult a tax advisor for detailed guidance).

Remember: These are just general FAQs and situations may vary based on the specific facts and terms of the agreement GST ACT2017between the principal (supplier), agent (intermediary), and the recipient (buyer). It is recommended to consult a tax professional for detailed guidance on determining the value of supply for GST purposes under Section – in specific situations and comply with the relevant provisions of the CGST Act and Rules issued by the GoIt regarding agents and transactions involving goods under GST law in India .

CASE LAWS

1. Applicable Provisions:

• Section 15 of the CGST Act 2017: Establishes the general principle that the GST ACT2017value of a supply is the transaction value, i.e., the price actually paid or payable.
• Rule 29 of the CGST Rules 2017: Specifically addresses the valuation of supplies made or received through an agent.

2. Key Principles:

• Transaction Value: The primary basis GST ACT2017for valuation is the transaction value between the principal and the agent.
• Open Market Value (OMV): If the transaction value is not available, or there are doubts about its accuracy, the OMV of the goods is used.
• 90% Rule: The supplier has the option to determine the value as 90% of the price charged by the recipient to their customer for similar goods, provided certain conditions are met.
• Cost Plus 10%: If the above methodsGST ACT2017 are not applicable, the value is determined as 105% of the cost of production, manufacture, or acquisition of the goods.

3. Potential Issues and Implications:

• Determination of Agency: Establishing whether a genuine agency relationshipGST ACT2017 exists is crucial for the applicability of Rule 29.
• Arm’s Length Principle: The transaction GST ACT2017value between the principal and agent must be at arm’s length to ensure fair valuation.
• Evidence of OMV: The onus of proving the OMV lies with the tax authorities.
• Related Person Transactions: Special valuationGST ACT2017 rules apply when the recipient is a related person.

4. Importance of Case Laws:

• Judicial Interpretation: Case laws play a vital role in clarifying and interpreting the provisions of the GST Act and Rules.
• Guidance for Tax Authorities and Taxpayers: Case laws provide guidance on GST ACT2017how to apply the valuation rules in specific scenarios.
• Evolution of Legal Principles: Case laws contribute to the development and refinement of legal principles over time.GST ACT2017