value of supply of goods and services under GST

Value of Supply of Goods or Services between Related Person under GST

Last Update Date : October 22, 2018

value of supply of goods or services under GST

The value of supply in a free market transactions where the two parties (i.e. buyer and seller) involved in a transaction are not related would be at arms-length or fair market value. However, when a commercial transaction happens between two related parties under GST, the value of supply could be distorted leading to lower GST payable to the Government. To prevent under invoicing or distortion of value of supply amongst related party, the Value of Supply rules provide guidelines for valuation of goods or services.

Who is a Distinct Person?

Under GST Act it is clearly mentioned that:

  • Every seller/individual must be responsible tax payer registered under Schedule-V of the Act.
  • A person who needs or have more than one registration, whether in one state or more than one state, shall be treated as distinct person with respect to every registration done under the Act.
  • An establishment of a person which has or is required to register in a state and any of his other establishment in some other state shall be considered as distinct persons for the purposes of this Act.

Value of Supply – Consideration is not Wholly in Money

In a lot of related party transaction, the consideration for the value of supply of goods and/or services might not be paid wholly in money. Hence, its important to ensure that in all related party transactions, the rules concerning value of supply where the consideration is not wholly in money, is followed.

When the supply of goods or services is for a consideration not wholly in money, then value of the supply should be calculated as:

  • The open market value of such supply;
  • If open market value is not available, 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;
  • If the value of supply is not determinable as per the above two conditions, then the value of supply of goods or services should be based on like kind and quality;
  • If the value of supply is not determinable as per the above three conditions, then 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 cost method or residual method.

Cost Method for Determining Value of Supply under GST

Where the value of a supply of goods or services or both is not determinable by any of rules prescribed in the procedure for determining value of supply under GST, the value should be taken as 110% of the cost of production or manufacture or cost of acquisition of such goods or cost of provision of such services.

Value of Supply – Related Party Transaction or Distinct Persons

The value of the supply of goods or services or both between distinct persons or related parties, other than where the supply is made through an agent, should be calculated as:

  • The open market value of such supply;
  • If open market value is not available, be the value of supply of goods or services of like kind and quality;
  • If value is not determinable under the above two methods, then the value as determined by cost method or residual method.
  • Also, if goods are intended for further supply as such by the recipient, then the value of supply 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. Finally, if the recipient is eligible for full input tax credit, then the value declared in the invoice should be deemed to be the open market value of goods or service.
  • Share: