Taxation Expert Advocate #KarthikSundaram explains how to determine transaction value(TV) in the #GST regime. The video in details valuation rules for different conditions and further explains cost based valuation and residual method of valuation.
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How to Determine Transaction Value under GST?
Now I've seen some of the basic requirements of the GST and the next important provision is on what value do I pay tax. Everyone says you are required to pay GST. This is the rate at which you are liable to pay GST. The further question which arises is what is the value at which I pay tax. So in the ‘Excise’, we have a concept referred to as transaction value. All of us under the excise regime became familiar with the transaction value.
What is the transaction value?
The transaction value is a price paid or payable as a consideration for the transaction. The buyer and seller should not be related and price should be the sole consideration for the transaction.
Let us take an instance, today I supplied goods for Rs.200. 200 is the only consideration the buyer and seller are not related in any manner. There is no other consideration other than Rs 200. That is referred to as the open market supply and that is the appropriate valuation for the transaction value under GST.
If the transaction value cannot be determined, then I go on to the other provisions as to on what value I should pay GST.
Today under the excise regime I have two things either section 4 goods which is transaction value or Section 4A which is an MRP basis. The MRP basis will lose its relevance under the GST regime. Under the GST what I'll have to look at is that transaction value basis.
In the event, there is no transaction value, I will have to go at what is referred to the GST valuation rules to determine what is my transaction value. When I go to the GST valuation rules What they say is that if you cannot determine the transaction value, It is first the open market supply.
So let us take an example as to when this will apply. So let us take a case where I sell goods to A. The goods are worth let us say Rs 200. A pays me rupees 150 in cash and he gives me a sack of rice worth 50rs. Now if it looks like goods, which I sell similarly or regularly in the course of business. I know that the value of goods is 200. I can’t say paying tax on 150 that's the price or money consideration which I received. I will have to pay tax on rupees two hundred. So the open market price value is the monetary consideration plus the value of the non-monetary consideration or what I charge for like or identical goods when I sell it in the market. So I would have to pay tax at rupees 200. So that is the entire concept of this open market value. So it does apply in this case when I sell both the monetary as well as a non-monetary consideration.
For stock transfer:
Now let us go to a situation where I do a stock transfer. We had discussed earlier that as a stock transfer or branch transfer will for the first time be liable to IGST. I will have to pay tax. When I do a stock transfer or branch transfer there is no consideration charge. So the question arises and there's no consideration charge on what value I will pay tax. If he's not going to pay me even one rupee for the stock transfer.
How do I pay tax?
So what they have said is to indicate the value in your invoice. If the recipient is entered to credit whatever the value you’re indicating in the invoice he will be liable to pay tax on that value.
Let us see how this will work practically. If goods are valued at rupees 100 my recipient is entered into credit. The tax has to be paid in one hundred. Ten rupees taxes pay let us say he will be entitled to the credit of that ten and when he is in turn 200 which he will set up 10 as the tax liability of let’s say 20. If that invoice value is declared at rupees 50 only five rupees will be available. When he sells at Rs.200 he will get the credit only five and 15 have to be paid in cash. So if the recipient is entered into credit whatever is declared as the invoice value. If the recipient is not entitled to credit then the 90 percent of the value at which the recipient sells such identical or similar goods. So if such goods are normally sold by the recipient at 200 then 90 percent of the value which is 180.
So this is a specific provision, which applies for branch transfers, stock transfers or transactions between related persons. There will be cases where I make supplier to the agent. Even in such a case, it is 90 percent of the value at which the agent makes that supply. Now there are two methods. So one there is no transaction value, there is no open market supply. I cannot arrive at the transaction where the previous two rules which I discussed.
