Ch 5 - Value of Taxable Supply of Goods and Services | GST Saral by CA Dhruv Aggarwal PDF Download

 Page 1


CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
 
 
 
 
 
 
 
 
 
 
CHAPTER 5 - Val ue of taxabl e suppl y of goods and servi ces 
 
 
 
 
 
CHAPTER 5 
 
Value of taxable  supply of goods and services 
 
EXECUTIVE SUMMARY 
 
?   Transaction value when price is sole consideration and supplier and recipient are not related is basis 
of valuation. 
?   IGST, CGST, UTGST and SGST charged on supply will not be includible in value, but other taxes, 
if any will be includible. 
?   Incidental expenses incurred before supply like packing, testing, weighment includible in 'value'. 
?   Interest, late fee or penalty for delayed payment is includible in 'value' for purpose of GST. 
?   Amount paid by recipient on behalf of supplier includible in value. 
?   Subsidies directly linked to supply includible but not subsidies received from Government. 
?   Discount not includible in 'value' if it was known before or at the time of supply (even if given later). 
However, deduction of discounts given after supply will not be available if such discount was not 
contemplated or known at the time of supply. 
?   The phrase 'price is sole consideration' has been copied from excise law. Hence, issues of addition 
of value  of drawings,  tools,  dies,  patterns,  free  material  supplied  by  recipient,  free  supplies, 
reimbursement of expenses will arise. 
?   In case of barter or exchange of old goods for new goods, value will be on basis of 'open market 
price' or adding value of old goods. 
?   Price charged to related person or distinct persons with same PAN will be accepted if it is open 
market value or price of like kind of goods or services. 
?   In case of supply of goods by Principal to Agent, price will be 'open market value' or at the option of 
supplier, 90% of price charged by agent to his customer who is not related person. 
?   Open Market Value means fu l value in money excluding taxes when buyer and se ler are not related 
and price is sole consideration. The value should be at same time when supply being valued is made. 
?   'Open Market Value' depends on many factors including brand image, class of buyer e.g. Open 
Market Value in wholesale and retail cannot be same. Open Market Value of Lux soap and soap of 
local manufacturer cannot be same. 
?   If value  is  not  ascertainable  by aforesaid  methods,  it will be  110%  of cost  of production  or 
manufacture  or cost of acquisition of such goods or cost of provision of such services [rule 4]. 
Otherwise, on reasonable basis under rule 5. 
?   Supplier of service can opt for rule 5 disregarding rule 4 i.e. on reasonable basis and not on basis of 
cost of service. 
Page 2


CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
 
 
 
 
 
 
 
 
 
 
CHAPTER 5 - Val ue of taxabl e suppl y of goods and servi ces 
 
 
 
 
 
CHAPTER 5 
 
Value of taxable  supply of goods and services 
 
EXECUTIVE SUMMARY 
 
?   Transaction value when price is sole consideration and supplier and recipient are not related is basis 
of valuation. 
?   IGST, CGST, UTGST and SGST charged on supply will not be includible in value, but other taxes, 
if any will be includible. 
?   Incidental expenses incurred before supply like packing, testing, weighment includible in 'value'. 
?   Interest, late fee or penalty for delayed payment is includible in 'value' for purpose of GST. 
?   Amount paid by recipient on behalf of supplier includible in value. 
?   Subsidies directly linked to supply includible but not subsidies received from Government. 
?   Discount not includible in 'value' if it was known before or at the time of supply (even if given later). 
However, deduction of discounts given after supply will not be available if such discount was not 
contemplated or known at the time of supply. 
?   The phrase 'price is sole consideration' has been copied from excise law. Hence, issues of addition 
of value  of drawings,  tools,  dies,  patterns,  free  material  supplied  by  recipient,  free  supplies, 
reimbursement of expenses will arise. 
?   In case of barter or exchange of old goods for new goods, value will be on basis of 'open market 
price' or adding value of old goods. 
?   Price charged to related person or distinct persons with same PAN will be accepted if it is open 
market value or price of like kind of goods or services. 
?   In case of supply of goods by Principal to Agent, price will be 'open market value' or at the option of 
supplier, 90% of price charged by agent to his customer who is not related person. 
?   Open Market Value means fu l value in money excluding taxes when buyer and se ler are not related 
and price is sole consideration. The value should be at same time when supply being valued is made. 
?   'Open Market Value' depends on many factors including brand image, class of buyer e.g. Open 
Market Value in wholesale and retail cannot be same. Open Market Value of Lux soap and soap of 
local manufacturer cannot be same. 
?   If value  is  not  ascertainable  by aforesaid  methods,  it will be  110%  of cost  of production  or 
manufacture  or cost of acquisition of such goods or cost of provision of such services [rule 4]. 
Otherwise, on reasonable basis under rule 5. 
?   Supplier of service can opt for rule 5 disregarding rule 4 i.e. on reasonable basis and not on basis of 
cost of service. 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
?   In case of fo lowing services, composition schemes as specified in Valuation Rules will apply - (a) 
Sale or purchase  of foreign currency (b) Booking of air tickets (c) Life Insurance  Business (d) 
Buying and se ling second hand goods (e) Value of token, voucher or coupon 
?   If supplier incurs some expenditure  as pure agent of recipient and recovers actual amount from 
recipient, that amount is not includible in value, if it is not part of his service. 
5.1 Transaction value is basis for valuation 
 
The value of a supply of goods or services or both shall be the transaction value, that is the price actua ly paid 
or payable for the said supply of goods or services or both where the supplier and the recipient of the supply 
are not related and the price is the sole consideration for the supply - section 15(1) of CGST Act. 
The conditions for accepting transaction value are - (a) supplier and recipient should not be related (b) price is 
sole consideration. 
5.1-1 Value does not include  GST but includes  other taxes 
 
Any taxes, duties, fees and charges levied under any statute other than the SGST Act or the CGST Act or the 
IGST Act or GST (Compensation to States for Loss of Revenue) Act; are includible in value, if charged 
separately - section 15(2)(a) of CGST Act. 
Thus, SGST and CGST will be payable on net value only. 
 
'Value' for GST will not include ISGT, CGST, SGST, UTGST and GST Compensation Cess. However, 
other taxes (like entertainment tax or some other cess) will be includible if charged separately in invoice. 
5.1-2 Amount  paid by recipient on behalf of supplier 
 
Any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the 
recipient of the supply and not included in the price actua ly paid or payable for the goods or services or both 
is includible in value - section 15(2)(b) of CGST Act. 
This cannot cover free inputs or services supplied by recipient, as only 'amount' paid by recipient on behalf of 
supplier is includible. This would be so only where there was contractual liability on supplier to make those 
supplies. 
5.1-3 Incidental expenses incurred before supply 
 
Incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply, 
including any amount charged for anything done by the supplier in respect of the supply of goods or services or 
both at the time of, or before delivery of the goods or, as the case may be, supply of the services are includible 
in value - section 15(2)(c) of CGST Act. 
Thus, expenses like weighment, loading in factory, inspection, testing before supply will be includible in 'value'. 
 
5.1-4 Interest, late fee or penalty  for delayed payment 
 
Interest or late fee or penalty for delayed payment of any consideration for any supply is includible in value - - 
section 15(2)(d) of CGST Act. 
5.2 Subsidies  directly linked to supply other than Government subsidies 
 
Subsidies directly linked to the price excluding subsidies provided by the Central and State governments are 
includible in 'value' for charge of GST. Explanation.-  The amount of subsidy shall be included in the value of 
supply of the supplier who receives the subsidy - section 15(2)(e) of CGST Act. 
This is also made clear in definition of 'consideration' in section 2(31) of CGST Act. 
 
Subsidy payable to suppliers  by person  other than  Government  when part  of sale price - In Ponni 
Page 3


CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
 
 
 
 
 
 
 
 
 
 
CHAPTER 5 - Val ue of taxabl e suppl y of goods and servi ces 
 
 
 
 
 
CHAPTER 5 
 
Value of taxable  supply of goods and services 
 
EXECUTIVE SUMMARY 
 
?   Transaction value when price is sole consideration and supplier and recipient are not related is basis 
of valuation. 
?   IGST, CGST, UTGST and SGST charged on supply will not be includible in value, but other taxes, 
if any will be includible. 
?   Incidental expenses incurred before supply like packing, testing, weighment includible in 'value'. 
?   Interest, late fee or penalty for delayed payment is includible in 'value' for purpose of GST. 
?   Amount paid by recipient on behalf of supplier includible in value. 
?   Subsidies directly linked to supply includible but not subsidies received from Government. 
?   Discount not includible in 'value' if it was known before or at the time of supply (even if given later). 
However, deduction of discounts given after supply will not be available if such discount was not 
contemplated or known at the time of supply. 
?   The phrase 'price is sole consideration' has been copied from excise law. Hence, issues of addition 
of value  of drawings,  tools,  dies,  patterns,  free  material  supplied  by  recipient,  free  supplies, 
reimbursement of expenses will arise. 
?   In case of barter or exchange of old goods for new goods, value will be on basis of 'open market 
price' or adding value of old goods. 
?   Price charged to related person or distinct persons with same PAN will be accepted if it is open 
market value or price of like kind of goods or services. 
?   In case of supply of goods by Principal to Agent, price will be 'open market value' or at the option of 
supplier, 90% of price charged by agent to his customer who is not related person. 
?   Open Market Value means fu l value in money excluding taxes when buyer and se ler are not related 
and price is sole consideration. The value should be at same time when supply being valued is made. 
?   'Open Market Value' depends on many factors including brand image, class of buyer e.g. Open 
Market Value in wholesale and retail cannot be same. Open Market Value of Lux soap and soap of 
local manufacturer cannot be same. 
?   If value  is  not  ascertainable  by aforesaid  methods,  it will be  110%  of cost  of production  or 
manufacture  or cost of acquisition of such goods or cost of provision of such services [rule 4]. 
Otherwise, on reasonable basis under rule 5. 
?   Supplier of service can opt for rule 5 disregarding rule 4 i.e. on reasonable basis and not on basis of 
cost of service. 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
?   In case of fo lowing services, composition schemes as specified in Valuation Rules will apply - (a) 
Sale or purchase  of foreign currency (b) Booking of air tickets (c) Life Insurance  Business (d) 
Buying and se ling second hand goods (e) Value of token, voucher or coupon 
?   If supplier incurs some expenditure  as pure agent of recipient and recovers actual amount from 
recipient, that amount is not includible in value, if it is not part of his service. 
5.1 Transaction value is basis for valuation 
 
The value of a supply of goods or services or both shall be the transaction value, that is the price actua ly paid 
or payable for the said supply of goods or services or both where the supplier and the recipient of the supply 
are not related and the price is the sole consideration for the supply - section 15(1) of CGST Act. 
The conditions for accepting transaction value are - (a) supplier and recipient should not be related (b) price is 
sole consideration. 
5.1-1 Value does not include  GST but includes  other taxes 
 
Any taxes, duties, fees and charges levied under any statute other than the SGST Act or the CGST Act or the 
IGST Act or GST (Compensation to States for Loss of Revenue) Act; are includible in value, if charged 
separately - section 15(2)(a) of CGST Act. 
Thus, SGST and CGST will be payable on net value only. 
 
'Value' for GST will not include ISGT, CGST, SGST, UTGST and GST Compensation Cess. However, 
other taxes (like entertainment tax or some other cess) will be includible if charged separately in invoice. 
5.1-2 Amount  paid by recipient on behalf of supplier 
 
Any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the 
recipient of the supply and not included in the price actua ly paid or payable for the goods or services or both 
is includible in value - section 15(2)(b) of CGST Act. 
This cannot cover free inputs or services supplied by recipient, as only 'amount' paid by recipient on behalf of 
supplier is includible. This would be so only where there was contractual liability on supplier to make those 
supplies. 
5.1-3 Incidental expenses incurred before supply 
 
Incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply, 
including any amount charged for anything done by the supplier in respect of the supply of goods or services or 
both at the time of, or before delivery of the goods or, as the case may be, supply of the services are includible 
in value - section 15(2)(c) of CGST Act. 
Thus, expenses like weighment, loading in factory, inspection, testing before supply will be includible in 'value'. 
 
5.1-4 Interest, late fee or penalty  for delayed payment 
 
Interest or late fee or penalty for delayed payment of any consideration for any supply is includible in value - - 
section 15(2)(d) of CGST Act. 
5.2 Subsidies  directly linked to supply other than Government subsidies 
 
Subsidies directly linked to the price excluding subsidies provided by the Central and State governments are 
includible in 'value' for charge of GST. Explanation.-  The amount of subsidy shall be included in the value of 
supply of the supplier who receives the subsidy - section 15(2)(e) of CGST Act. 
This is also made clear in definition of 'consideration' in section 2(31) of CGST Act. 
 
Subsidy payable to suppliers  by person  other than  Government  when part  of sale price - In Ponni 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
Sugar (Erode) Ltd. v. DCTO (2005) 142 STC 543 (SC), it was held that total amount of consideration, 
including other amounts which represent the expenses required for completing the sale are includible in taxable 
turnover, as the se ler would ordinarily include a l of them in the price at which he would sale the goods. In this 
case, it was that transport charges for bringing sugar cane from factory to mi ls, incurred by mi l owner, are 
includible in taxable turnover, as otherwise, the se ler would be required to incur these expenses. This would 
be so even if the cane growers were to receive transport subsidy from the purchaser (sugar mi l owner). 
Any subsidy paid to suppliers or to others on behalf of suppliers to ensure scheduled delivery is component of 
se ling price. These are not post sale expenses - EID Parry v. ACCT (2000) 2 SCC 321 = 2000 AIR SCW 
86 = 117 STC 457 = AIR 2000 SC 551 [In this case, the sugar factory had paid planting subsidy to cane 
growers (suppliers) and transport subsidy to transporters.  The cane growers were to give delivery at the 
factory gate. Hence, it was held that if the subsidy was not given, the suppliers would have to spend the 
amount and would have included these payments in the sale price]. 
Subsidy received from Government  was not includible  even earlier  - In Neyveli Lignite v. CTO 124 
STC 586 = (2001) 9 SCC 648 = 2001 AIR SCW 3917 (SC 3 member bench), it was held that subsidy 
received from Government of India under Fertilizer (Control) Order is not part of taxable turnover. It is de 
hors the contract of sale with buyer. - fo lowed in EID Parry v. ACCT (2002) 126 STC 112 (Mad HC DB) 
[reversing decision in Neyveli Lignite v. Dy CTO (1999) 115 STC 51 (TNTST), where it was held that 
fertilizer subsidy received by manufacturer from Government on basis of retention price is part of turnover and 
is taxable] - same view in Chengalvarayan Coop Sugar Mills v. State of Tamilnadu (1997) 105 STC 497 
(Mad HC FB) * Indian Potash v. ACCT (2002) 128 STC 446 (Mad HC DB) * Fertiliser  Corporation  of 
India v. CTO (1991) 83 STC 129 (AP HC DB). 
In COT v. Bongaigaon Refinery (1999) 114 STC 26 (Gau HC DB), it was held that subsidy received from 
oil pool account for di fference between ex-factory price and retention price is not part of sale price. [single 
member bench decision in Bongaigaon  Refinery v. COT (1996) 103 STC 132 (Gau HC) confirmed]  - 
fo lowed in Bongaigaon  Refinery v. COT (2003) 131 STC  37 (Gau HC) - view confirmed  in COT v. 
Bongaigaon Refinery (2006) 147 STC 358 (SC). 
In State of Punjab v. Morinda Cooperative Society (2012) 47 VST 54 (P&H HC DB), it was held that 
subsidy paid by State Government is not part of sale price and it not includible for purpose of sales tax. 
Subsidy not connected with specific sale not includible - It may be noted that a general subsidy which is 
not specifica ly connected to sale of any specific goods will not be includible. 
In Tisco General Office Recreation Club v. State of Bihar (2002) 126 STC 547 (SC), appe lant, a dealer, 
was running canteen for employees of the company. The prices were below cost price. However, TISCO, 
without any statutory obligation, as a staff welfare measure, was making good the excess of expenditure over 
income. The subsidy was not relatable to any item of food. It was held that the lumpsum subsidy made ex- 
gratia cannot form part of sale price. 
5.3 Discount or incentive  given after supply 
 
The value of the supply shall not include any discount that is given: 
 
(a)   before or at the time of the supply provided such discount has been duly recorded in the invoice 
issued in respect of such supply; and 
(b)   after the supply has been effected,  provided  that (i) such discount is established  in terms of an 
agreement  entered  into at or before  the time of such supply and specifica ly linked  to relevant 
i nvoices; and ( i) input tax credit as is attributable to the discount has been reversed by the recipient 
of the supply - section 15(3) of CGST Act. 
Page 4


CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
 
 
 
 
 
 
 
 
 
 
CHAPTER 5 - Val ue of taxabl e suppl y of goods and servi ces 
 
 
 
 
 
CHAPTER 5 
 
Value of taxable  supply of goods and services 
 
EXECUTIVE SUMMARY 
 
?   Transaction value when price is sole consideration and supplier and recipient are not related is basis 
of valuation. 
?   IGST, CGST, UTGST and SGST charged on supply will not be includible in value, but other taxes, 
if any will be includible. 
?   Incidental expenses incurred before supply like packing, testing, weighment includible in 'value'. 
?   Interest, late fee or penalty for delayed payment is includible in 'value' for purpose of GST. 
?   Amount paid by recipient on behalf of supplier includible in value. 
?   Subsidies directly linked to supply includible but not subsidies received from Government. 
?   Discount not includible in 'value' if it was known before or at the time of supply (even if given later). 
However, deduction of discounts given after supply will not be available if such discount was not 
contemplated or known at the time of supply. 
?   The phrase 'price is sole consideration' has been copied from excise law. Hence, issues of addition 
of value  of drawings,  tools,  dies,  patterns,  free  material  supplied  by  recipient,  free  supplies, 
reimbursement of expenses will arise. 
?   In case of barter or exchange of old goods for new goods, value will be on basis of 'open market 
price' or adding value of old goods. 
?   Price charged to related person or distinct persons with same PAN will be accepted if it is open 
market value or price of like kind of goods or services. 
?   In case of supply of goods by Principal to Agent, price will be 'open market value' or at the option of 
supplier, 90% of price charged by agent to his customer who is not related person. 
?   Open Market Value means fu l value in money excluding taxes when buyer and se ler are not related 
and price is sole consideration. The value should be at same time when supply being valued is made. 
?   'Open Market Value' depends on many factors including brand image, class of buyer e.g. Open 
Market Value in wholesale and retail cannot be same. Open Market Value of Lux soap and soap of 
local manufacturer cannot be same. 
?   If value  is  not  ascertainable  by aforesaid  methods,  it will be  110%  of cost  of production  or 
manufacture  or cost of acquisition of such goods or cost of provision of such services [rule 4]. 
Otherwise, on reasonable basis under rule 5. 
?   Supplier of service can opt for rule 5 disregarding rule 4 i.e. on reasonable basis and not on basis of 
cost of service. 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
?   In case of fo lowing services, composition schemes as specified in Valuation Rules will apply - (a) 
Sale or purchase  of foreign currency (b) Booking of air tickets (c) Life Insurance  Business (d) 
Buying and se ling second hand goods (e) Value of token, voucher or coupon 
?   If supplier incurs some expenditure  as pure agent of recipient and recovers actual amount from 
recipient, that amount is not includible in value, if it is not part of his service. 
5.1 Transaction value is basis for valuation 
 
The value of a supply of goods or services or both shall be the transaction value, that is the price actua ly paid 
or payable for the said supply of goods or services or both where the supplier and the recipient of the supply 
are not related and the price is the sole consideration for the supply - section 15(1) of CGST Act. 
The conditions for accepting transaction value are - (a) supplier and recipient should not be related (b) price is 
sole consideration. 
5.1-1 Value does not include  GST but includes  other taxes 
 
Any taxes, duties, fees and charges levied under any statute other than the SGST Act or the CGST Act or the 
IGST Act or GST (Compensation to States for Loss of Revenue) Act; are includible in value, if charged 
separately - section 15(2)(a) of CGST Act. 
Thus, SGST and CGST will be payable on net value only. 
 
'Value' for GST will not include ISGT, CGST, SGST, UTGST and GST Compensation Cess. However, 
other taxes (like entertainment tax or some other cess) will be includible if charged separately in invoice. 
5.1-2 Amount  paid by recipient on behalf of supplier 
 
Any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the 
recipient of the supply and not included in the price actua ly paid or payable for the goods or services or both 
is includible in value - section 15(2)(b) of CGST Act. 
This cannot cover free inputs or services supplied by recipient, as only 'amount' paid by recipient on behalf of 
supplier is includible. This would be so only where there was contractual liability on supplier to make those 
supplies. 
5.1-3 Incidental expenses incurred before supply 
 
Incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply, 
including any amount charged for anything done by the supplier in respect of the supply of goods or services or 
both at the time of, or before delivery of the goods or, as the case may be, supply of the services are includible 
in value - section 15(2)(c) of CGST Act. 
Thus, expenses like weighment, loading in factory, inspection, testing before supply will be includible in 'value'. 
 
5.1-4 Interest, late fee or penalty  for delayed payment 
 
Interest or late fee or penalty for delayed payment of any consideration for any supply is includible in value - - 
section 15(2)(d) of CGST Act. 
5.2 Subsidies  directly linked to supply other than Government subsidies 
 
Subsidies directly linked to the price excluding subsidies provided by the Central and State governments are 
includible in 'value' for charge of GST. Explanation.-  The amount of subsidy shall be included in the value of 
supply of the supplier who receives the subsidy - section 15(2)(e) of CGST Act. 
This is also made clear in definition of 'consideration' in section 2(31) of CGST Act. 
 
Subsidy payable to suppliers  by person  other than  Government  when part  of sale price - In Ponni 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
Sugar (Erode) Ltd. v. DCTO (2005) 142 STC 543 (SC), it was held that total amount of consideration, 
including other amounts which represent the expenses required for completing the sale are includible in taxable 
turnover, as the se ler would ordinarily include a l of them in the price at which he would sale the goods. In this 
case, it was that transport charges for bringing sugar cane from factory to mi ls, incurred by mi l owner, are 
includible in taxable turnover, as otherwise, the se ler would be required to incur these expenses. This would 
be so even if the cane growers were to receive transport subsidy from the purchaser (sugar mi l owner). 
Any subsidy paid to suppliers or to others on behalf of suppliers to ensure scheduled delivery is component of 
se ling price. These are not post sale expenses - EID Parry v. ACCT (2000) 2 SCC 321 = 2000 AIR SCW 
86 = 117 STC 457 = AIR 2000 SC 551 [In this case, the sugar factory had paid planting subsidy to cane 
growers (suppliers) and transport subsidy to transporters.  The cane growers were to give delivery at the 
factory gate. Hence, it was held that if the subsidy was not given, the suppliers would have to spend the 
amount and would have included these payments in the sale price]. 
Subsidy received from Government  was not includible  even earlier  - In Neyveli Lignite v. CTO 124 
STC 586 = (2001) 9 SCC 648 = 2001 AIR SCW 3917 (SC 3 member bench), it was held that subsidy 
received from Government of India under Fertilizer (Control) Order is not part of taxable turnover. It is de 
hors the contract of sale with buyer. - fo lowed in EID Parry v. ACCT (2002) 126 STC 112 (Mad HC DB) 
[reversing decision in Neyveli Lignite v. Dy CTO (1999) 115 STC 51 (TNTST), where it was held that 
fertilizer subsidy received by manufacturer from Government on basis of retention price is part of turnover and 
is taxable] - same view in Chengalvarayan Coop Sugar Mills v. State of Tamilnadu (1997) 105 STC 497 
(Mad HC FB) * Indian Potash v. ACCT (2002) 128 STC 446 (Mad HC DB) * Fertiliser  Corporation  of 
India v. CTO (1991) 83 STC 129 (AP HC DB). 
In COT v. Bongaigaon Refinery (1999) 114 STC 26 (Gau HC DB), it was held that subsidy received from 
oil pool account for di fference between ex-factory price and retention price is not part of sale price. [single 
member bench decision in Bongaigaon  Refinery v. COT (1996) 103 STC 132 (Gau HC) confirmed]  - 
fo lowed in Bongaigaon  Refinery v. COT (2003) 131 STC  37 (Gau HC) - view confirmed  in COT v. 
Bongaigaon Refinery (2006) 147 STC 358 (SC). 
In State of Punjab v. Morinda Cooperative Society (2012) 47 VST 54 (P&H HC DB), it was held that 
subsidy paid by State Government is not part of sale price and it not includible for purpose of sales tax. 
Subsidy not connected with specific sale not includible - It may be noted that a general subsidy which is 
not specifica ly connected to sale of any specific goods will not be includible. 
In Tisco General Office Recreation Club v. State of Bihar (2002) 126 STC 547 (SC), appe lant, a dealer, 
was running canteen for employees of the company. The prices were below cost price. However, TISCO, 
without any statutory obligation, as a staff welfare measure, was making good the excess of expenditure over 
income. The subsidy was not relatable to any item of food. It was held that the lumpsum subsidy made ex- 
gratia cannot form part of sale price. 
5.3 Discount or incentive  given after supply 
 
The value of the supply shall not include any discount that is given: 
 
(a)   before or at the time of the supply provided such discount has been duly recorded in the invoice 
issued in respect of such supply; and 
(b)   after the supply has been effected,  provided  that (i) such discount is established  in terms of an 
agreement  entered  into at or before  the time of such supply and specifica ly linked  to relevant 
i nvoices; and ( i) input tax credit as is attributable to the discount has been reversed by the recipient 
of the supply - section 15(3) of CGST Act. 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
Thus, discount after supply is permissible as deduction only if it was known before or at the time of supply. 
There is provision of issue of 'credit note' for deficiency in supply. However, such credit note cannot be issued 
for passing of discount which was not contemplated at the time of supply. - section 34(1) of CGST Act. 
 
However, if incidence of GST and interest has been passed on to another person, reduction in output tax 
liability of the supplier shall not be permitted - proviso to section 34(2) of CGST Act. 
Thus, if recipient of goods or services or both has availed input tax credit, simple credit note may be issued 
without claiming GST. 
Giving discounts and price reductions after supply of goods and services is not uncommon in business. 
 
However, since credit note cannot be issued after supply giving discount, the taxable person has to find some 
other nomenclature like deficiency in service or excess charged by clerical or other mistake etc. 
5.3-1 Input Tax Credit to be reversed if payment is not made  to supplier within 180 days 
 
As per second proviso to section 16(2) of CGST Act, if payment of invoice amount is not made to supplier 
within 180 days, input tax credit is required to be reversed. 
Pay tax with interest even if supplier has paid full tax to Government  - an unfair  provision - On one 
hand, post supply discounts are not a lowed as deduction from 'value' for GST. On the other hand, if less 
amount is paid to supplier, corresponding input tax credit is required to be reversed with interest, even when 
entire tax amount has been paid to Government by supplier. This is double whammy and absolutely unfair 
provision. 
5.3-2 No unjust enrichment if discount amount returned to buyer by cheque  or credit note 
 
If credit note is issued after supplier, its input tax credit can be adjusted in Electronic Credit Ledger. 
 
Even otherwise, there is ample case law that if the discount amount is refunded by supplier by way of credit 
note or cheque, there is no unjust enrichment and refund is admissible. 
In UOI v. A K Spintex (2009) 234 ELT 41 (Raj HC DB), it was held that once credit note is issued to 
customer who has issued corresponding debit note, Bill amount mi nus amount of credit/debit note becomes 
price of goods. In such case, incidence of duty cannot be assumed as passed on to purchaser. Doctrine of 
unjust enrichment does not apply. Refund is not deniable - fo lowed in* RPG Cables v. CCE (2009) 240 
ELT 684 (CESTAT SMB) *Hindalco Industries v. CCE (2009) 240 ELT 693 (CESTAT SMB) * CCE v. 
Sirpur Paper Mills (2010) 253 ELT 269 (CESTAT) [The decision was noted but not fo lowed in SPBL Ltd. 
v. CCE (2010) 254 ELT 104 (CESTAT)] . 
Same view has been held in CCE v. Solaris Chemtech (2011) 273 ELT 191 (Karn HC DB) * Sudhir 
Papers v. CCE (2012) 276 ELT 304 (Karn HC DB) * CCE v. Jineshwar Malleables (2012) 281 ELT 43 
(Karn HC DB) * CCE v. Gokak Mills (2013) 295 ELT 392 (Karn HC DB) * Hyderabad  Chemical 
Supplies v. CCE (2015) 320 ELT 756 (AP HC DB) * CCE  v. Bhushan  Steel (2015) 319 ELT 347 
(CESTAT). 
In Shiva Electricals v. CST (2007) 7 STR 35 = 3 STT 105 (CESTAT), it was held that issue of credit notes 
also amounts to payment (to recipient) and hence unjust enrichment doctrine does not apply - relying on 
Mohd. Ekram Khan v. CTO 2004 (6) SCC 1083 (SC), where it was held that issue of credit note to client is 
also a form of payment [This is after specifica ly noting the contrary decisions of large bench of Tribunal in S 
Kumar and Grasim Ind] -view upheld in CST v.Shiva Analyticals (2009) 21 STT 328 (Karn HC DB) - 
fo lowed in Professional  International  Courier  v. CST (2009) 26 VST 434 (CESTAT) * Professional 
International  Couriers  v. CST (2010) 24 STT 172 (CESTAT SMB) * PML Industries  v. CCE (2010) 
259 ELT 433 (CESTAT SMB) * CCE v. IOCL (2014) 302 ELT 67 (CESTAT SMB) * CCE v. Indian 
Page 5


CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
 
 
 
 
 
 
 
 
 
 
CHAPTER 5 - Val ue of taxabl e suppl y of goods and servi ces 
 
 
 
 
 
CHAPTER 5 
 
Value of taxable  supply of goods and services 
 
EXECUTIVE SUMMARY 
 
?   Transaction value when price is sole consideration and supplier and recipient are not related is basis 
of valuation. 
?   IGST, CGST, UTGST and SGST charged on supply will not be includible in value, but other taxes, 
if any will be includible. 
?   Incidental expenses incurred before supply like packing, testing, weighment includible in 'value'. 
?   Interest, late fee or penalty for delayed payment is includible in 'value' for purpose of GST. 
?   Amount paid by recipient on behalf of supplier includible in value. 
?   Subsidies directly linked to supply includible but not subsidies received from Government. 
?   Discount not includible in 'value' if it was known before or at the time of supply (even if given later). 
However, deduction of discounts given after supply will not be available if such discount was not 
contemplated or known at the time of supply. 
?   The phrase 'price is sole consideration' has been copied from excise law. Hence, issues of addition 
of value  of drawings,  tools,  dies,  patterns,  free  material  supplied  by  recipient,  free  supplies, 
reimbursement of expenses will arise. 
?   In case of barter or exchange of old goods for new goods, value will be on basis of 'open market 
price' or adding value of old goods. 
?   Price charged to related person or distinct persons with same PAN will be accepted if it is open 
market value or price of like kind of goods or services. 
?   In case of supply of goods by Principal to Agent, price will be 'open market value' or at the option of 
supplier, 90% of price charged by agent to his customer who is not related person. 
?   Open Market Value means fu l value in money excluding taxes when buyer and se ler are not related 
and price is sole consideration. The value should be at same time when supply being valued is made. 
?   'Open Market Value' depends on many factors including brand image, class of buyer e.g. Open 
Market Value in wholesale and retail cannot be same. Open Market Value of Lux soap and soap of 
local manufacturer cannot be same. 
?   If value  is  not  ascertainable  by aforesaid  methods,  it will be  110%  of cost  of production  or 
manufacture  or cost of acquisition of such goods or cost of provision of such services [rule 4]. 
Otherwise, on reasonable basis under rule 5. 
?   Supplier of service can opt for rule 5 disregarding rule 4 i.e. on reasonable basis and not on basis of 
cost of service. 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
?   In case of fo lowing services, composition schemes as specified in Valuation Rules will apply - (a) 
Sale or purchase  of foreign currency (b) Booking of air tickets (c) Life Insurance  Business (d) 
Buying and se ling second hand goods (e) Value of token, voucher or coupon 
?   If supplier incurs some expenditure  as pure agent of recipient and recovers actual amount from 
recipient, that amount is not includible in value, if it is not part of his service. 
5.1 Transaction value is basis for valuation 
 
The value of a supply of goods or services or both shall be the transaction value, that is the price actua ly paid 
or payable for the said supply of goods or services or both where the supplier and the recipient of the supply 
are not related and the price is the sole consideration for the supply - section 15(1) of CGST Act. 
The conditions for accepting transaction value are - (a) supplier and recipient should not be related (b) price is 
sole consideration. 
5.1-1 Value does not include  GST but includes  other taxes 
 
Any taxes, duties, fees and charges levied under any statute other than the SGST Act or the CGST Act or the 
IGST Act or GST (Compensation to States for Loss of Revenue) Act; are includible in value, if charged 
separately - section 15(2)(a) of CGST Act. 
Thus, SGST and CGST will be payable on net value only. 
 
'Value' for GST will not include ISGT, CGST, SGST, UTGST and GST Compensation Cess. However, 
other taxes (like entertainment tax or some other cess) will be includible if charged separately in invoice. 
5.1-2 Amount  paid by recipient on behalf of supplier 
 
Any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the 
recipient of the supply and not included in the price actua ly paid or payable for the goods or services or both 
is includible in value - section 15(2)(b) of CGST Act. 
This cannot cover free inputs or services supplied by recipient, as only 'amount' paid by recipient on behalf of 
supplier is includible. This would be so only where there was contractual liability on supplier to make those 
supplies. 
5.1-3 Incidental expenses incurred before supply 
 
Incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply, 
including any amount charged for anything done by the supplier in respect of the supply of goods or services or 
both at the time of, or before delivery of the goods or, as the case may be, supply of the services are includible 
in value - section 15(2)(c) of CGST Act. 
Thus, expenses like weighment, loading in factory, inspection, testing before supply will be includible in 'value'. 
 
5.1-4 Interest, late fee or penalty  for delayed payment 
 
Interest or late fee or penalty for delayed payment of any consideration for any supply is includible in value - - 
section 15(2)(d) of CGST Act. 
5.2 Subsidies  directly linked to supply other than Government subsidies 
 
Subsidies directly linked to the price excluding subsidies provided by the Central and State governments are 
includible in 'value' for charge of GST. Explanation.-  The amount of subsidy shall be included in the value of 
supply of the supplier who receives the subsidy - section 15(2)(e) of CGST Act. 
This is also made clear in definition of 'consideration' in section 2(31) of CGST Act. 
 
Subsidy payable to suppliers  by person  other than  Government  when part  of sale price - In Ponni 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
Sugar (Erode) Ltd. v. DCTO (2005) 142 STC 543 (SC), it was held that total amount of consideration, 
including other amounts which represent the expenses required for completing the sale are includible in taxable 
turnover, as the se ler would ordinarily include a l of them in the price at which he would sale the goods. In this 
case, it was that transport charges for bringing sugar cane from factory to mi ls, incurred by mi l owner, are 
includible in taxable turnover, as otherwise, the se ler would be required to incur these expenses. This would 
be so even if the cane growers were to receive transport subsidy from the purchaser (sugar mi l owner). 
Any subsidy paid to suppliers or to others on behalf of suppliers to ensure scheduled delivery is component of 
se ling price. These are not post sale expenses - EID Parry v. ACCT (2000) 2 SCC 321 = 2000 AIR SCW 
86 = 117 STC 457 = AIR 2000 SC 551 [In this case, the sugar factory had paid planting subsidy to cane 
growers (suppliers) and transport subsidy to transporters.  The cane growers were to give delivery at the 
factory gate. Hence, it was held that if the subsidy was not given, the suppliers would have to spend the 
amount and would have included these payments in the sale price]. 
Subsidy received from Government  was not includible  even earlier  - In Neyveli Lignite v. CTO 124 
STC 586 = (2001) 9 SCC 648 = 2001 AIR SCW 3917 (SC 3 member bench), it was held that subsidy 
received from Government of India under Fertilizer (Control) Order is not part of taxable turnover. It is de 
hors the contract of sale with buyer. - fo lowed in EID Parry v. ACCT (2002) 126 STC 112 (Mad HC DB) 
[reversing decision in Neyveli Lignite v. Dy CTO (1999) 115 STC 51 (TNTST), where it was held that 
fertilizer subsidy received by manufacturer from Government on basis of retention price is part of turnover and 
is taxable] - same view in Chengalvarayan Coop Sugar Mills v. State of Tamilnadu (1997) 105 STC 497 
(Mad HC FB) * Indian Potash v. ACCT (2002) 128 STC 446 (Mad HC DB) * Fertiliser  Corporation  of 
India v. CTO (1991) 83 STC 129 (AP HC DB). 
In COT v. Bongaigaon Refinery (1999) 114 STC 26 (Gau HC DB), it was held that subsidy received from 
oil pool account for di fference between ex-factory price and retention price is not part of sale price. [single 
member bench decision in Bongaigaon  Refinery v. COT (1996) 103 STC 132 (Gau HC) confirmed]  - 
fo lowed in Bongaigaon  Refinery v. COT (2003) 131 STC  37 (Gau HC) - view confirmed  in COT v. 
Bongaigaon Refinery (2006) 147 STC 358 (SC). 
In State of Punjab v. Morinda Cooperative Society (2012) 47 VST 54 (P&H HC DB), it was held that 
subsidy paid by State Government is not part of sale price and it not includible for purpose of sales tax. 
Subsidy not connected with specific sale not includible - It may be noted that a general subsidy which is 
not specifica ly connected to sale of any specific goods will not be includible. 
In Tisco General Office Recreation Club v. State of Bihar (2002) 126 STC 547 (SC), appe lant, a dealer, 
was running canteen for employees of the company. The prices were below cost price. However, TISCO, 
without any statutory obligation, as a staff welfare measure, was making good the excess of expenditure over 
income. The subsidy was not relatable to any item of food. It was held that the lumpsum subsidy made ex- 
gratia cannot form part of sale price. 
5.3 Discount or incentive  given after supply 
 
The value of the supply shall not include any discount that is given: 
 
(a)   before or at the time of the supply provided such discount has been duly recorded in the invoice 
issued in respect of such supply; and 
(b)   after the supply has been effected,  provided  that (i) such discount is established  in terms of an 
agreement  entered  into at or before  the time of such supply and specifica ly linked  to relevant 
i nvoices; and ( i) input tax credit as is attributable to the discount has been reversed by the recipient 
of the supply - section 15(3) of CGST Act. 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
Thus, discount after supply is permissible as deduction only if it was known before or at the time of supply. 
There is provision of issue of 'credit note' for deficiency in supply. However, such credit note cannot be issued 
for passing of discount which was not contemplated at the time of supply. - section 34(1) of CGST Act. 
 
However, if incidence of GST and interest has been passed on to another person, reduction in output tax 
liability of the supplier shall not be permitted - proviso to section 34(2) of CGST Act. 
Thus, if recipient of goods or services or both has availed input tax credit, simple credit note may be issued 
without claiming GST. 
Giving discounts and price reductions after supply of goods and services is not uncommon in business. 
 
However, since credit note cannot be issued after supply giving discount, the taxable person has to find some 
other nomenclature like deficiency in service or excess charged by clerical or other mistake etc. 
5.3-1 Input Tax Credit to be reversed if payment is not made  to supplier within 180 days 
 
As per second proviso to section 16(2) of CGST Act, if payment of invoice amount is not made to supplier 
within 180 days, input tax credit is required to be reversed. 
Pay tax with interest even if supplier has paid full tax to Government  - an unfair  provision - On one 
hand, post supply discounts are not a lowed as deduction from 'value' for GST. On the other hand, if less 
amount is paid to supplier, corresponding input tax credit is required to be reversed with interest, even when 
entire tax amount has been paid to Government by supplier. This is double whammy and absolutely unfair 
provision. 
5.3-2 No unjust enrichment if discount amount returned to buyer by cheque  or credit note 
 
If credit note is issued after supplier, its input tax credit can be adjusted in Electronic Credit Ledger. 
 
Even otherwise, there is ample case law that if the discount amount is refunded by supplier by way of credit 
note or cheque, there is no unjust enrichment and refund is admissible. 
In UOI v. A K Spintex (2009) 234 ELT 41 (Raj HC DB), it was held that once credit note is issued to 
customer who has issued corresponding debit note, Bill amount mi nus amount of credit/debit note becomes 
price of goods. In such case, incidence of duty cannot be assumed as passed on to purchaser. Doctrine of 
unjust enrichment does not apply. Refund is not deniable - fo lowed in* RPG Cables v. CCE (2009) 240 
ELT 684 (CESTAT SMB) *Hindalco Industries v. CCE (2009) 240 ELT 693 (CESTAT SMB) * CCE v. 
Sirpur Paper Mills (2010) 253 ELT 269 (CESTAT) [The decision was noted but not fo lowed in SPBL Ltd. 
v. CCE (2010) 254 ELT 104 (CESTAT)] . 
Same view has been held in CCE v. Solaris Chemtech (2011) 273 ELT 191 (Karn HC DB) * Sudhir 
Papers v. CCE (2012) 276 ELT 304 (Karn HC DB) * CCE v. Jineshwar Malleables (2012) 281 ELT 43 
(Karn HC DB) * CCE v. Gokak Mills (2013) 295 ELT 392 (Karn HC DB) * Hyderabad  Chemical 
Supplies v. CCE (2015) 320 ELT 756 (AP HC DB) * CCE  v. Bhushan  Steel (2015) 319 ELT 347 
(CESTAT). 
In Shiva Electricals v. CST (2007) 7 STR 35 = 3 STT 105 (CESTAT), it was held that issue of credit notes 
also amounts to payment (to recipient) and hence unjust enrichment doctrine does not apply - relying on 
Mohd. Ekram Khan v. CTO 2004 (6) SCC 1083 (SC), where it was held that issue of credit note to client is 
also a form of payment [This is after specifica ly noting the contrary decisions of large bench of Tribunal in S 
Kumar and Grasim Ind] -view upheld in CST v.Shiva Analyticals (2009) 21 STT 328 (Karn HC DB) - 
fo lowed in Professional  International  Courier  v. CST (2009) 26 VST 434 (CESTAT) * Professional 
International  Couriers  v. CST (2010) 24 STT 172 (CESTAT SMB) * PML Industries  v. CCE (2010) 
259 ELT 433 (CESTAT SMB) * CCE v. IOCL (2014) 302 ELT 67 (CESTAT SMB) * CCE v. Indian 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
Explosives (2015) 315 ELT 606 (CESTAT). 
 
Credit note/debit note is a standard practice and accepted practice in accounting terminology for deciding 
liability or claim of ref und. Issue of credit note is sufficient to grand refund - CST v. Purnima  Advertising & 
Promotion (2010) 25 STT 166 = 29 VST 261 (CESTAT). 
In Thermo Heat Tracers  v. CCE 2001(132) ELT 455 (CEGAT), it was held that once manufacturer has 
credited buyer's account with disputed amount of duty, manufacturer took back incidence of duty on himself. 
In such case, the question of buyer passing on the burden to third person does not arise. - same view in Indo 
Flogates Ltd. v. CCE 1997(20) RLT 443 (CEGAT SMB) * Siltap Chemicals v. CCE 2006 (193) ELT 
461 (CESTAT) * CCE v. NVK Mohd Sultan (2008) 223 ELT 276 (CESTAT SMB) * CCE v. Modest 
Infrastructure  (2011) 33 STT 278 = 14 Latest Case28 (CESTAT) - view confirmed in CCE v. Modest 
Infrastructure  (2012) 37 STT 505 = 27 Latest Case6 (Guj HC DB). 
5.4 Meaning of 'consideration' 
 
"Consideration" in relation to the supply of goods or services or both to any person, includes 
 
(a)   any payment made or to be made, whether in money or otherwise, in respect of, in response to, or 
for the inducement of, the supply of goods or services or both, whether by the said person or by any 
other person; but shall not include any subsidy given by Central or State Government. 
(b)   the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, 
the supply of goods or services or both, whether by the recipient or by any other person, but shall 
not include any subsidy given by Central or State Government - section 2(31) of CGST Act. 
Clause 'b' would cover service of 'refraining from act or tolerating an act or situation'. 
 
5.4-1 Deposit is not consideration 
 
A deposit, whether refundable or not, given in respect of the supply of goods or services or both shall not be 
considered as payment made for the supply unless the supplier applies the deposit as consideration for the 
supply - proviso to section 2(31) of CGST Act. 
Norma ly, term 'deposit'  is used when amount is refundable  and term 'advance'  is used when amount is 
adjustable (and not refundable). However, definition of 'consideration' envisages non-refundable deposit also. 
GST is payable when advance is received. Hence, instead of receiving advance from customer, it is advisable 
to receive 'deposit'. In that case, GST will be payable only when such deposit is adjusted against supply. 
However, this will raise issued under Companies Act, 2013. 
 
5.4-2 Price should be 'sole consideration' 
 
The term 'price is sole consideration' has been copied from valuation provisions in excise, customs and service 
tax. 
This is likely to create issues of valuation in respect of patterns, tools, dies, free material etc. supplied by 
recipient (customer). Issue of 'reimbursement of expenses' will also arise. 
Addition of these amounts to 'value' is against the concept of Vat as some costs will be added to 'value' on 
which the supplier will not be able to avail any input tax credit. 
It can be added that GST is on 'supply of goods and services'. The scope of 'supply' is a contract between 
supplier and recipient. Only those elements of cost will form 'value' which are in the contract of scope of 
supply. 
The tax is on 'supply' and not on 'goods'. Thus, only what is supplied should be added to 'value'.