Valuation (Advanced)

Valuation (Advanced) 4
This Module Includes
4.1 Introduction
4.2 Related Party Transactions
4.3 Distinct Person Transactions
4.4 Specific Valuation Rules
4.5 Case Studies and Illustrations on Valuation
4.6 Key Advance Rulings

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Valuation (Advanced)
SLOB Mapped against the Module
1. To develop detail understanding of various provisions of Goods and Services Tax (GST) to facilitate
valuation, computation of tax liability including management of input tax credit.
2. To obtain detail knowledge about the provisions under GST relating to accounts and record, annual returns
and dispute resolution to ensure better compliance.
3. To facilitate strategic decision making by appropriate management of various indirect tax issues.

Module Learning Objectives

After studying this module, the students will be able to:
~ Understand related party and distinct person transactions
~ Explain value of supply with valuation rules
~ Apply practically how to arrive correct valuation as per the provisions of GST Law.

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Introduction 4.1

V
alue of Supply in common terms is nothing but the amount paid by the recipient of supply to the supplier
as consideration for supply (also known as transaction value). It means Value of supply is the figure upon
which tax is levied and collected.
It is important to know to ascertain correct value of supply for correct levy of GST.
Valuation rules determine value of goods or services or both on which tax under GST has to be charged. Valuation
rules have been prescribed under CGST Rules, 2017 for the purpose of determination of fair market value of goods
or services or both supplied by the registered person. It means valuation rules are helpful to determine the value
of supply where value not determined under section 15(1) as mentioned under section 15(4) of CGST Act, 2017.

Example 1
Mr A goes to shop of Mr. B and purchases television. He pays amount of `50,000 as consideration for 52 inches
LED TV Purchased plus GST. MRP of the product `65,000. Discount offered to all buyers `15,000. As per section
15(1) of the CGST Act, 2017 the valuation will be as per transaction value basis. Assume applicable rate of CGST
14% and SGST 14%. Invoice will be prepared as follows:

Invoice
Particulars Value in `
Transaction value 50,000
Add: CGST 14% 7,000
Add: SGST 14% 7,000
Invoice price 64,000
Note: Invoice price should not increase the Maximum Retail Price (MRP)
If Mr. A not maintained sole consideration for such sale or they are related persons then valuation will based on
determination of value of supply rules (i.e. CGST Rules, 2017).

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The same concept explained in the following diagram:

Value of taxable supply Sec.

15 of the CGST Act, 2017

Price has sole

NO YES
consideration

Supplier and
NO recipient are not YES
related

Value of supply as per Sec. 15(4) read with CGST Rules, Value of Supply Sec. 15(1) xxx
2017 (i.e., Determination of Value of supply)
Rule 27: Value of supply of goods or services where the Add: If not included in the above
consideration is not wholly in money
(a) Open market value of such supply Sec. 15(2)(a):
(b) Sum total of consideration equal to money, if such amount ● Any taxes (other than GST), xx
is known at the time of supply provided (a) not applicable. ● Duties, xx
(c) The value of supply of like kind and quality if (a) and (b) ● Cesses, xx
not applicable.
● Fees and charges xx
(d) Based on cost as per rule 30 or based on residual method as
per rule 31 in that order, provided (a) to (c) not applicable. Sec. 15(2)(b): Supplies made by the xx
recipient on behalf of supplier
Sec. 15(2)(c): Commission and packing xx
or incidental expenses
Rule 28: Value of supply of goods or services or both between Sec. 15(2)(d): Interest or late fee or xx
distinct or related persons, other than through an agent penalty for delayed payment

Rule 29: Value of supply of goods made or received through Sec. 15(2)(e): Subsidy directly linked xx
an agent to the price (other than Govt. subsidy)
Rule 30: Value of supply of goods or services or both based Less: If included in the above
on Cost.
Rule 31: Residual method for determination of value of Sec. 15(3): Discount xx
supply of goods or services or both
Transaction Value xx

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Related Party Transactions 4.2

Explanation to Section 15 of CGST Act, 2017:
(a) persons shall be deemed to be “related persons” if––
(i) such persons are officers or directors of one another’s businesses;
(ii) such persons are legally recognized partners in business;
(iii) such persons are employer and employee;
(iv) any person directly or indirectly owns, controls or holds 25% or more of the outstanding voting stock
or shares of both of them;
(v) one of them directly or indirectly controls the other;
(vi) both of them are directly or indirectly controlled by a third person;
(vii) together they directly or indirectly control a third person; or
(viii) they are members of the same family;
(b) the term “person” also includes legal persons;
(c) persons who are associated in the business of one another in that one is the sole agent or sole distributor or
sole concessionaire, howsoever described, of the other, shall be deemed to be related.
Related persons concept has been explained elaborately with sample of illustrations in Chapter 1.

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Distinct Person Transactions 4.3

Distinct persons specified under section 25 of CGST Act, 2017:
Every place of business of a person where separate registration is obtained for output supply will be considered
as distinct person.
Section 25(4), A person who has obtained or is required to obtain more than one registration, whether in one State
or Union territory or more than one State or Union territory shall, in respect of each such registration, be treated as
distinct persons for the purposes of this Act.
Section 25(5), Where a person who has obtained or is required to obtain registration in a State or Union territory
in respect of an establishment, has an establishment in another State or Union territory, then such establishments
shall be treated as establishments of distinct persons for the purposes of this Act.
Distinct persons concept has been explained elaborately with sample of illustrations in Chapter 1.

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Specific Valuation Rules 4.4

Section 15(1): the price is sole consideration for sale
Under GST, the valuation is done based on the transaction value only if price is a sole consideration where
supplier and the recipient are not related.
Sole consideration means by paying GST on such consideration there is no revenue loss to the department.
Value of a supply of goods and/or services shall be:
“Transaction Value (TV), that is the price actually paid or payable for the said supply of goods and/or services”
Where:
~ The supplier and the recipient of the supply are not-related and
~ The price is the sole-consideration for the supply.

Payment of taxes, duties, cesses, fees and charges [Section 15(2)(a) of CGST Act, 2017]
Any taxes, duties cesses, fees and charges levied under any law for the time being in force other than CGST/
SGST/UTGST/IGST/Compensation Cess shall be added to the value of supply.

Illustration 1
Admission to True Theatre is `90 per ticket for a Tamil Movie as well as for a Hindi Movie plus entertainment
tax 10% on Tamil Movie and 20% on other languages. In the month of November, True Theatre sold 2000 tickets
of Tamil Movie and 1500 tickets of Hindi Movie. Find the value of taxable supply of service. Applicable rate of
GST 18% & 28%. Find the GST liability if any?

Solution:
Statement showing value of taxable supply of service and GST liability:
Value of taxable services:
Tamil Movie `1,98,000 (`99 × 2000 tickets)
Hindi Movie `1,62,000 (`108 × 1500 tickets)

Particulars 9% CGST 9% SGST 14% CGST 14% SGST

GST liability (`) 17,820 17,820 22,680 22,680
Working note:
Particulars Tamil Movie (`) Hindi Movie (`)
Rate per ticket 90 90

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Particulars Tamil Movie (`) Hindi Movie (`)

Add: Entertainment tax 9 18
Value of taxable supply 99 108
Applicable GST rate 18% 28%
Supplies made by recipient on behalf of supplier [Section 15(2)(b) of CGST Act, 2017]
The transaction value will include the amount which the supplier is so liable to pay but it has been paid by the
recipient of supply.

Illustration 2
Mr. Ram sold goods to Mr. Lakshman for `2,50,000. As per the contract of sale, Mr. Ram is required to deliver
the goods in the premises of Mr. Lakshman. Mr. Ram hires transporter for transportation for delivery of goods.
However, the freight paid by Mr. Lakshman to transporter. Freight paid `2,500.
Find the transaction value of supply of goods.
Solution:
Particulars Value in `
Value of supply of goods 2,50,000
Add: Freight paid by recipient of supply (which the supplier is so liable to pay) 2,500
Taxable value of supply of goods 2,52,500

TCS would not be includible in the value of supply under GST:

The Central Government vide Corrigendum to Circular No. 76/50/2018-GST, dated 31st December, 2018 has
clarified that Tax collection at source (TCS) is not a tax on goods but an interim levy on the possible “income”
arising from the sale of goods by the buyer and to be adjusted against the final income- tax liability of the buyer.
Accordingly, for the purpose of determination of value of supply under GST, Tax collected at source (TCS) under the
provisions of the Income Tax Act, 1961 would not be includible as it is an interim levy not having the character of tax.
1. What is the correct valuation methodology for ascertainment of GST on Tax collected at source (TCS) under
the provisions of the Income Tax Act, 1961?
Answer:
a. Section 15(2) of CGST Act specifies that the value of supply shall include “any taxes, duties cesses,
fees and charges levied under any law for the time being in force other than this Act, the SGST Act, the
UTGST Act and the GST (Compensation to States) Act, if charged separately by the supplier.”
b. For the purpose of determination of value of supply under GST, Tax collected at source (TCS) under the
provisions of the Income Tax Act, 1961 would not be includible as it is an interim levy not having the
character of tax.
2. Motor vehicle worth `20 lakh is sold by M/s Sundar Pvt. Ltd. to a customer in retail market and for which `
5 lakh has been paid in cash and balance amount by way of cheque.
Find the following:
(a) TCS under section 206C of the Income Tax Act, 1961 is applicable in the given case?
(b) who is required to collect TCS?

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(c) value TCS if any?

(d) value of taxable supply under section 15 of CGST Act, 2017?
(e) Invoice Price of M/s Sunder Pvt. Ltd.?
Note: Assume applicable TCS is @1% and GST 28%.
Answer:
(a) Yes, TCS is applicable in the given case.
(b) Under section 206C the seller has to collect Tax at Source (TCS) at the rate of 1% from purchaser while
selling the specified items or services beyond specified limits. In the given case M/s Sundar Pvt. Ltd.
must collect the TCS.
(c) TCS = `20,000 (i.e. @1% on `20 lakh)
(d) Value of taxable supply under Section 15 of CGST Act, 2017 is `20 lakh only.
(e) Invoice price
Particulars Value in `
Cost of Motor Vehicle 20,00,000
Add: TCS under Sec 206C of IT Act, 1961 20,000
Sub-total 20,20,000
Add: GST 28% on `20 lakh 5,60,000
Invoice price 25,80,000

CBIC Circular No. 47/21/2018-GST, dated 8-6-2018:

Issue Clarification
Whether 1.1 Moulds and dies owned by the original equipment manufacturer (OEM) which are
moulds and provided to a component manufacturer (the two not being related persons or distinct
dies owned persons) on FOC basis does not constitute a supply as there is no consideration
by Original involved. Further, since the moulds and dies are provided on FOC basis by the OEM
Equipment to the component manufacturer in the course or furtherance of his business, there is no
Manufactur- requirement for reversal of input tax credit availed on such moulds and dies by the OEM.
ers (OEM) 1.2 It is further clarified that while calculating the value of the supply made by the component
that are sent manufacturer, the value of moulds and dies provided by the OEM to the component
free of cost manufacturer on FOC basis shall not be added to the value of such supply because the
(FOC) to a cost of moulds/dies was not to be incurred by the component manufacturer and thus,
component does not merit inclusion in the value of supply in terms of section 15(2)(b) of the Central
manufacturer Goods and Services Tax Act, 2017 (CGST Act for short).
is leviable
1.3 However, if the contract between OEM and component manufacturer was for supply of
to tax and
components made by using the moulds/dies belonging to the component manufacturer,
whether
but the same have been supplied by the OEM to the component manufacturer on
OEMs are
FOC basis, the amortised cost of such moulds/dies shall be added to the value of the
required to
components. In such cases, the OEM will be required to reverse the credit availed on
reverse input
such moulds/ dies, as the same will not be considered to be provided by OEM to the
tax credit in
component manufacturer in the course or furtherance of the former’s business.
this case?

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SUMMARY:

CBIC Circular No. 47/21/2018 – GST, Dated 8-6-2018:

SUPPLIED MOULDS Component NOT A

OEM
AND DIES FREELY Manufacturer SUPPLY

Value of Components Supplied shall not be Component

OEM Manufacturer
added the value of Moulds and Dies

The amortised cost of such moulds / dies shall

be added to the value of the components if it
is belonging to component manufacturer and Component
OEM
supplied freely by OEM. Manufacturer
OEM has bas to reverse his ITC

Commission and packing charges [Section 15(2)(c)]

The transaction value will include commission and packing charges charged by the supplier to the recipient of
supply and transaction value to include any amount charged by the supplier for anything done in respect of supply
either at the time or before delivery of goods or services.

Example 2

Mr. A Mr. A supplies product ‘X’ for ` 9,50,000

with the instruction that ` 50,000 shall be Mr. C
Dealer of
product ‘X’ directly paid to Mr. B Buyer of product ‘X’

Value of taxable supplies in the hands of

Mr. A is as follows:
Mr. B procures order from
Goods sold to Mr. C `9,50,000 Mr. B Agent Mr. C for supply of product
of Mr. A ‘X’ at ` 10,00,000
Add: Commission paid to Mr. B `50,000

Total Value of taxable supply of `10,00,000

goods

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Illustration 3
Mr. A is a seller of furniture. He supplied the furniture for `5,75,000 to Mr. B with the condition that to remove
old furniture from the premises of Mr. B by charging `5,000. Find the value of taxable supply of goods in the hands
of Mr. A.

Solution:
The value of taxable supply of goods is `5,80,000.

Interest or late fee or penalty for delayed payment [Section 15(2)(d) of the CGST Act, 2017]
It is specifically provided that interest or late fee or penalty for delay in payment of any consideration for supply
will form part of the value of supply.

Example 3
Penal interest charged by the supplier of goods for delay in payment of dues is subject to GST.

Example 4
As per CBIC Circular No. 102/21/2019-GST, dated 28-6-2019, Penal interest against loan repayment is also
treated as interest and covered under entry no. 27 of the Notification No. 12/2017 C.T. Therefore, exempted
from GST.

Subsidy directly linked to the price (other than Govt. Subsidies) [Section 15(2)(e) of CGST Act, 2017]
Subsidy provided in any form or manner linked to the supply will also be included in the transaction value.

Illustration 4
Bharat Gas sells cooking gas cylinders. Subsidy directly transferred to the account of the customer. Selling price
per cylinder is `800. Customer received subsidy `200 directly from Government to his bank account. Net outflow
of the buyer is `600. Find the value of supply of goods (per cylinder) in the hands of Bharat Gas.

Solution:
Since, the amount of subsidy is directly credited to the account holder and not received by the Bharat Gas making
the supply. Therefore, such subsidy will not be considered as part of transaction value as it is not received by the
Bharat Gas making the supply.
Hence, transaction value is `800 per cylinder.

Illustration 5
The Government provides subsidy, for the benefit of farmers but it is given to the manufacturer of fertilizers.
Such subsidy will form part of value of supply.

Solution:
The buyer of goods does not provide subsidy, but the Government as per the scheme provides it.
Therefore, this will not form part of value of supply as it is specifically specified that such subsidy provided by
the Government will not form part of the value of supply.

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Del Credere Agent Commission - GST

Donation or gifts from individual donors – Levy of GST on service display of name plates or donor in
premises of charitable organisation (CBIC Circular No. 116/35/2019 GST, dated 11-10-2019):
Individual donors provide financial help or any other support in the form of donation or gift to institutions such
as religious institutions, charitable institutions, schools, hospitals, orphanages, old age homes etc. the recipient
institutions place a name plate or similar such acknowledgement in their premises to express gratitude.
When the name of the donor is displayed in recipient institution premises, in such a manner, which can be said
to be an expression of gratitude and public recognition of donor’s act of philanthropy and is not aimed at giving
publicity to the donor in such manner that it would be an advertising or promotion of his business, then it can be
said that there is no supply of service for a consideration (in the form of donation). There is no obligation (quid
pro quo) on part of recipient of the donation or gift to do anything (supply a service). Therefore, there is no GST
liability on such consideration.

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Example 5
“Good wishes from Mr. Rajesh” printed underneath a digital blackboard donated by Rajesh to a charitable Yoga
institution.
Example 6
“Donated by Smt. Malati Devi in the memory of her father” written on the door or floor of a room or any part of
a temple complex which was constructed from such donation.
No GST on incentive paid by Ministry of Electronics and information Technology (MeitY) to acquiring banks
(vide Circular No. 190/02/2023 GST dt. 13.01.2023):
Under the Incentive scheme for promotion of RuPay Debit Cards and low value BHIM-UPI transactions, the
Government pays the acquiring banks an incentive as a percentage of value of RuPay Debit card transactions and
low value BHIM-UPI transactions up to Rs.2000/-.
The Payments and Settlements Systems Act, 2007 prohibits banks and system providers from charging any
amount from a person making or receiving a payment through RuPay Debit cards or BHIM-UPI.
The service supplied by the acquiring banks in the digital payment system in case of transactions through RuPay/
BHIM UPI is the same as the service that they provide in case of transactions through any other card or mode
of digital payment. The only difference is that the consideration for such services, instead of being paid by the
merchant or the user of the card, is paid by the central government in the form of incentive.
However, it is not a consideration paid by the central government for any service supplied by the acquiring bank
to the Central Government. The incentive is in the nature of a subsidy directly linked to the price of the service and
the same does not form part of the taxable value of the transaction in view of the provisions of section 2(31) and
section 15 of the CGST Act, 2017. As recommended by the Council, it is hereby clarified that incentives paid by
MeitY to acquiring banks under the Incentive scheme for promotion of RuPay Debit Cards and low value BHIM-
UPI transactions are in the nature of subsidy and thus not taxable.
Simplified Approach:

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CBIC Circular No. 228/22/2024-GST dated 15thJuly 2024: Applicability of GST on the incentive amount
shared by acquiring banks with other stakeholders in the digital payment ecosystem under the notified
Incentive Scheme for promotion of RuPay Debit Cards and low value BHIM-UPI transactions:
The Ministry of Electronics and Information Technology (MeitY) pays incentives to acquiring banks under
the Incentive Scheme for the promotion of RuPay Debit Cards and low-value BHIM-UPI transactions. These
incentives are shared with various stakeholders in the digital payment ecosystem (e.g., issuer banks, payment
service providers, and UPI apps) as per the proportion and manner decided by the National Payments Corporation
of India (NPCI). The GST Council clarified that these incentives are not taxable as they are in the nature of a
subsidy.
Here is a practical, detailed example involving specific names for each stakeholder and a step-by-step flow
explaining the GST applicability in the digital payment ecosystem.

Practical Example
Transaction Details:
1. Transaction Type: BHIM-UPI payment.
2. Transaction Value: ₹1,000.
3. Incentive Amount: 1% of the transaction value = ₹10.
4. Stakeholders Involved:
• MeitY (Ministry of Electronics and IT): Pays the incentive to the acquiring bank.
• Acquiring Bank (HDFC Bank): Processes the payment for the merchant.
• Issuer Bank (SBI): The bank that issued the UPI access/debit card to the customer.
• PSP (PhonePe): Facilitates the UPI transaction via its app.
• TPAP (Third-Party App Provider): Google Pay, which is used by the customer to make the payment.

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Step-by-Step Flow of the Incentive Distribution:

Step 1: MeitY Pays Incentive to Acquiring Bank (HDFC Bank)
• Details:
• MeitY pays an incentive of ₹10 (1% of ₹1,000) to HDFC Bank, the acquiring bank, for promoting RuPay
Debit Card and UPI transactions.
• GST Applicability:
• Not Taxable.
• Reason: This payment is a subsidy from MeitY to promote digital payments, as clarified by Circular No.
190/02/2023-GST.
Step 2: Acquiring Bank (HDFC Bank) Shares Incentive with Issuer Bank (SBI)
• Details:
• NPCI directs HDFC Bank to share 70% of the incentive (₹7) with SBI, the bank that issued the customer’s
debit card or enabled their UPI account.
• GST Applicability:
• Not Taxable.
• Reason: This sharing is part of the subsidy-sharing mechanism mandated by NPCI, as clarified in the 53rd
GST Council meeting.
Step 3: Issuer Bank (SBI) Shares Incentive with PSP (PhonePe)
• Details:
• NPCI instructs SBI to share 50% of the ₹7 it received with PhonePe, the Payment Service Provider that
facilitated the transaction.
• Amount shared: ₹3.50.
• GST Applicability:
• Not Taxable.
• Reason: This sharing is also part of the NPCI-regulated mechanism and remains a subsidy.
Step 4: PSP (PhonePe) Shares Incentive with TPAP (Google Pay)
• Details:
• As per a private business agreement, PhonePe shares ₹1 (out of the ₹3.50 it received) with Google Pay, the
Third-Party App Provider (TPAP) used by the customer for the transaction.
• GST Applicability:
• Taxable.
• Reason: This sharing is based on a private contract between PhonePe and Google Pay and is not part of the
subsidy-sharing mechanism mandated by NPCI.

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Detailed Flow of Incentive:

Amount GST
Step From To Mechanism Reason
Shared Applicability
Step 1 MeitY HDFC Bank ₹10 Subsidy from MeitY Not Taxable Incentive from MeitY
is a subsidy.
Step 2 HDFC Bank SBI ₹7 NPCI-regulated Not Taxable Shared as part of the
mechanism subsidy.
Step 3 SBI PhonePe ₹3.50 NPCI-regulated Not Taxable Shared as part of the
mechanism subsidy.
Step 4 PhonePe Google Pay ₹1 Private business Taxable Not part of the NPCI-
agreement regulated mechanism.
Why GST is Taxable at Step 4 (PhonePe → Google Pay)?
1. Nature of Sharing:
• At this stage, the sharing of the incentive is no longer part of the subsidy-sharing mechanism mandated by
NPCI.
• It is based on a private business agreement between PhonePe and Google Pay.
2. Classification Under GST:
• This ₹1 payment is treated as a service provided by Google Pay to PhonePe, and thus, GST is applicable.
Outcome:
1. MeitY, HDFC Bank, SBI, and PhonePe are not liable to pay GST for the incentives received or shared under
the NPCI-regulated mechanism.
2. Google Pay is liable to pay GST on the ₹1 it receives from PhonePe as this is based on a commercial agreement.
Discount under GST [Section 15(3) of the CGST Act, 2017]

S.
Nature of Discount Treatment in GST
No.
1 If the discount is given before or at the time of supply and is recorded Value of goods Xxxx
in the invoice. Less: Discount (xx)
Transaction value xxx
2 If the discount is given after supply but agreed upon before or at the Can be claimed as deduction
time of supply, and can be specifically linked to relevant invoices. from transaction value
3 If the discount is given after supply, and not known at the time of Cannot be claimed as deduction
supply from transaction value

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Discounts:

CBIC CIRCULAR 92/11/2019 GST DT. 07.03.2019

DISCOUNTS

COVERED UNDER SEC. NOT COVERED UNDER

15(3) OF CGST ACT, 2017 SEC. 15(3) OF CGST ACT, 2017

Buy more, save Periodic / year ending discounts

more offers (i.e. (in terms of an agreement entered
Staggered discount) into at or before the time of supply

Secondary Discounts (i.e.

offered after the supply is
Allowed as deduction from
already over)
Supply. ITC not required to reserve

Not allowed as deduction

from Supply. No impact on ITC

CASH BACK OFFERS

CASH BACK OFFERS PROVIDED CASH BACK OFFERS PROVIDED

BY SUPPLIER OF GOODS BY SUPPLIER OF GOODS

CASH
BACK DULY
YES RECORDED NO
IN THE
INVOICE

ALLOWED AS
NOT ALLOWED AS DEDUCTION
DEDUCTION FROM
FROM THE SALE VALUE
SALE VALUE

No Claim Bonus (NCB) is allowed as discount u/s 15(3) of CGST Act, 2017 (vide Circular No.
186/18/2022-GST-dt. 27.12.2022):

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Issue Clarification
Whether No Claim The insurance companies make the disclosure of the fact of availability of discount
Bonus provided by the in form of No Claim Bonus (NCB), subject to certain conditions, to the insured in
insurance company the insurance policy document itself and also provide the details of the no claim
to the insured can Bonus in the invoices. The pre-disclosure of NCB amount in the policy documents
be considered as an and specific mention of the discount in form of No Claim Bonus in the invoice is in
admissible discount consonance with the conditions laid down for deduction of discount from the value
for the purpose of of supply under clause (a) of sub-section (3) of section 15.
determination of
It is, therefore, clarified that NCB is a permissible deduction under clause (a) of
value of supply of
sub-section (3) of section 15 of the CGST Act for the purpose of calculation of
insurance service
value of supply of the insurance services provided by the insurance company to the
provided by the
insured. Accordingly, where the deduction on account of NCB is provided in the
insurance company to
invoice issued by the insurer to the insured, GST shall be leviable on actual insurance
the unsured?
premium amount, payable by the policy holders to the insurer, after deduction of No
claim bonus mentioned on the invoice.

Simplified Approach:

It is, therefore, clarified that No Claim Bonus (NCB) is a permissible deduction under clause (a) of sub-section (3)
of section 15 of the CGST Act for the purpose of calculation of value of supply of the insurance services provided
by the insurance company to the insured. Accordingly, where the deduction on account of NCB is provided in the
invoice issued by the insurer to the insured, GST shall be leviable on actual insurance premium amount, payable
by the policy holders to the insurer, after deduction of No claim bonus mentioned on the invoice.
Circular No. 212/6/2024-GST dated 26 June 2024:
Mechanism for providing evidence of compliance with section 15(3)(b)(ii) of the CGST Act for excluding
post- sale discounts from the taxable value:
Clarification verifying the reversal of Input Tax Credit (ITC) by recipients when discounts are offered by suppliers
through credit notes after the supply has been effected.

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Currently, there is no facility on the common portal to verify whether the ITC attributable to the discount has been
reversed by the recipient.
In view of the above, till the time a functionality/ facility is made available on the common portal to enable the
suppliers as well as the tax officers to verify whether the input tax credit attributable to such discounts offered
through tax credit notes has been reversed by the recipient or not, the supplier may procure a certificate from
the recipient of supply, issued by the Chartered Accountant (CA) or the Cost Accountant (CMA), [containing a
Unique Document Identification Number (UDIN)] certifying that the recipient has made the required proportionate
reversal of input tax credit at his end in respect of such credit note issued by the supplier.
In cases, where the amount of tax (CGST+SGST+IGST and including compensation cess, if any) involved in the
discount given by the supplier to a recipient through tax credit notes in a Financial Year is not exceeding ₹5,00,000
(rupees five lakhs only), then instead of CA/CMA certificate, the said supplier may procure an undertaking/
certificate from the said recipient that the said input tax credit attributable to such discount has been reversed by
him.
CA/CMA Certificate must include details of credit notes, relevant invoice numbers, amount of ITC reversal, and
the relevant document through which the ITC reversal has been made.
Such certificates or undertakings are considered suitable and admissible evidence for the purpose of section 15(3)
(b)(ii) of the CGST Act.
Suppliers should produce these certificates/undertakings during proceedings such as scrutiny, audit, investigations,
etc.
Even for past periods, these certificates can be produced as evidence of ITC reversal.
Example: Mechanism for Post-Sale Discounts and ITC Reversal Compliance
Scenario:
1. Supplier: XYZ Pvt. Ltd. issues tax credit notes for post-sale discounts to its recipient, ABC Pvt. Ltd.
2. Discount Details: A discount of ₹60,00,000 (tax amount of ₹9,15,254 included) is given via credit notes in FY
2024-25.
Mechanism for Compliance
• ITC Reversal Verification:
• Since the recipient (ABC Pvt. Ltd.) must reverse the proportionate ITC related to the discount, the supplier
(XYZ Pvt. Ltd.) needs evidence of this reversal.
• Compliance Evidence Based on Amount:
• If the amount of tax (CGST+SGST+IGST and including compensation cess, if any) involved in the Discount
≤ ₹5,00,000:
• The supplier may procure an undertaking or certificate directly from the recipient.
• If the amount of tax (CGST+SGST+IGST and including compensation cess, if any) involved in the Discount
> ₹5,00,000:
• A certificate issued by a CA/CMA with a UDIN is required, confirming ITC reversal.
• The certificate must include credit note details, invoice numbers, and reversal records.

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Outcome
• XYZ Pvt. Ltd. obtains a CA or CMA certificate certifying that ABC Pvt. Ltd. has reversed the proportionate
ITC of ₹9,15,254 in compliance with Section 15(3)(b)(ii) of the CGST Act.
• Relevance in Proceedings:
• The certificate serves as valid evidence during scrutiny, audits, or investigations.
• Applicability to Past Periods:
• Certificates for earlier financial years can also be used to demonstrate compliance.
Illustration 6
M/s Ashok Enterprise sells mineral water bottles, with MRP `20 per bottle. However, customers availing discount
of `4 per bottle. In the month of April 2024, M/s Ashok Enterprise sold 2,000 bottles. Applicable rate of GST 18%.
Find the tax liability.
Solution: (`)
Transaction value = 32,000
Add: CGST 9% on `32,000 = 2,880
Add: SGST 9% on `32,000 = 2,880
Invoice price = 37,760
Working note: (`)
MRP value (`20 × 2000 pcs) = 40,000
Less: Discount (`4 × 2000 pcs) = (8,000)
Transaction value = 32,000
Illustration 7
Best Cars Ltd sells a car worth `5,00,000 to Sundar Automobiles. Best Cars Ltd. incurred packing charges of
`6,000 on the car. Best Cars Ltd provided a discount of 1% on the car price, as part of Diwali scheme.
Best Cars Ltd agreed to provide a further discount of 0.5% if Sundar Automobiles makes payment by 31st of the
month via net banking. Sundar Automobiles makes the payment by 31st of the month using net banking. Find the
Net GST liability in the hands of Best Cars Ltd. Applicable rate of GST 18%.
Solution:

Particulars Value in `
Value of the product 5,00,000
Add: packing charges 6,000
Sub-total 5,06,000
Less: Discount 1% on `5 lakh (5,000)
Transaction value 5,01,000
Add: CGST 9% 45,090
Add: SGST 9% 45,090
Invoice price 5,91,180

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Note: Since, the discount was known at the time of supply, and can be linked to this specific invoice, the discount
amount can be reduced from the transaction value.
For this, Best Cars Ltd will issue a credit note to Sundar Automobiles for `2,500 (0.5% of `5,00,000 = `2,500+
GST@ 18% on `2,500 = `450), and the same must be linked to the relevant tax invoice.
Discount given after supply but agreed upon before or at the time of supply and can be specifically linked to
relevant invoices, can be deducted from the transaction value.
Illustration 8
However, due to a severe cash crunch, Best Cars Ltd requests Sundar Automobiles to make the payment within
2 days, promising a discount of 2% on doing so. Sundar Automobiles makes the payment within 2 days.
Solution:
Since, the discount was not known at the time of supply, it couldn’t be claimed as a deduction from the transaction
value for GST calculation.
Illustration 9
M/s Nambiar & Co., an Audit firm based in Cochin undertake an audit assignment of his client based in Chennai.
The Contract mentioned about the audit fees of `5,00,000 and arrangement of taxi by the Clint which may be worth
`15,000.
Find the transaction value on which M/s Nambiar and Co., is liable to pay GST.
Solution:
Transaction value in the hands of M/s Nambiar & Co., is `5,15,000.
Note: Not only audit fees but also the expenditure incurred in connection with the taxi `15,000 constitutes the
sole consideration.
Illustration 10
M/s X Ltd is engaged in doing job work for M/s Y Ltd. M/s Y Ltd supplies raw material for `2,00,000 and
packing material for `22,500 to M/s X Ltd. for completion of job work. M/s X Ltd has agreed to supply job-
work services for the purpose of performing the activities as specified by M/s Y Ltd. Job worker labour charges
`1,00,000, profit of `70,000 and material consumed for `3,500. Find transaction value (i.e. sole consideration) to
levy GST in the hands of M/s X Ltd.
Solution:

Particulars Value in `
Service charges 1,00,000
Add: Material consumed 3,500
Add: Jobworker profit 70,000
Transaction value 1,73,500
(i.e. taxable value of supply of service in the hands of M/s X Ltd.)
Note: “Although, it includes materials worth `3,500, still the entire supply including value of material would
be treated as services.

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Illustration 11
Asha Ltd. supplies raw material to a job worker Kareena Ltd. After completing the job-work, the finished product
of 5,000 packets are returned to Asha Ltd. putting the retail sale price as `20 on each packet. The product in the
packet is covered under MRP provisions. Determine the transaction value in the hands of Kareena Ltd. under GST
law from the following details:

Particulars Value in `
Cost of raw material supplied 30,000
Job worker’s charges including profit 10,000
Transportation charges for sending the raw material to the job worker 3,000
Transportation charges for returning the finished packets to Asha Ltd. 4,500
Asha Ltd. paid certain technology transfer fees to ‘Reena Ltd’, so that ‘Kareena Ltd’ can 22,500
use the said technology in the given job-work operation. This technology owned by Asha
Ltd. for subsequent use as well.
Note: Kareena Ltd offered discount `2,000, provided full payment is made at the time of raising invoice and the
same is mentioned in the invoice. Asha Ltd. made full payment at the time of issue of invoice.
Solution:
Statement showing transaction value of Kareena Ltd.
Particulars Value in `
Cost of raw material supplied Exempted supply
Job worker’s charges including profit 10,000
Transportation charges for sending the raw material to the job worker Exempted supply
Transportation charges for returning the finished packets to Asha Ltd. [Section 15(2)(b) 4,500
of the CGST Act, 2017]
Technology fee not addable
Sub-total 14,500
Less: Discount [Section 15(3) of CGST Act, 2017] (2,000)
Transaction value (i.e. sole consideration) 12,500
Note:
(1) It is very clear that principal to jobworker and jobworker to principal cannot be treated as supply as per
section 143 of the CGST Act, 2017.
(2) CBIC Circular No. 47/21/2018-GST, dated 8-6-2018:
Technology owned by the recipient which are provided to a job worker (the two not being related persons
or distinct persons) on FOC basis does not constitute a supply. It is further clarified that while calculating
the value of the supply made by the job worker, the value of technology provided by the recipient to the job
worker on FOC basis shall not be added to the value of such supply because the cost of technology was not
to be incurred by the job worker and thus, does not merit inclusion in the value of supply in terms of section
15(2)(b) of the Central Goods and Services Tax Act, 2017 (CGST Act for short).

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(3) Therefore, if ‘Asha Ltd.’ paid certain technology transfer fees to ‘Reena Ltd’, so that ‘Kareena Ltd’ can use
the said technology in the job-work operation that is performing for ‘Asha Ltd’, the value of such technology
transfer fee may also be included in transaction value of job-work services.
Illustration 12
Mr. Bhanu makes supply of `2,00,000 to Mr. Renu. The contract provides that Mr. Renu will pay `50,000 to Mr.
Bhanu and `1,50,000 to Mr. Venu to settle the debt of Mr. Bhanu. Find the transaction value and GST liability in
the hands of Mr. Bhanu. Applicable rate of CGST and SGST 9% each.
Solution:
Answer: Statement showing transaction value and GST liability:
Particulars Value in `
Payment from Renu to Bhanu 50,000
Payment from Renu to Venue for settling the debt of Bhanu 1,50,000
Transaction value (i.e. Sole consideration) 2,00,000
CGST 9% 18,000
SGST 9% 18,000

Issues related to GST on monthly subscription/contribution charged by a Residential Welfare Association

from its members. (CBIC Circular No. 109/28/2019-GST, dated 22nd July, 2019)

Sl.
Issue Clarification
No.
1 Are the maintenance charges paid Supply of service by RWA (unincorporated body or a non-
by residents to the Resident Welfare profit entity registered under any law) to its own members by
Association (RWA) in a housing way of reimbursement of charges or share of contribution up
society exempt from GST and if yes, is to an amount of ` 7500 per month per member for providing
there an upper limit on the amount of services and goods for the common use of its members in
such charges for the exemption to be a housing society or a residential complex are exempt
available? from GST. Prior to 25th January 2018, the exemption was
available if the charges or share of contribution did not exceed
` 5000 per month per member. The limit was increased to
` 7500 per month per member with effect from 25th January
2018. [Refer clause (c) of Sl. No. 77 to the Notification No.
12/2018- Central Tax (Rate), dated 28.06.2019]
2 A RWA has aggregate turnover of `20 No. If aggregate turnover of an RWA does not exceed `20
lakh or less in a financial year. Is it Lakh in a financial year, it shall not be required to take
required to take registration and pay registration and pay GST even if the amount of maintenance
GST on maintenance charges if the charges exceeds ` 7500 per month per member. RWA shall be
amount of such charges is more than ` required to pay GST on monthly subscription/ contribution
7500 per month per member? charged from its members, only if such subscription is more
than ` 7500 per month per member and the annual aggregate
turnover of RWA by way of supplying of services and goods
is also ` 20 lakhs or more.

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Sl.
Issue Clarification
No.

Annual turnover Monthly maintenance Whether

of RWA charge exempt?
More than ` 20 More than ` 7500 No
lakhs
` 7500 or less Yes
` 20 lakhs or less More than ` 7500 Yes
` 7500 or less Yes

3 Is the RWA entitled to take input RWAs are entitled to take ITC of GST paid by them on capital
tax credit of GST paid on input and goods (generators, water pumps, lawn furniture etc.), goods
services used by it for making supplies (taps, pipes, other sanitary/hardware fillings etc.) and input
to its members and use such ITC for services such as repair and maintenance services.
discharge of GST liability on such
supplies where the amount charged for
such supplies is more than ` 7,500 per
month per member?
4 Where a person owns two or more flats As per general business sense, a person who owns two or more
in the housing society or residential residential apartments in a housing society or a residential
complex, whether the ceiling of ` complex shall normally be a member of the RWA for each
7500 per month per member on the residential apartment owned by him separately. The ceiling
maintenance for the exemption to be of ` 7500 per month per member shall be applied separately
available shall be applied per residential for each residential apartment owned by him. For example,
apartment or per person? if a person owns two residential apartments in a residential
complex and pays ` 15000 per month as maintenance charges
towards maintenance of each apartment to the RWA (` 7500
per month in respect of each residential apartment), the
exemption from GST shall be available to each apartment.
5 How should the RWA calculate GST The exemption from GST on maintenance charges charged
payable where the maintenance charges by a RWA from residents is available only if such charges do
exceed ` 7500 per month per member? not exceed ` 7500 per month per member. In case the charges
Is the GST payable only on the amount exceed ` 7500 per month per member, the entire amount is
exceeding ` 7500 or on the entire taxable. For example, if the maintenance charges are ` 9000
amount of maintenance charges? per month per member, GST @18% shall be payable on
the entire amount of ` 9000 and not on [` 9000 - ` 7500] =
` 1500 .

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Transaction value not available [Section 15(4) read with CGST Rules, 2017 (i.e. Determination of value
of supply)]

Rule 27: Value of supply of goods or services where the consideration is not wholly in money
(a) Open market value of such supply
(b) Sum total of consideration equal to money, if such amount is known at the time of supply
provided (a) not applicable.
(c) The value of supply of like kind and quality if (a) and (b) not applicable.
(d) Based on cost as per rule 30, if not as per residual method rule 31in that order, provided (a) to
(c) not applicable.
Rule 28: Value of supply or goods or services or both between distinct or related persons, other than through
an agent
Rule 29: Value of supply of goods made or received through an agent
Rule 30: Value of supply of goods or services or both based on Cost.
Rule 31: Residual method for determination of value of supply of goods or services or both

15.4.1 Rule 27: value of supply of goods or services where the consideration is not wholly in money:
Valuation based on based on open market value of such supply.
(a) “Open market value” of supply of goods or services or both means the full value in money, excluding the
integrated tax, central tax, State tax, Union territory tax and the cess payable by a person in a transaction,
where the supplier and the recipient of the supply are not related and price is the sole consideration, to obtain
such supply at the same time when the supply being valued is made.
Example 10
Where a new phone is supplied for `20,000 along with the exchange of an old phone and if the price of the
new phone without exchange is `24,000, the open market value of the new phone is `24000.
Illustration 13
Mr. A being a registered person sells TVs to all customers at `45,000. He supplied new TV for `42,000along
with the exchange of an old TV. Find the open market value of TV.
Solution:
Open market value is `45,000.
Illustration 14
M/s X Ltd is a manufacturer of car and sells the car in the open market at a price of `11,00,000. M/s X Ltd
provided the car to his company auditor is only for `9,00,000. In return auditor provided auditing services
to M/s X Ltd and charged `5,000 with the condition that company will be provided the car at the price of
`9,00,000. Find the value as per Rule 27(a), Determination of value of supply.
Solution:
Open market value of the car is `11,00,000.
Therefore, M/s X Ltd transaction value should be `11,00,000 on which GST will be levied.

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(b) Sum total of consideration equal to money, if such amount is known at the time of supply provided
open market value is not available.
The value of consideration which is non-monetary terms shall be determined in monetary terms. The said
value shall be added to the value in monetary terms in determination of value of supply.
Illustration 15
M/s X Ltd. is supplier of security services provided such services to M/s Y Ltd. As per the contract M/s Y
Ltd is to pay monthly `1,00,000. In the month of November M/s Y Ltd. supplied uniforms to all employees
of M/s X Ltd. by spending `20,000. As a result M/s X Ltd. raised the bill for `80,000 in the month of
November. In the given case M/s X Ltd. received consideration for security service is partially in terms of
money `80,000 and partially in kind (i.e. uniforms). Find the taxable value of service on which GST will be
levied.
Solution:
GST will be levied on the value of `1,00,000 (`80,000 + uniforms equal to monetary value of `20,000) in
the hands of M/s X Ltd.
Illustration 16
R Academy normally charge `10,000 for teaching the commerce students. A merit student approaches the
management of R Academy and narrates his financial position. R Academy management considering his
financial position agrees to charge only `5,000 from such student. Find the value of taxable supply of service.
Solution:
Since, R Academy has not received any consideration from the student in any other form, `5,000 itself is the
sole consideration. GST will be levied on `5,000.
(c) The value of supply of like kind and quality if (a) and (b) not applicable:
If the value of supply is not determinable as per open market value and monetary value of non-monetary
values, the values of supply shall be of like kind and quality.
Factors facilitating to determine value of supply:
~ Goods or services of same kind and quality
~ Identical or Similar nature
~ Similar circumstances
~ Comparison of various factors and so on…

Example 11
R Academy teaching or coaching budding CMA’s Tuition fee of R Academy can be compared with another
academy of same kind and nature. It means we should not compare with home tuition of a faculty to 4th
Standard students.
Example 12
Feather light chairs price compare with identical or similar nature product. It means feather light product
compare with Godrej chair products.
Example 13
Value of product in Chennai will be on higher than the product in Sikkim or Assam. Therefore, the rule

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provides that the supply of goods or services shall be in similar circumstances. It means that if the supply
of goods or services which value is required to be determined has been made in Chennai, supply of goods or
services which is considered as base shall be made in Chennai.
Example 14
Canon heavy duty machines cannot be compared with ordinary laser Jet printer. Likewise, interior decorator
completed interior decoration of a residential house measuring 1000 sq. ft. cannot be considered as similar
service for doing interior decoration of 1000 sq. ft. of office area.
(d) Based on cost as per rule 30 or based on residual method as per rule 31 in that order, provided (a) to
(c) not applicable.
As per rule 30 of the CGST Rules, 2017 value of supply of goods or services or both on cost. The value
shall be 110% of the cost of production or manufacture or the cost of acquisition of such goods or the cost of
provision of such services.
Illustration 17
Raj & Co. furnishes the following expenditure incurred by them to find the transaction value for the purpose
of paying GST.
(i) Direct material cost per unit inclusive of IGST at 18% `944
(ii) Direct wages `250
(iii) Other direct expenses `100
(iv) Indirect materials `75
(v) Factory overheads `200
(vi) Administrative overhead (25% relating to production capacity) `100
(vii) Selling and distribution expense `150
(viii) Quality control `25
(ix) Sale of scrap realised `20
(x) Actual profit margin 15%
Find the value for the purpose of payment of GST as per Rule 30 of the CGST Rules, 2017.

Solution:
Statement showing value of supply of goods as per Rule 30 of the CGST Rules, 2017:

Particulars Value in `
Direct material cost (944 × 100/118) 800
Direct wages 250
Other direct expenses 100
Indirect materials 75
Factory overheads 200
Administrative overhead (25% of `100) 25

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Quality control 25
Sub-total 1475
Less: Sale of scrap (20)
Cost of production 1,455
Add: 10% profit margin as per Rule 30 of the CGST Rules, 2017 145.50
Value of taxable supply of goods 1,600.50

Cost Accounting Standard (CAS)-4 issued by the Institute of Cost Accountants of India enumerates various costs
to be included in determining the cost of production of goods. CAS-4 principles are also applicable for determining
the cost of supply of service.
Thus, cost of acquisition will include cost of transportation, any local taxes, insurance, other expenditure like
commission, fee and so on paid on procurement of goods.
However, GST element will not be considered for the purpose of determining the cost of acquisition.

Illustration 18
Determine the cost of production of the under mentioned product for the purpose of valuation in terms of Rule
30 of the Central Goods and Services Tax Rules, 2017. Direct Material `11,800, Direct wages and Salaries `8,400,
Works overheads `6,200, Quality control costs `3,500, Research and Development Costs `2,400, Administration
Overheads `4,100, Selling and Distribution Costs `1,600, Realisable value of scrap `1,200. Administrative
overheads are in relation to production activities. Material cost includes IGST`1,800.

Solution:
Calculation of Cost of Production and value:

Direct Material Cost `11,800

Less: IGST ` (1,800)

`10,000

Direct Wages ` 8,400

Works overheads ` 6,200

Quality control costs ` 3,500

Research and Development cost ` 2,400

Administrative O.H. relating to production ` 4,100

Less: Realisable value of scrap `(1,200)

Cost of Production `33,400

Add: 10% profit margin ` 3,340

Transaction Value (i.e. Assessable Value) `36,740

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Illustration 19
Compute the cost of production and valuation for the under mentioned product as per Rule 30 of the CGST
Rules, 2017: (`)
1. Cost of material (Inclusive of CGST & SGST at 12%) 1,12,000
2. Direct wages 47,000
3. Other direct materials 13,500
4. Computer use for office purpose 41,000
5. Quality control test incurred for production process 17,000
6. Engineer charges paid for installation of machinery 12,750
7. Other factory overhead 27,000
8. Salary of staff appointed for office duty 84,000
9. Sale of scrap realized 1,800
10. Actual profit margin 15%
11. Administrative overhead (100% related to administrative Works) 1,00,000
12. Selling and distribution overhead 30,000

Solution:
Statement showing Transaction Value as per Rule 30 of the CGST Rules, 2017:
Transaction cost Assessable value ` Remarks
Cost of material 1,00,000 1,12,000 × 100/112
Direct wages 47,000
Other direct material 13,500
Computer office Nil Not addable
Quality control test 17,000
Engineering charges for installation of machinery Nil Not addable
Other factory overheads 27,000
Salary Nil Not addable
Sale of scrap -1,800
Cost of production 2,02,700
Add: 10% profit margin 20,270 2,02,700 × 10%
Assessable value 2,22,970

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Illustration 20

From the following particulars, compute the transaction value as per Rule 30 of the CGST Rules, 2017 for GST
purpose. Out of 1,000 units manufactured, 800 units have been cleared to a sister unit for further production of
taxable goods on assessee’s behalf, the balance 200 units are lying in the stock:

Particulars (`)
Direct material consumed (inclusive of IGST @ 18%) 2,36,000
Direct labour and direct expenses 1,60,000
Works overheads 40,000
Research and development costs 25,000
Administration overheads (75% related to production) 80,000
Input received free of cost from sister units 35,000
Abnormal losses (not included above) 24,000
Advertisement and selling costs 36,000
VRS compensation to employee (not included above) 1,20,000
Realisable value of scrap/wastage 20,000

Solution:
Statement showing Assessable Value for 800 units:

Transaction cost Assessable value ` Remarks

Material cost 2,00,000 2,36,000 × 100/118
Labour cost 1,60,000
Overheads 40,000
Research and Development 25,000
Administrative overheads 60,000 80,000 × 75%
Input received from sister unit 35,000
Abnormal loss Nil Not considered
VRS compensation Nil Not considered
Resale value of scrap -20,000
Cost of production for 1000 u 5,00,000
Transaction value of 800 units 4,40,000 (5,00,000 × 800u/1000u) × 110%
Illustration 21
Alpha Ltd., a manufacturer of taxable goods. Assuming that there is no opening and closing inventory, compute
its value as per Rule 30 of the CGST Rules, 2017 for the purpose of GST from the following information provided
by Alpha Ltd:

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Particulars (`)
Cost of direct materials (inclusive of IGST 28%)* 25,600
Cost of direct salaries (includes house rent allowance of `12,000) 30,000
Consumable stores and repairs 8,400
Depreciation of machinery 500
Quality control cost 4,300
Research & development cost 2,700
Administrative cost:
Production related 2,000
Project management related 1,800
Interest and financial charges 2,400
Cost incurred due to break down of machinery 1,300
Amortised cost of moulds and tools received free of cost from the recipient of goods 600
Selling and distribution cost 4,600
Scrap value realized 1,500
*Note: ITC of the IGST so paid is available.
Solution:
Statement showing assessable value for M/s Alpha Ltd.
Particulars Value ` Working note
Cost of direct materials 20,000 25,600 × 100/128
Cost of direct salary 30,000
Consumables 8,400
Depreciation of Machine 500
Quality control cost 4,300
Research and development 2,700
Administrative cost Production 2,000
Add: amortisation cost 600
Less: sale of scrap -1,500
Cost of production 67,000
Add: profit 6,700 67,000 × 10%
Transaction value 73,700

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As per Rule 31 of the CGST Rules, 2017 Residual method for determination of value of supply of goods
or services or both
It is provided that where the value of supply of goods or services or both cannot be determined under rule 27
to rule 30 of the CGST Rules, 2017, value shall be determined by using reasonable means consistent with the
principles and the general provisions of section 15 and the provisions of this Chapter IV of the CGST Rules, 2017.
Value of service can be on basis of rule 31 instead of on cost plus 10% basis: -
In case of supply of services, the supplier may opt for rule 31 ignoring rule 30 (as per proviso to Rule 31 of CGST
and SGST Rules, 2017).
It means to say that efforts should be made by proper officer to determine the by using his best judgment
assessment.
Simplified Approach: Rule 27 of the CGST Rules, 2017:
Valuation
(As per CGST Rules, 2017)

Open
NO Market Value YES
available

Valuation as per
Open Market value
only [Rule 27(a)]
Sum total of
NO consideration YES
equal to money
available
Valuation as
per Sum total of
consideration equal
Like kind and to money only
NO YES [Rule 27(a)]
quality available

Valuation as per Valuation as per

Cost Plus Profit Like kind and
(Rule 30), if not as Quality only
per residual method [Rule 27(c)]
(Rule 31) in that
order [Rule 27(d)]

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Rule 28 of the CGST Rules 2017 value of supply or goods or services or both between distinct or related
persons other than through an agent
Rule 28(1) The value of the supply of goods or services or both between distinct persons as specified in section
25(4) and section 25(5) of the CGST Act, 2017 or where the supplier and recipient are related, other than where the
supply is made through an agent, shall—
(a) be Open market value of such supply
(b) if the open market value is not available, be the value of supply of goods or services of like kind and quality.
(c) If value is not determinable under clause (a) or (b), be the value as determined by application of rule 30 or
rule 31, in that order.
Provided that where the goods are intended for further supply as such by the recipient, the value shall, at the
option of the supplier, be an amount equivalent to 90% of the price charged of the supply of goods of like kind and
quality by the recipient to his customer not being a related person:
Provided further that where the recipient is eligible for full input tax credit, the value declared in the invoice shall
be deemed to be the open market value of goods or services.
Rule 28(2) of CGST Rules, 2017:
w.e.f. 26th October 2023, Insertion of sub-rule (2) to rule 28: [Notification No 52/2023-CT dt 26-10-2023] Value
of supply of services by a supplier to a recipient who is a related person (vide NT 12/2024 dated 10-7-2024, w.e.f.
26-10-2023 the term “located in India” inserted), by way of providing corporate guarantee to any banking company
or financial institution on behalf of the said recipient, shall be deemed to be
1% of the amount of such guarantee offered (vide NT 12/2024 dated 10-7-2024, w.e.f. 26-10-2023 the term “per
annum” inserted),
or
the actual consideration,
whichever is higher.
Provided that where the recipient is eligible for full input tax credit, the value declared in the invoice shall be
deemed to be the value of said supply of service (vide Notification No. 12/2024 CT dt. 10-07-2024, w.e.f. 26-10-
2023).
Second proviso to Rule 28(1) of CGST Rules, 2017 - Clarification on valuation of supply of import of services
by a related person where recipient is eligible to full input tax credit (vide CBIC Circular No.210/4/2024-
GST dt. 26th June, 2024):
In case of import of services by a registered person in India from a related person located outside India, the tax is
required to be paid by the registered person in India under reverse charge mechanism. In such cases, the registered
person in India is required to issue self-invoice under Section 31(3)(f) of CGST Act and pay tax on reverse charge
basis.
It is clarified that in cases where the foreign affiliate is providing certain services to the related domestic entity,
and where full input tax credit is available to the said related domestic entity, the value of such supply of services
declared in the invoice by the said related domestic entity may be deemed as open market value in terms of second
proviso to rule 28(1) of CGST Rules. Further, in cases where full input tax credit is available to the recipient, if the
invoice is not issued by the related domestic entity with respect to any service provided by the foreign affiliate to it,
the value of such services may be deemed to be declared as Nil, and may be deemed as open market value in terms
of second proviso to rule 28(1) of CGST Rules

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Example: Import of Services from a Related Person under Reverse Charge Mechanism
Scenario
• Indian Entity (Recipient): ABC Pvt. Ltd., a registered person under GST in India.
• Foreign Affiliate (Supplier): XYZ Inc., located in the USA, related to ABC Pvt. Ltd.
• Nature of Service: Consulting services provided by XYZ Inc. to ABC Pvt. Ltd.
• Service Value: $10,000 (₹8,00,000 equivalent).
• Input Tax Credit (ITC): Fully available to ABC Pvt. Ltd.
Steps Involved in Compliance
1. Reverse Charge Mechanism (RCM):
• Since the service provider (XYZ Inc.) is located outside India and is a related person, GST is payable by
ABC Pvt. Ltd. in India under the reverse charge mechanism.
2. Issuance of Self-Invoice:
• As per Section 31(3)(f) of the CGST Act, ABC Pvt. Ltd. must issue a self-invoice for the import of
services.
• The self-invoice should include details such as the value of the services (₹8,00,000) and the applicable
GST.
3. Open Market Value:
• Since ABC Pvt. Ltd. is eligible for full ITC, the value declared in the self-invoice (₹8,00,000) is deemed
the open market value of the service as per Rule 28(1) of the CGST Rules.
4. GST Payment:
• ABC Pvt. Ltd. calculates GST on the value of ₹8,00,000 and pays it under the reverse charge mechanism.
• For example, if the applicable GST rate is 18%:
• GST Payable = ₹8,00,000 × 18% = ₹1,44,000.
• The same amount of ₹1,44,000 can be claimed as ITC by ABC Pvt. Ltd. in its GST return.
5. Case of Non-Issuance of Invoice:
• If ABC Pvt. Ltd. does not issue a self-invoice for the services provided by XYZ Inc., the value of services
may be deemed as Nil, and this Nil value is treated as the open market value under the second proviso to
Rule 28(1).
CBIC issued Circular No. 225/19/2024-GST dt. 11th July, 2024 regarding Clarification on various issues
pertaining to taxability and valuation of supply of services of providing corporate guarantee between related
persons are as under:
Issue 1:
a. Whether Rule 28(2) of CGST Rules applies to corporate guarantees issued before its introduction on 26th
October 2023.
b. Whether intra-group corporate guarantees issued prior to this date, still in force, would require GST payment
based on “1% of the amount of such guarantee offered”.

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Clarification:
Example 1: Corporate Guarantee Issued Before 26th October 2023
Scenario:
• ABC Ltd. (Holding Company) provided a corporate guarantee to PQR Bank on behalf of its subsidiary, XYZ
Ltd., on 1st January 2023, for a loan of ₹10 crore.
• No consideration was charged by ABC Ltd. for this guarantee.
GST Implications:
1. Taxability:
• The corporate guarantee qualifies as a taxable supply of service between related parties under Schedule I
of CGST Act.
2. Valuation:
• Since the guarantee was issued before 26th October 2023, its value must be determined as per the earlier
Rule 28, considering:
• Open market value, or
• Value of similar services, or
• Residual valuation as prescribed under Rule 30 or Rule 31.
Calculation:
• If the open market value of a similar corporate guarantee is determined to be ₹1 lakh, GST will be calculated
on ₹1 lakh.
Example 2: Corporate Guarantee Issued On or After 26th October 2023
Scenario (no consideration):
• On 1st November 2023, ABC Ltd. renewed its earlier guarantee for the same loan of ₹10 crore on behalf of
XYZ Ltd..
GST Implications:
1. Taxability:
• The renewed guarantee is a taxable supply under Schedule I.
2. Valuation:
• Since the guarantee is renewed after 26th October 2023, valuation will be done as per Rule 28(2).
• Taxable Value = 1% of the guarantee amount.
Example Calculation:

• Taxable Value = 1% of ₹10 crore = ₹10 lakh.

• GST at 18% = ₹10 lakh × 18% = ₹1.8 lakh.
Key Differences:
1. Before 26th October 2023: Valuation relied on open market value or other earlier rules.
2. On or After 26th October 2023: Valuation is explicitly 1% of the corporate guarantee amount as per Rule 28(2).

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Issue 2:
a. When a corporate guarantee is issued for a specific amount, but the loan is only partly availed or not availed at
all, how is the value of the corporate guarantee determined?
b. Is the recipient eligible to claim full Input Tax Credit (ITC) for the GST charged, even before the full loan
amount is disbursed?
Clarification:
Part 1: Valuation of Corporate Guarantee
1. Facts:
• ABC Ltd. (Guarantor) provides a corporate guarantee to XYZ Ltd. (Recipient) for a loan of ₹10 crore from
PQR Bank. ABC Ltd., and XYZ Ltd., are related persons.
• PQR Bank approves the loan, but only ₹6 crore is disbursed to XYZ Ltd. initially, and the remaining ₹4
crore is not availed.
2. Valuation of Service:
• The taxable value for the corporate guarantee service is calculated on the guaranteed amount, i.e., ₹10
crore.
• As per Rule 28(2) of CGST Rules, the taxable value is 1% of the guaranteed amount.
3. Calculation:
• Taxable Value = 1% of ₹10 crore = ₹10 lakh.
• GST at 18% = ₹10 lakh × 18% = ₹1.8 lakh.
4. Outcome:
• GST payable by ABC Ltd. = ₹1.8 lakh, irrespective of the actual loan disbursed (₹6 crore).
Part 2: ITC Eligibility for XYZ Ltd.
1. Facts:
• XYZ Ltd. receives an invoice from ABC Ltd. for the corporate guarantee service with a taxable value of
₹10 lakh and GST of ₹1.8 lakh.
• XYZ Ltd. has availed only ₹6 crore of the ₹10 crore loan.
2. Eligibility for ITC:
• XYZ Ltd. is eligible to claim the full ITC of ₹1.8 lakh for the GST paid on the corporate guarantee service.
• The claim is valid irrespective of:
• The amount of loan disbursed.
• The timing of loan disbursement.
Issue 3: GST Implications on Takeover of Existing Loans with Corporate Guarantees:
Case 1: Assignment of Existing Corporate Guarantee
• ABC Ltd. provides a corporate guarantee for a loan of ₹20 crore taken by its related entity, XYZ Ltd., from
Bank A.

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• Later, Bank B takes over the loan from Bank A.

• No new corporate guarantee is issued, and the existing guarantee is merely assigned to Bank B.
• The takeover of the loan by Bank B does not involve a fresh supply of service.
• The corporate guarantee issued by ABC Ltd. remains the same and is assigned to Bank B.
• As clarified, this activity does not attract GST since no new corporate guarantee is issued or renewed.
Case 2: Issuance of a Fresh Corporate Guarantee
• Following the loan takeover by Bank B, a new corporate guarantee is issued by ABC Ltd. to replace the
existing one.
• If ABC Ltd. issues a fresh corporate guarantee to Bank B for the same loan amount of ₹20 crore, it constitutes
a new taxable supply of service.
• Taxable Value of Service: Calculated as per Rule 28(2) of CGST Rules.
• Taxable Value = 1% of ₹20 crore = ₹20 lakh.
• GST @18% = ₹20 lakh × 18% = ₹3.6 lakh.
• ABC Ltd. must charge GST on the fresh corporate guarantee provided.
Issue 4: GST on Corporate Guarantee Provided by Multiple Co-Guarantors
Scenario 1: Equal Sharing of Guarantee
1. Facts:
• Two co-guarantors, Company A and Company B, jointly provide a corporate guarantee for ₹1 crore on
behalf of a related recipient, Company C.
• Both A and B share the guarantee equally, i.e., ₹50 lakh each.
• No specific consideration is paid to either co-guarantor.
2. GST Calculation:
• Since the guarantee amount is shared equally, GST liability is calculated based on 1% of the total guarantee
amount.
• Each co-guarantor will pay GST on their proportion of the guarantee.
Taxable Value:
• Company A: 1% of ₹50 lakh = ₹50,000
• Company B: 1% of ₹50 lakh = ₹50,000
GST @18%:
• Company A: ₹50,000 × 18% = ₹9,000
• Company B: ₹50,000 × 18% = ₹9,000
Conclusion: Both co-guarantors are liable to pay GST on their respective taxable values.
Scenario 2: Unequal Sharing of Guarantee
1. Facts:

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• Two co-guarantors, Company A and Company B, jointly provide a corporate guarantee for ₹1 crore on
behalf of Company C.
• A provides 60% of the guarantee, i.e., ₹60 lakh.
• B provides the remaining 40%, i.e., ₹40 lakh.
• No specific consideration is paid to either co-guarantor.
2. GST Calculation:
• GST liability is calculated based on 1% of the guarantee provided by each co-guarantor.
Taxable Value:
• Company A: 1% of ₹60 lakh = ₹60,000
• Company B: 1% of ₹40 lakh = ₹40,000
GST @18%:
• Company A: ₹60,000 × 18% = ₹10,800
• Company B: ₹40,000 × 18% = ₹7,200
Conclusion: Each co-guarantor is liable to pay GST on their respective taxable values based on the proportion of
the guarantee provided.
Scenario 3: Higher Actual Consideration Paid
1. Facts:
• Two co-guarantors, Company A and Company B, jointly provide a corporate guarantee for ₹1 crore on
behalf of Company C.
• A and B share the guarantee equally, i.e., ₹50 lakh each.
• The actual consideration paid to A is ₹80,000, and to B is ₹70,000.
2. GST Calculation:
• Since the total consideration (₹1,50,000) exceeds 1% of the guarantee amount (₹1,00,000), GST is payable
on the actual consideration received.
Taxable Value:
• Company A: ₹80,000
• Company B: ₹70,000
GST @18%:
• Company A: ₹80,000 × 18% = ₹14,400
• Company B: ₹70,000 × 18% = ₹12,600
Conclusion: In cases where the total consideration exceeds 1% of the guarantee amount, GST is payable on
the actual consideration received by each co-guarantor.
Issue 5: GST Payment on Intra-Group Corporate Guarantees
Scenario 1: Domestic Corporate Guarantee

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1. Facts:
• Company A (parent company in India) issues a corporate guarantee to a bank on behalf of its subsidiary,
Company B (also in India).
• The guarantee amount is ₹1 crore.
• Since both entities are domestic and related, GST is applicable under the forward charge mechanism.
2. GST Process:
• Company A (guarantor) must issue an invoice to Company B (recipient) for providing the corporate
guarantee.
• GST is calculated as 1% of the guarantee amount, i.e., ₹1,00,000.
• Company A will charge and pay GST to the government.
3. Taxable Value and GST Calculation:
• Taxable Value: ₹1,00,000 (1% of ₹1 crore)
• GST @18%: ₹1,00,000 × 18% = ₹18,000
4. Input Tax Credit (ITC):
• Company B can claim ITC of ₹18,000 based on the invoice issued by Company A under Section 31 of the
CGST Act, 2017.
Scenario 2: Foreign Intra-Group Corporate Guarantee
1. Facts:
• Parent Company X (located overseas) issues a corporate guarantee to a bank on behalf of its wholly-owned
subsidiary, Subsidiary Company Y (located in India).
• The guarantee amount is ₹20 crore.
• Since the guarantor is a foreign entity and the recipient is in India, GST is payable under the reverse charge
mechanism by Subsidiary Company Y.
2. GST Process:
• Subsidiary Company Y must self-account for GST and pay it to the government under the reverse charge
mechanism.
3. Taxable Value and GST Calculation:
• Taxable Value: ₹20,00,000 (1% of ₹20 crore)
• GST @18%: ₹20,00,000 × 18% = ₹3,60,000
4. Input Tax Credit (ITC):
• Subsidiary Company Y can claim ITC of ₹3,60,000 for the GST paid under the reverse charge mechanism,
provided all conditions for claiming ITC are satisfied.

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Key Distinctions

Aspect Domestic Intra-Group Guarantee Foreign Intra-Group Guarantee

Guarantor Indian Parent Company (e.g., A) Overseas Parent Company (e.g., X)
Recipient Indian Subsidiary (e.g., B) Indian Subsidiary (e.g., Y)
Relationship Related Persons (intra-group) Related Persons (intra-group)
GST Mechanism Forward Charge Reverse Charge
Taxpayer Guarantor pays GST Recipient pays GST
Invoice Requirement Invoice issued by Parent Company A
No invoice; self-accounting by Subsidiary Y.
Hence, invoice issued by recipient.
ITC Eligibility Subsidiary B claims ITC based on Subsidiary Y claims ITC for GST paid under
invoice RCM
Issue 6: Discharge of Tax Liability on Corporate Guarantee
Scenario 1: Corporate Guarantee Issued for a Fixed Term of 5 Years
1. Facts:
• A holding company (A) provides a corporate guarantee to a bank for securing a loan of ₹10 crore on behalf
of its subsidiary (B) for a tenure of 5 years.
• The actual consideration for the corporate guarantee is ₹3 lakh per year.
2. Valuation of Supply:
• One per cent per annum of the guarantee amount: ₹10 crore × 1% = ₹10 lakh per year.
• Total for 5 years: ₹10 lakh × 5 = ₹50 lakh.
• Actual consideration: ₹3 lakh × 5 = ₹15 lakh.
• As per Rule 28(2), the higher of the two is the taxable value.
3. Taxable Value and GST Calculation:
• Taxable Value: ₹50 lakh (higher of ₹50 lakh and ₹15 lakh).
• GST @18%: ₹50 lakh × 18% = ₹9 lakh.
4. Tax Payment Timeline:
• Time of supply - GST is payable at the time of issuance of the corporate guarantee for the full tenure (5 years).
Scenario 2: Corporate Guarantee Issued for 1 Year and Renewed Annually for 5 Years
1. Facts:
• A holding company (A) provides a corporate guarantee to a bank for ₹10 crore on behalf of its subsidiary
(B) for 1 year, renewable annually for 5 years.
• The actual consideration is ₹3 lakh per year.
2. Valuation of Supply for Each Year:
• One per cent per annum of the guarantee amount: ₹10 crore × 1% = ₹10 lakh per year.
• Actual consideration: ₹3 lakh per year.
• As per Rule 28(2), the higher of the two is the taxable value.

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3. Taxable Value and GST Calculation (Per Year):

• Taxable Value: ₹10 lakh (higher of ₹10 lakh and ₹3 lakh).
• GST @18%: ₹10 lakh × 18% = ₹1.8 lakh per year.
4. Tax Payment Timeline:
• Time of supply - GST is payable each time the corporate guarantee is renewed for that year.
Scenario 3: Corporate Guarantee Issued for Less Than 1 Year (6 Months)
1. Facts:
• A holding company (A) provides a corporate guarantee to a bank for ₹10 crore on behalf of its subsidiary
(B) for 6 months.
• The actual consideration is ₹1.5 lakh.
2. Valuation of Supply for 6 Months:
• Proportionate value for 6 months: ₹10 crore × (6/12) × 1% = ₹5 lakh.
• Actual consideration: ₹1.5 lakh.
• As per Rule 28(2), the higher of the two is the taxable value.
3. Taxable Value and GST Calculation:
• Taxable Value: ₹5 lakh (higher of ₹5 lakh and ₹1.5 lakh).
• GST @18%: ₹5 lakh × 18% = ₹90,000.
4. Tax Payment Timeline:
• Time of supply - GST is payable at the time of issuance of the corporate guarantee for 6 months.
Issue 7: Whether the benefit of second proviso to sub-rule (1), which states that value declared in invoice
is deemed to be the open market value in cases where full input tax credit is available to the recipient of
services, is not applicable in cases falling under sub-rule (2)?
Clarification: Proviso has been inserted in sub-rule (2) of Rule 28 of CGST Rules, retrospectively with effect from
26th October 2023 vide notification No. 12/2024 - CT dated 10.07.2024, similar to that provided in the second
proviso to sub-rule (1) of Rule 28 of CGST Rules, to provide the benefit in cases involving supply of service of
corporate guarantees provided between related persons.
Accordingly, it is clarified that in cases involving the supply of service of corporate guarantees provided between
related persons, where full input tax credit is available to the recipient of services, the value declared in the invoice
shall be deemed to be the value of supply of the said service
Scenario:
1. Facts:
• A holding company (A) provides a corporate guarantee to a bank for securing a loan of ₹10 crore on
behalf of its subsidiary (B).
• Subsidiary B is eligible to claim full Input Tax Credit (ITC) on the services of the corporate guarantee.
• Value Declared in the Invoice: ₹1.5 lakh per year as the consideration for the corporate guarantee.

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2. Valuation of Supply:
• As per sub-rule (2) of Rule 28, the taxable value should generally be the higher of:
• 1% of the guarantee amount per annum: ₹10 crore × 1% = ₹10 lakh.
• Actual consideration declared in the invoice: ₹1.5 lakh.
• However, since full ITC is available to the recipient (B), the proviso to sub-rule (2) of Rule 28 applies.
• Result: The value declared in the invoice (₹1.5 lakh) is deemed to be the taxable value.
3. GST Calculation:
• Taxable Value: ₹1.5 lakh (as declared in the invoice).
• GST @18%: ₹1.5 lakh × 18% = ₹27,000.
4. Key Clarification:
• The benefit of the proviso ensures that the declared invoice value is accepted as the taxable value if full
ITC is available to the recipient.
• The higher valuation (e.g., 1% of the guarantee amount) is not applied in such cases.
Comparison Without ITC Benefit:
If Subsidiary B was not eligible for full ITC, the taxable value would be determined as the higher of:
• 1% of ₹10 crore = ₹10 lakh
• Declared Invoice Value = ₹1.5 lakh
In such a case, the taxable value would be ₹10 lakh, and GST payable would be ₹10 lakh × 18% = ₹1.8 lakh.
Issue 8: Whether the valuation in terms of Rule 28(2) of CGST Rules will apply to the export of the service of
providing corporate guarantee between related persons?
Clarification:
As per the amendment done in sub-rule (2) of rule 28 of CGST Rules retrospectively w.e.f. 26th October 2023 vide
notification No. 12/2024 -CT dated 10.07.2024, the provisions of the said sub-rule will not apply in cases where
the recipient of the services of providing corporate guarantee between related persons is located outside India.
Accordingly, the provisions of the said sub-rule shall not apply to the export of the services of providing corporate
guarantee between related persons.
Illustration 22
M/s X Ltd owned factory in Chennai (Tamil Nadu) and one depot in Cochin (Kerala). Depot in Cochin is required
to obtain separate registration as they are considered as distinct person under Section 25(4) of the CGST Act, 2017.
The goods manufactured in Chennai factory will be transferred to Cochin Depot where it will be sold as it is.

No. of Price at Factory Price at Depot Rate of IGST

Particulars
units Per unit Per unit Advalorem
(i) Goods transferred from factory 1,000 `200 `220 18%
to depot on 8th February
(ii) Goods actually sold at depot on 750 `220 `250 12%
18th February
Find the value of taxable supply of goods and IGST liability in the hands of M/s X Ltd. of Chennai.
Note: Depot in Cochin is not availing input tax credit.

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Solution:
Value of taxable supply of goods = `1,98,000 (`220 × 1,000 units) × 90%
IGST = `35,640 (i.e. `1,98,000 × 18/100)
Note: It means at the time of transfer of goods from Chennai Factory to Cochin Depot, M/s X Ltd. will have to
determine the price at which depot will sell the goods to his customers.
As per 1st proviso to Rule 28 of Chapter IV of the CGST Rules, 2017 provides that such price should be the price
for sale of goods to unrelated person.
M/s X Ltd. has option to pay GST on 90% of such value (i.e. 90% of the price at which the goods are being sold
from Cochin Depot).
Illustration 23
M/s Y Ltd owned factory in Hyderabad (Telangana) and one depot in Vijayawada (Andhra Pradesh). Depot in
Vijayawada is required to obtain separate registration as they are considered as distinct person under Section 25(4)
of the CGST Act, 2017. The goods manufactured in Hyderabad factory will be transferred to Vijayawada Depot
where it will be sold as it is. Depot in Vijayawada is availing Input Tax Credit.

No. of Price at Factory Price at Depot Rate of IGST

Particulars
units Per unit Per unit Advalorem
(i) Goods transferred from factory to depot 1,000 `200 `220 18%
on 8th February
(ii) Goods actually sold at depot on 18th 750 `220 `250 12%
February
Find the value of taxable supply of goods and IGST liability in the hands of M/s Y Ltd. of Hyderabad.
Solution:
Value of taxable supply of goods = `2,00,000 (i.e. Deemed to be open market value) (1000 units × `200)
IGST = `36,000 (`2,00,000 × 18/100)
Note:
(i) As per 2nd proviso to Rule 28 of Chapter IV of the CGST Rules, 2017 provides that where the recipient is
eligible for input tax credit, value declared in the invoice shall be deemed to be open market value of goods
or services.
(ii) Integrated Tax Department has right to reject the valuation if the value is not full fill the open market value.
It should meet the requirement of sole consideration.
Illustration 24
Kamal & Co. manufactures customized products at its unit situated in Rajasthan. Cost of production for Kamal
& Co for 1000 products is `20,00,000. These products require further processing before sale, and for this purpose
products are transferred from its Rajasthan unit to its another unit in Punjab. The Punjab unit, apart from processing
its own products, engages in processing of similar products of other persons who supply the products of the same
kind and quality and thereafter sells these processed products to wholesalers. There are no other factories in the
neighboring area which are engaged in the same business as that of its Punjab unit. Products of the same kind and
quality are supplied in lots of 1000 each time by another manufacturer located in Punjab. The price of such goods is
`19,00,000. Determine the value of 1000 products supplied by Kamal & Co. to its Punjab unit as per the provisions
of CGST Act, 2017.

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Solution:
Value of supply for Kamal & Co., Rajasthan: The value of the supply of goods or services or both between
distinct persons as specified in section 25(4) and section 25(5) of the CGST Act, 2017 or where the supplier and
recipient are related, other than where the supply is made through an agent, shall—
(a) be Open market value of such supply
(b) if the open market value is not available, be the value of supply of goods or services of like kind and quality.
(c) If value is not determinable under clause (a) or (b), be the value as determined by application of rule 30 or
rule 31, in that order.
Provided that where the goods are intended for further supply as such by the recipient, the value shall, at the
option of the supplier, be an amount equivalent to 90% of the price charged of the supply of goods of like kind and
quality by the recipient to his customer not being a related person:
Provided further that where the recipient is eligible for full input tax credit, the value declared in the invoice shall
be deemed to be the open market value of goods or services.
In the given case, open market value of the 1000 products being supplied to Punjab unit is not available since
the supplier manufactures customised products. Therefore, value of 1000 products supplied by Rajasthan unit of
Kamal & Co. to Punjab unit will be the value of the goods of like kind and quality supplied to Punjab unit by other
customers which is `19,00,000.
Since goods are not supplied as such by the Punjab unit, goods cannot be valued @ 90% of the price charged for
the supply of like goods by the Punjab unit to its unrelated customers in terms of first proviso to rule 28 of CGST
Rules, 2017.
Further, if Punjab unit is entitled for full ITC, the value declared in the invoice of Rajsthan unit will be deemed
to be the open market value of the goods vide second proviso to rule 28 of CGST Rules, 2017.
Simplified Approach: Rule 28 of the CGST Rules, 2017:

Supply between distinct or related

persons [Rule of CGST Rules, 2017]

Open
NO Market Value YES
is available

Valuation should be
as per Open Market
Value only
[Rule 28(a)]
Like kind
NO and quality is YES
available

Valuation should be Valuation should

per Rule 30 or Rule be as per Like kind
31 in that order and Quality only
only [Rule 28(c)] [Rule 28(b)]

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1st Proviso to Rule 28: Where the goods supplied as such, at the option of the supplier value shall be 90% of
the price charged by recipient.
2nd Proviso to Rule 28: Where the recipient is eligible for full ITC, the value declared in the invoice shall be
deemed to be the open market value of goods or service
Corporate Guarantee:
The CBIC has also issued Circular No. 204/16/2023-GST, dated 27-10-2023 to clarify the taxability and valu-
ation of corporate guarantee under GST. It is clarified that the activity of providing corporate guarantee to the
bank/financial institutions for providing credit facility to the other company, where both the companies are relat-
ed, is to be treated as supply of service. In case where no consideration is involved then also it is to be treated as
a taxable supply of service as per provisions of Schedule I of CGST Act.
Circular No. 204/16/2023-GST, dated 27-10-2023:

S.No. Issue clarification

1. Whether the activity CBIC clarified about the taxability and valuation of ‘personal guarantees’
of providing personal provided by a director on behalf of the company. The CBIC has taken
guarantee by the reference from RBI Circular which clearly states that no consideration
Director of a company by way of commission, brokerage fees or any other form, can be paid to
to the bank/ financial the director by the company, directly or indirectly, in lieu of providing
institutions for personal guarantee to the bank for borrowing credit limits.
sanctioning of credit
Therefore, it is clarified that the open market value of the said transaction
facilities to the said
may be taken as zero and thus, the taxable value would be zero. In
company without any
such a scenario, no tax is payable, except in exceptional cases where
consideration will be
consideration is charged for undertaking the guarantee.
treated as a supply
of service or not and There may, however, be cases where the director, who had provided the
whether the same will guarantee, is no longer connected with the management but continuance
attract GST or not. of his guarantee is considered essential because the new management’s
guarantee is either not available or is found inadequate, or there may
be other exceptional cases where the promoters, existing directors, other
managerial personnel, and shareholders of borrowing concerns are paid
remuneration/ consideration in any manner, directly or indirectly. In
all these cases, the taxable value of such supply of service shall be the
remuneration/ consideration provided to such a person/ guarantor by the
company, directly or indirectly.
2. Whether the activity Where the corporate guarantee is provided by a company to the bank/
of providing corporate financial institutions for providing credit facilities to the other company,
guarantee by a person where both the companies are related, the activity is to be treated as a
on behalf of another supply of service between related parties as per provisions of Schedule I
related person, or by of CGST Act, even when made without any consideration.
the holding company
Similarly, where the corporate guarantee is provided by a holding
for sanction of
company, for its subsidiary company, those two entities also fall under
credit facilities to its
the category of ‘related persons’.
subsidiary company,
to the bank/

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Indirect Tax Laws and Practice

financial institutions, Hence the activity of providing corporate guarantee by a holding

even when made company to the bank/financial institutions for securing credit facilities
without any for its subsidiary company, even when made without any consideration,
consideration will be is also to be treated as a supply of service by holding company to the
treated as a taxable subsidiary company, being a related person, as per provisions of Schedule
supply of service or I of CGST Act.
not, and if taxable,
In respect of such supply of services by a person to another related person
what would be the
or by a holding company to a subsidiary company, in form of providing
valuation of such
corporate guarantee on their behalf to a bank/ financial institution, the
supply of services.
taxable value will be determined as per rule 28 of CGST Rules.
Considering different practices being followed by the field formations
and taxpayers in determining such taxable value, in order to provide
uniformity in practices and ease of implementation, sub-rule (2) has been
inserted in rule 28 of CGST Rules vide Notification No. 52/2023 dated
26.10.2023, for determining the taxable value of such supply of services
between related persons in respect of providing corporate guarantee.
Accordingly, consequent to insertion of the said sub-rule in rule 28 of
CGST Rules, in all such cases of supply of services by a related person to
another person, or by a holding company to a subsidiary company, in the
form of providing corporate guarantee on their behalf to a bank/ financial
institution, the taxable value of such supply of services, will henceforth
be determined as per the provisions of the sub-rule (2) of Rule 28 of
CGST Rules, irrespective of whether full ITC is available to the recipient
of services or not.
It is clarified that the sub-rule (2) of Rule 28 shall not apply in respect of
the activity of providing personal guarantee by the Director to the banks/
financial institutions for securing credit facilities for their companies and
the same shall be valued in the manner provided in S. No. (1) above.

CBIC issued Circular No. 225/19/2024-GST dt. 11th July, 2024 regarding Clarification on various issues pertaining
to taxability and valuation of supply of services of providing corporate guarantee between related persons are as
under:
Issue 1:
a. Whether Rule 28(2) of CGST Rules applies to corporate guarantees issued before its introduction on 26th
October 2023.
b. Whether intra-group corporate guarantees issued prior to this date, still in force, would require GST payment
based on “1% of the amount of such guarantee offered”.
Clarification:
Example 1: Corporate Guarantee Issued Before 26th October 2023
Scenario:
• ABC Ltd. (Holding Company) provided a corporate guarantee to PQR Bank on behalf of its subsidiary, XYZ
Ltd., on 1st January 2023, for a loan of ₹10 crore.
• No consideration was charged by ABC Ltd. for this guarantee.

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GST Implications:
1. Taxability:
• The corporate guarantee qualifies as a taxable supply of service between related parties under Schedule I
of CGST Act.
2. Valuation:
• Since the guarantee was issued before 26th October 2023, its value must be determined as per the earlier
Rule 28, considering:
• Open market value, or
• Value of similar services, or
• Residual valuation as prescribed under Rule 30 or Rule 31.
Calculation:
• If the open market value of a similar corporate guarantee is determined to be ₹1 lakh, GST will be calculated
on ₹1 lakh.
Example 2: Corporate Guarantee Issued On or After 26th October 2023
Scenario (no consideration):
• On 1st November 2023, ABC Ltd. renewed its earlier guarantee for the same loan of ₹10 crore on behalf of
XYZ Ltd..
GST Implications:
1. Taxability:
• The renewed guarantee is a taxable supply under Schedule I.
2. Valuation:
• Since the guarantee is renewed after 26th October 2023, valuation will be done as per Rule 28(2).
• Taxable Value = 1% of the guarantee amount.
Example Calculation:
• Taxable Value = 1% of ₹10 crore = ₹10 lakh.
• GST at 18% = ₹10 lakh × 18% = ₹1.8 lakh.
Key Differences:
1. Before 26th October 2023: Valuation relied on open market value or other earlier rules.
2. On or After 26th October 2023: Valuation is explicitly 1% of the corporate guarantee amount as per Rule 28(2).
Issue 2:
a. When a corporate guarantee is issued for a specific amount, but the loan is only partly availed or not availed
at all, how is the value of the corporate guarantee determined?
b. Is the recipient eligible to claim full Input Tax Credit (ITC) for the GST charged, even before the full loan
amount is disbursed?

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Clarification:
Part 1: Valuation of Corporate Guarantee
1. Facts:
• ABC Ltd. (Guarantor) provides a corporate guarantee to XYZ Ltd. (Recipient) for a loan of ₹10 crore
from PQR Bank. ABC Ltd., and XYZ Ltd., are related persons.
• PQR Bank approves the loan, but only ₹6 crore is disbursed to XYZ Ltd. initially, and the remaining ₹4
crore is not availed.
2. Valuation of Service:
• The taxable value for the corporate guarantee service is calculated on the guaranteed amount, i.e., ₹10
crore.
• As per Rule 28(2) of CGST Rules, the taxable value is 1% of the guaranteed amount.
3. Calculation:
• Taxable Value = 1% of ₹10 crore = ₹10 lakh.
• GST at 18% = ₹10 lakh × 18% = ₹1.8 lakh.
4. Outcome:
• GST payable by ABC Ltd. = ₹1.8 lakh, irrespective of the actual loan disbursed (₹6 crore).
Part 2: ITC Eligibility for XYZ Ltd.
1. Facts:
• XYZ Ltd. receives an invoice from ABC Ltd. for the corporate guarantee service with a taxable value of
₹10 lakh and GST of ₹1.8 lakh.
• XYZ Ltd. has availed only ₹6 crore of the ₹10 crore loan.
2. Eligibility for ITC:
• XYZ Ltd. is eligible to claim the full ITC of ₹1.8 lakh for the GST paid on the corporate guarantee ser-
vice.
• The claim is valid irrespective of:
• The amount of loan disbursed.
• The timing of loan disbursement.
Issue 3: GST Implications on Takeover of Existing Loans with Corporate Guarantees:
Case 1: Assignment of Existing Corporate Guarantee
• ABC Ltd. provides a corporate guarantee for a loan of ₹20 crore taken by its related entity, XYZ Ltd., from
Bank A.
• Later, Bank B takes over the loan from Bank A.
• No new corporate guarantee is issued, and the existing guarantee is merely assigned to Bank B.
• The takeover of the loan by Bank B does not involve a fresh supply of service.
• The corporate guarantee issued by ABC Ltd. remains the same and is assigned to Bank B.
• As clarified, this activity does not attract GST since no new corporate guarantee is issued or renewed.

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Case 2: Issuance of a Fresh Corporate Guarantee

• Following the loan takeover by Bank B, a new corporate guarantee is issued by ABC Ltd. to replace the
existing one.
• If ABC Ltd. issues a fresh corporate guarantee to Bank B for the same loan amount of ₹20 crore, it consti-
tutes a new taxable supply of service.
• Taxable Value of Service: Calculated as per Rule 28(2) of CGST Rules.
• Taxable Value = 1% of ₹20 crore = ₹20 lakh.
• GST @18% = ₹20 lakh × 18% = ₹3.6 lakh.
• ABC Ltd. must charge GST on the fresh corporate guarantee provided.
Issue 4: GST on Corporate Guarantee Provided by Multiple Co-Guarantors
Scenario 1: Equal Sharing of Guarantee
1. Facts:
• Two co-guarantors, Company A and Company B, jointly provide a corporate guarantee for ₹1 crore on
behalf of a related recipient, Company C.
• Both A and B share the guarantee equally, i.e., ₹50 lakh each.
• No specific consideration is paid to either co-guarantor.
2. GST Calculation:
• Since the guarantee amount is shared equally, GST liability is calculated based on 1% of the total guar-
antee amount.
• Each co-guarantor will pay GST on their proportion of the guarantee.
Taxable Value:
• Company A: 1% of ₹50 lakh = ₹50,000
• Company B: 1% of ₹50 lakh = ₹50,000
GST @18%:
• Company A: ₹50,000 × 18% = ₹9,000
• Company B: ₹50,000 × 18% = ₹9,000
Conclusion: Both co-guarantors are liable to pay GST on their respective taxable values.
Scenario 2: Unequal Sharing of Guarantee
1. Facts:
• Two co-guarantors, Company A and Company B, jointly provide a corporate guarantee for ₹1 crore on
behalf of Company C.
• A provides 60% of the guarantee, i.e., ₹60 lakh.
• B provides the remaining 40%, i.e., ₹40 lakh.
• No specific consideration is paid to either co-guarantor.

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2. GST Calculation:
• GST liability is calculated based on 1% of the guarantee provided by each co-guarantor.
Taxable Value:
• Company A: 1% of ₹60 lakh = ₹60,000
• Company B: 1% of ₹40 lakh = ₹40,000
GST @18%:
• Company A: ₹60,000 × 18% = ₹10,800
• Company B: ₹40,000 × 18% = ₹7,200
Conclusion: Each co-guarantor is liable to pay GST on their respective taxable values based on the proportion of
the guarantee provided.
Scenario 3: Higher Actual Consideration Paid
1. Facts:
• Two co-guarantors, Company A and Company B, jointly provide a corporate guarantee for ₹1 crore on
behalf of Company C.
• A and B share the guarantee equally, i.e., ₹50 lakh each.
• The actual consideration paid to A is ₹80,000, and to B is ₹70,000.
2. GST Calculation:
• Since the total consideration (₹1,50,000) exceeds 1% of the guarantee amount (₹1,00,000), GST is pay-
able on the actual consideration received.
Taxable Value:
• Company A: ₹80,000
• Company B: ₹70,000
GST @18%:
• Company A: ₹80,000 × 18% = ₹14,400
• Company B: ₹70,000 × 18% = ₹12,600
Conclusion: In cases where the total consideration exceeds 1% of the guarantee amount, GST is payable on the
actual consideration received by each co-guarantor.
Issue 5: GST Payment on Intra-Group Corporate Guarantees
Scenario 1: Domestic Corporate Guarantee
1. Facts:
• Company A (parent company in India) issues a corporate guarantee to a bank on behalf of its subsidiary,
Company B (also in India).
• The guarantee amount is ₹1 crore.
• Since both entities are domestic and related, GST is applicable under the forward charge mechanism.

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2. GST Process:
• Company A (guarantor) must issue an invoice to Company B (recipient) for providing the corporate
guarantee.
• GST is calculated as 1% of the guarantee amount, i.e., ₹1,00,000.
• Company A will charge and pay GST to the government.
3. Taxable Value and GST Calculation:
• Taxable Value: ₹1,00,000 (1% of ₹1 crore)
• GST @18%: ₹1,00,000 × 18% = ₹18,000
4. Input Tax Credit (ITC):
• Company B can claim ITC of ₹18,000 based on the invoice issued by Company A under Section 31 of
the CGST Act, 2017.
Scenario 2: Foreign Intra-Group Corporate Guarantee
1. Facts:
• Parent Company X (located overseas) issues a corporate guarantee to a bank on behalf of its whol-
ly-owned subsidiary, Subsidiary Company Y (located in India).
• The guarantee amount is ₹20 crore.
• Since the guarantor is a foreign entity and the recipient is in India, GST is payable under the reverse
charge mechanism by Subsidiary Company Y.
2. GST Process:
• Subsidiary Company Y must self-account for GST and pay it to the government under the reverse charge
mechanism.
3. Taxable Value and GST Calculation:
• Taxable Value: ₹20,00,000 (1% of ₹20 crore)
• GST @18%: ₹20,00,000 × 18% = ₹3,60,000
4. Input Tax Credit (ITC):
• Subsidiary Company Y can claim ITC of ₹3,60,000 for the GST paid under the reverse charge mecha-
nism, provided all conditions for claiming ITC are satisfied.
Key Distinctions
Aspect Domestic Intra-Group Guarantee Foreign Intra-Group Guarantee
Guarantor Indian Parent Company (e.g., A) Overseas Parent Company (e.g., X)
Recipient Indian Subsidiary (e.g., B) Indian Subsidiary (e.g., Y)
Relationship Related Persons (intra-group) Related Persons (intra-group)
GST Mechanism Forward Charge Reverse Charge
Taxpayer Guarantor pays GST Recipient pays GST
Invoice Invoice issued by Parent Company A No invoice; self-accounting by Subsidiary Y.
Requirement Hence, invoice issued by recipient.
ITC Eligibility Subsidiary B claims ITC based on Subsidiary Y claims ITC for GST paid under
invoice RCM

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Issue 6: Discharge of Tax Liability on Corporate Guarantee

Scenario 1: Corporate Guarantee Issued for a Fixed Term of 5 Years
1. Facts:
• A holding company (A) provides a corporate guarantee to a bank for securing a loan of ₹10 crore on
behalf of its subsidiary (B) for a tenure of 5 years.
• The actual consideration for the corporate guarantee is ₹3 lakh per year.
2. Valuation of Supply:
• One per cent per annum of the guarantee amount: ₹10 crore × 1% = ₹10 lakh per year.
• Total for 5 years: ₹10 lakh × 5 = ₹50 lakh.
• Actual consideration: ₹3 lakh × 5 = ₹15 lakh.
• As per Rule 28(2), the higher of the two is the taxable value.
3. Taxable Value and GST Calculation:
• Taxable Value: ₹50 lakh (higher of ₹50 lakh and ₹15 lakh).
• GST @18%: ₹50 lakh × 18% = ₹9 lakh.
4. Tax Payment Timeline:
• Time of supply - GST is payable at the time of issuance of the corporate guarantee for the full tenure (5
years).
Scenario 2: Corporate Guarantee Issued for 1 Year and Renewed Annually for 5 Years
1. Facts:
• A holding company (A) provides a corporate guarantee to a bank for ₹10 crore on behalf of its subsidi-
ary (B) for 1 year, renewable annually for 5 years.
• The actual consideration is ₹3 lakh per year.
2. Valuation of Supply for Each Year:
• One per cent per annum of the guarantee amount: ₹10 crore × 1% = ₹10 lakh per year.
• Actual consideration: ₹3 lakh per year.
• As per Rule 28(2), the higher of the two is the taxable value.
3. Taxable Value and GST Calculation (Per Year):
• Taxable Value: ₹10 lakh (higher of ₹10 lakh and ₹3 lakh).
• GST @18%: ₹10 lakh × 18% = ₹1.8 lakh per year.
4. Tax Payment Timeline:
• Time of supply - GST is payable each time the corporate guarantee is renewed for that year.
Scenario 3: Corporate Guarantee Issued for Less Than 1 Year (6 Months)
1. Facts:
• A holding company (A) provides a corporate guarantee to a bank for ₹10 crore on behalf of its subsidiary
(B) for 6 months.
• The actual consideration is ₹1.5 lakh.

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2. Valuation of Supply for 6 Months:

• Proportionate value for 6 months: ₹10 crore × (6/12) × 1% = ₹5 lakh.
• Actual consideration: ₹1.5 lakh.
• As per Rule 28(2), the higher of the two is the taxable value.
3. Taxable Value and GST Calculation:
• Taxable Value: ₹5 lakh (higher of ₹5 lakh and ₹1.5 lakh).
• GST @18%: ₹5 lakh × 18% = ₹90,000.
4. Tax Payment Timeline:
• Time of supply - GST is payable at the time of issuance of the corporate guarantee for 6 months.
Issue 7: Whether the benefit of second proviso to sub-rule (1), which states that value declared in invoice
is deemed to be the open market value in cases where full input tax credit is available to the recipient of
services, is not applicable in cases falling under sub-rule (2)?
Clarification: Proviso has been inserted in sub-rule (2) of Rule 28 of CGST Rules, retrospectively with effect
from 26th October 2023 vide notification No. 12/2024 - CT dated 10.07.2024, similar to that provided in the sec-
ond proviso to sub-rule (1) of Rule 28 of CGST Rules, to provide the benefit in cases involving supply of service
of corporate guarantees provided between related persons.
Accordingly, it is clarified that in cases involving the supply of service of corporate guarantees provided between
related persons, where full input tax credit is available to the recipient of services, the value declared in the in-
voice shall be deemed to be the value of supply of the said service
Scenario:
1. Facts:
• A holding company (A) provides a corporate guarantee to a bank for securing a loan of ₹10 crore on
behalf of its subsidiary (B).
• Subsidiary B is eligible to claim full Input Tax Credit (ITC) on the services of the corporate guarantee.
• Value Declared in the Invoice: ₹1.5 lakh per year as the consideration for the corporate guarantee.
2. Valuation of Supply:
• As per sub-rule (2) of Rule 28, the taxable value should generally be the higher of:
• 1% of the guarantee amount per annum: ₹10 crore × 1% = ₹10 lakh.
• Actual consideration declared in the invoice: ₹1.5 lakh.
• However, since full ITC is available to the recipient (B), the proviso to sub-rule (2) of Rule 28 ap-
plies.
• Result: The value declared in the invoice (₹1.5 lakh) is deemed to be the taxable value.
3. GST Calculation:
• Taxable Value: ₹1.5 lakh (as declared in the invoice).
• GST @18%: ₹1.5 lakh × 18% = ₹27,000.

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4. Key Clarification:
• The benefit of the proviso ensures that the declared invoice value is accepted as the taxable value if full
ITC is available to the recipient.
• The higher valuation (e.g., 1% of the guarantee amount) is not applied in such cases.
Comparison Without ITC Benefit:
If Subsidiary B was not eligible for full ITC, the taxable value would be determined as the higher of:
• 1% of ₹10 crore = ₹10 lakh
• Declared Invoice Value = ₹1.5 lakh
In such a case, the taxable value would be ₹10 lakh, and GST payable would be ₹10 lakh × 18% = ₹1.8 lakh.
Issue 8: Whether the valuation in terms of Rule 28(2) of CGST Rules will apply to the export of the service
of providing corporate guarantee between related persons?
Clarification:
As per the amendment done in sub-rule (2) of rule 28 of CGST Rules retrospectively w.e.f. 26th October 2023
vide notification No. 12/2024 -CT dated 10.07.2024, the provisions of the said sub-rule will not apply in cases
where the recipient of the services of providing corporate guarantee between related persons is located outside
India. Accordingly, the provisions of the said sub-rule shall not apply to the export of the services of providing
corporate guarantee between related persons.
Rule 29 of the CGST Rules 2017 value of supply of goods made or received from an agent:
As we are aware of that as per clause 3 of Schedule I of the CGST Act 2017:

SCHEDULE I
ACTIVITIES TO BE TREATED AS SUPPLY EVEN IF MADE WITHOUT CONSIDERATION
3. Supply of goods—
(a) by a principal to his agent where the agent undertakes to supply such goods on behalf of the principal; or
(b) by an agent to his principal where the agent undertakes to receive such goods on behalf of the principal.
As per Rule 29 of the CGST Rules, 2017 provides the manner in which value shall be determined in such cases.
(a) be the open market value of the goods being supplied, or at the option of the supplier, be 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, where the goods are intended for further supply by the said recipient;
(b) where the value of a supply is not determinable under clause (a), the same shall be determined by application
of Rule 30 or Rule 31 of Chapter IV of the CGST Rules 2017 in that order.
Illustration 25
A principal supplies groundnut to his agent and the agent is supplying groundnuts of like kind and quality in
subsequent supplies at a price of `5,000 per quintal on the day of the supply. Another independent supplier is
supplying groundnuts of like kind and quality to the said agent at the price of `4,550 per quintal.
Find the value of taxable supply in the hands of principal as per Rule 29(a) of the CGST Rules, 2017.
Solution:
The value of taxable supply made by the principal shall be `4,550 or where he exercises the option, the value
shall be `4,500 (i.e. 90% of `5,000) per quintal.

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Illustration 26
M/s P Ltd being a principal supplies laptop to his agent and the agent is supplying laptops of like kind and quality
in subsequent supplies. M/s P Ltd incorporated in Chennai (Tamil Nadu). Agent is located in Nagercoil (Tamil
Nadu). Goods supplied on 15th November by the Principal to his Agent.

No. Price at which Price at which agent Rate

Particulars of principal supplies to his customer of GST
units supplies to agent not being a related person Advalorem
(i) Selling price on 15th November 1,000 `Nil `22,000 18%
(ii) Goods procured by agent from other independent supplier supplying laptops of like kind and quality at
`20,000 per unit on 15th November.
Find the value of taxable supply of goods and GST liability in the hands of M/s P Ltd. of Chennai.
Solution:
Value of taxable supply made by principal shall be `20,000 per laptop or where the principal exercise the option
the value shall be `19,800 per laptop (i.e. 90% of the `22,000).
It is economical to opt the 90% of the price charged for the supply of goods of like kind and quality by the
recipient to his customer not being related person on the day of supply.
Total taxable value of supply = `198,00,000 (i.e. 19,800 × 1000 units).
GST liability in the hands of M/s P Ltd. of Chennai:
CGST 9% on `198 lakh = `17,82,000
SGST 9% on `198 lakh = `17,82,000
Rule 30: Value of supply of goods or services or both based on Cost already covered.
Rule 31: Residual method for determination of value of supply of goods or services or both already covered.
Simplified Approach: Rule 29 of the CGST Rules, 2017:
Supply of goods made or received from
an agent Rule 29 of CGST Rules, 2017

Open
NO Market Value YES
is available

Valuation as per
Open Market Value
[Rule 29(a)]
Valuation as Or
NO per Cost+ Profit YES At the option of
available the supplier, be
90% of the Price
Valuation as per charged for the
Valuation as per
Rule 30 (i.e. Value supply of goods by
Rule 3 (i.e. Residual
of Supply = 110% the recipient to his
Method)
of Cost) customer.
[Rule 29(b)]
[Rule 29(b)]

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Value of supply in case of lottery, betting, gambling and horse racing

(1) Notwithstanding anything contained in the provisions of this Chapter, the value in respect of supplies
specified below shall be determined in the manner provided hereinafter.
Explanation— For the purposes of this sub-rule, the expressions—
(a) “lottery run by State Governments” means a lottery not allowed to be sold in any State other than the
organizing State;
(b) “lottery authorised by State Governments” means a lottery which is authorised to be sold in State(s)
other than the organising State also; and
(c) “Organising State” has the same meaning as assigned to it in clause (f) of sub-rule (1) of rule 2 of the
Lotteries (Regulation) Rules, 2010.
(2) The value of supply of actionable claim in the form of chance to win in betting, gambling or horse racing in
a race club shall be 100% of the face value of the bet or the amount paid into the totalisator.”;
Rule 31A. Value of supply in case of lottery, betting, gambling, and horse racing

Supply Value
W.E.F. 1.3.2020 Higher of the two amounts to be deemed as value:
Supply of lottery run by State Govt. (OR) 100/128 of the face value of ticket
Supply of lottery authorised by State Govt. OR
100/128 of the price as notified in the official Gazette
by the organising State.
Supply of actionable claim in the form of chance to 100% of the face value of the bet or the amount paid
win in betting, gambling or horse racing in a race club into totalisator

(100/128) × Price
(100/128) × Whichever
notified in the
Face Value of OR official Gazette by
is
lottery ticket the organising State Higher

Value of Supply in case of betting, gambling and horse racing (Rule 31A of CGST Rules):
The value of supply of actionable claim in the form of chance to win in betting, gambling or horse racing in a
race club shall be 100% of the face value of the bet or the amount paid into the totalisator.
W.e.f. 1st October 2023, under Section 15(5) of the CGST Act, the government on the recommendation of the
Council has notified the value of supply for the following Rule 31B and 31C –
Rule 31B of CGST Rules, 2017, Value of supply in case of online gaming including online money gaming.–
Notwithstanding anything contained in this chapter, the value of supply of online gaming, including supply of ac-
tionable claims involved in online money gaming, shall be the total amount paid or payable to or deposited with
the supplier by way of money or money’s worth, including virtual digital assets, by or on behalf of the player:
Provided that any amount returned or refunded by the supplier to the player for any reasons whatsoever, includ-
ing player not using the amount paid or deposited with the supplier for participating in any event, shall not be
deductible from the value of supply of online money gaming.
Rule 31C of the CGST Rules, 2017: Value of supply of actionable claims in case of casino.– Notwithstanding
anything contained in this chapter, the value of supply of actionable claims in casino shall be the total amount
paid or payable by or on behalf of the player for –

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(i) purchase of the tokens, chips, coins or tickets, by whatever name called, for use in casino; or
(ii) participating in any event, including game, scheme, competition or any other activity or process, in the
casino, in cases where the token, chips, coins or tickets, by whatever name called, are not required:
Provided that any amount returned or refunded by the casino to the player on return of token, coins, chips, or
tickets, as the case may be, or otherwise, shall not be deductible from the value of the supply of actionable claims
in casino.
Explanation.- For the purpose of rule 31B and rule 31C, any amount received by the player by winning any
event, including game, scheme, competition or any other activity or process, which is used for playing by the said
player in a further event without withdrawing, shall not be considered as the amount paid to or deposited with the
supplier by or on behalf of the said player.”
Example 1:
Let us assume each player placed bets worth Rs 100. As such, total bets would be Rs 400. Now, the company
concerned gets a platform fee, at the rate of 10 per cent of the bet. This meant Rs 10 from each player and Rs 40
in total is what the company earns. Players winning the games can redeploy their prize into the game.
The industry wants to pay GST on ` 40 only. However, the Council decided to impose 28 per cent GST on Rs
400 and exempted the prize money redeployed in the games from GST.
Example 2:
User Purchase (In- Platform Fee New GST (28%
Gaming Platform Type Game Type
Game Currency) (10% of Purchase) on Full Purchase)
Oversease Gaming Platform Game of Skill ` 100 ` 10 ` 28
Oversease Gaming Platform Game of Skill
For both games of skill (lime online chess) and games of chance (like Online Slot Machine) on an oversease
platform, if a player spends Rs. 100, the platform’s 10% fee equals Rs. 10. Out of this, the platform needs to apy
28% as GST, which amounts to Rs. 28 on the Rs. 100 spent.
Example 3: Let’s assume that if one has placed a bet of Rs. 10,000 for online gaming or horse racing or bought
a chip of Rs. 10,000 in casinos, he will need to pay IGST at the rate of 28%. If he wins, say Rs. 3,000 and the
total amount in the next bet or chip becomes Rs. 13,000, he will not be required to pay GST on the redeployed
winnings amount of Rs. 3,000. However, if he loses Rs. 10,000 and places another Rs. 10,000 that will be con-
sidered a fresh bet or chip and will attract 28% IGST.
Important points:
1. Winnings used further in the game are exempt, but taxes won’t be returned in case of cash refunds.
2. overseas platforms offering services to Indian players must mandatorily register for GST in India.
3. the new rule imposes a 28% GST on both games of skill and chance, eliminating previous distinctions.
Determination of value in respect of certain supplies (Rule 32 of Chapter IV of the CGST Rules, 2017):
Rule 32(1): Notwithstanding anything contained in the provisions of this Chapter, the value in respect of supplies
specified below shall, at the OPTION of the supplier, be determined in the manner provided hereinafter.

Rule 32(2): Money changing services

Rule 32(3): Air travel agent of passenger transport Already covered
Rule 32(4): Life insurance business

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Rule 32(5): Buying and Selling of second hand goods:

Where a taxable supply is provided by a person dealing in buying and selling of second hand goods i.e. used
goods as such or after such minor processing which does not change the nature of the goods and where no input
tax credit has been availed on the purchase of such goods, the value of supply shall be the difference between the
selling price and the purchase price and where the value of such supply is negative, it shall be ignored (i.e. goods
are sold at loss then tax will not be payable).
Provided that the purchase value of goods repossessed from a defaulting borrower, who is not registered, for
the purpose of recovery of a loan or debt shall be deemed to be the purchase price of such goods by the defaulting
borrower reduced by 5% points for every quarter or part thereof, between the date of purchase and the date of
disposal by the person making such repossession.
When a registered second-hand goods dealer supplies second-hand goods, the dealer is liable to charge GST on
the second-hand goods. For this, 2 options have been given to the dealers:
Charge GST on the full transaction value. Here, the dealer is eligible to claim input tax credit of the tax paid on
purchase of the used goods.
Simplified approach:

Buying and Selling of second hand

goods Rule 32(5) of CGST Rules, 2017

Goods repossessed
YES from a defaulting NO
borrower, who is not
registered

Input Tax
NO Credit YES
availed

Purchase Value XX Sale Value XXX Sale Value

(i.e., Transaction
Less: 5% per quarter from the date (XX) Less: Purchase Value (XX)
value)
of purchase to date of disposal
Purchase price of the borrower XX Margin XXX GST will be levied
on the Transaction
GST will be levied on the margin (i.e., sale GST will be levied on the
value of second hand
value - purchase value). If it is negative then margin. If it is negative then
goods
GST is Nil GST is Nil

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As per Section 2(92) of the CGST Act, 2017 “quarter” shall mean a period comprising three consecutive calendar
months, ending on the last day of March, June, September and December of a calendar year;
Illustration 27
Ram & Co., being a car dealer dealing in second hand cars. Ram & Co., purchases used car from Mr. Raja and
sell the very same car to Miss. Rani after water wash and painting. The purchase price is `2,00,000 whereas the sale
price is `2,50,000. Find the GST liability as per rule 32(5) of the CGST Rules, 2017 by following margin scheme
in the hands of Ram & Co. Assume applicable rate of GST 28%.
Ram & Co., is not availing input tax credit on purchase of second hand cars.
Whether your answer is different if the sale of second hand car for `1,80,000.
Note: Ram & Co., and Miss. Rani are located within the State of Tamil Nadu.
Solution:
GST net liability is as follows:

14% 14%
Particulars Value ` Remarks
CGST ` SGST `
Output supply 2,50,000
Less: purchase price 2,00,000
Difference known as 50,000 7,000 7,000 Charge GST on the margin or profit
margin earned on the goods (`50,000 × 28%)
Yes. Our answer different in case of sale price is `1,80,000:
Sale price = `1,80,000
Less: purchase price = `(2,00,000)
Margin = `(20,000)
GST liability = `Nil
Note: For a dealer who has opted for the margin scheme, there can be a scenario where the second-hand goods
are sold at zero margins or for a lesser price than the purchase price. In this case, no GST will be applicable on the
supply.
Illustration 28
Mr. D being a dealer in goods sells new brand cars at `11,00,000. He advertises that customers can sell their old
car if they buy new car from him. One customer exchanged his old car for `2,00,000. Mr. D sold new car to that
customer for `9,00,000. The Central Tax Department demanded to pay GST on `11,00,000 whereas Mr. D argues
that he is eligible to pay GST on the difference namely margin of `9,00,000 as per Rule 32(5) of the CGST Rules,
2017. Discuss and decide the correct approach.
Solution:
Rule 32(5) of the CGST Rules, 2017 is applicable only when person is dealing in buying and selling of secondhand
goods.
In the given case Mr. D is not eligible for margin scheme as referred in rule 32(5). Since, dealer sold new car and
therefore, provisions of rule 32(5) will not apply.
Therefore, from the above it is evident that the Central Tax Department view is correct.

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Illustration 29
M/s X Ltd, a registered person under GST, being a dealer dealing with second-hand goods. M/s X Ltd. supplies
a used camera to a consumer in Chennai for selling price of `15,000. The used camera (i.e. second hand) was
purchased for `10,000 from a registered dealer in Mumbai, on which CGST + SGST of `1,400 each was charged
(i.e. GST rate applicable to cameras is 28%).
M/s X Ltd. charged IGST 28% on inter State supply.
Find the net GST liability in the following independent cases:
(a) if input tax credit availed.
(b) if input tax credit not availed.

Solution:
(i) Net GST liability in case of input tax credit availed:
Particulars Value ` 28% IGST `
Output supply 15,000 4,200
Less: ITC 10,000
CGST 14% (1,400)
SGST 14% (1,400)
Net GST liability 1,400

(ii) Net GST liability in case of input tax credit not availed:
Particulars Value` 28% IGST ` Remarks
Output supply 15,000
Less: purchase price 12,800 GST will form part of cost.
Difference known as 2,200 616 Charge GST on the margin or profit earned on
margin the goods (`2,200 × 28%)

Repossession of goods in case of default by the unregistered borrower:

Illustration 30
Mr. C has taken a loan from the bank on 15th July 2023 worth `2 crore and purchased a machine. Subsequently
Mr. C defaulted in paying the loan amount along with interest. Subsequently bank repossessed the machine from
Mr. C on 1st Jan 2024. The banker sells the said goods on 26th April 2024.
Find the value of taxable supply of goods in the hands of banker in the following two independent cases:
Case 1: machine sold for `1,90,00,000.
Case 2: machine sold for `1,70,00,000.
Note: Applicable rate of IGST 18%.

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Solution:
Determination of purchase value:

Particulars Value in ` Working note

Purchase value of the banker 2,00,00,000 Purchase value for the lending company will be the
purchase price of the defaulter.
Less: 5% per quarter for 2 quarters (20,00,000) From 1st Jan 2024 to 26th April 2024 = 2 quarters
Purchase value at the time of disposal 1,80,00,000
by the bank

Value of taxable supply in the hands of banking company:

Particulars Case 1 Case 2 Remarks
Sale price 1,90,00,000 1,70,00,000
Less: purchase price (1,80,00,000) (1,80,00,000) In case the sale price is below
`1,80,00,000, banker will not be liable to pay
GST as value is nil.
Taxable value or Margin 10,00,000 Nil
IGST 18% 1,80,000 Nil `10 lacs x 18%

Redeemable voucher/coupons/stamp (other than postage stamp) Rule 32(6) of the CGST Rules, 2017
There are many companies who issue vouchers, coupons, stamp and so on and on the basis of which goods or
services can be procured by the holder of such vouchers/coupons/stamps etc.

Valuation:
The value of a token, or a voucher, or a coupon, or a stamp (other than postage stamp) which is redeemable
against a supply of goods or services or both shall be equal to the money value of the goods or services or both
redeemable against such token, voucher, coupon, or stamp.

Time of Supply of Vouchers for Goods & Services (Section 12(4) & 13(4) of CGST Act, 2017

If the supplies is identifiable at that point:

~ Time of supply = Date of issue of voucher.

If the supplies is not identifiable at that point:

~ Time of supply = The date of redemption of voucher.

Example 15
A voucher has face value of `5,000. The holder of voucher can purchase goods or services of equivalent value of
`5,000. When the holder of voucher receives the goods or services against the voucher it is termed as redemption
of voucher.

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Illustration 31
X Ltd. being a cloth merchant sold gift voucher to customer for `2,000 on 10th November to purchase specific
cloth from its showroom. Goods actually purchased by customer on 15th November for `2,400. Find the time of
supply and value of supply with regard to gift voucher in the hands of X Ltd.

Solution:
Time of supply is at the time issue of voucher i.e. 10th November.
Value of supply = `2,000 for gift voucher.

Illustration 32
Ram & Co., being dealer in electronics and electrical items, issued gift voucher to its customer for `2,000 on 15th
November. Customer can use gift voucher to purchase anything which is available. Customer purchased goods
worth `1,400 on 20th November. Applicable CGST and SGST 9% each.
Find the following
(a) time of supply
(b) value of supply
(c) GST liability in the hands of Ram & Co.

Solution:
(a) Time of supply is 20th November.
(b) Value of supply is `1,400.
(c) GST liability:
~ CGST is `126
~ SGST is `126
Working Note: `1,400 x 9% = `126m

Illustration 33
Mr. & Ms. Kapoor purchase 10 gift vouchers for `500 each from Crossword, and 5 vouchers from a reputed Spa
costing `1,000 each. The vouchers from a reputed Spa had a special offer for couples, where in services for both
persons at the price chargeable to one. Find the value of supply in the hands of Crossword and reputed Spa.

Solution:
Statement showing value of taxable supply:

Crossword Value Reputed Spa

Particulars Remarks
in ` value in `
Value of taxable supply 5,000 10,000 10 gifts × 500 = `5,000.
(5 vouchers × `1,000) × 2 = `10,000
Value of service provided by one distinct person to another distinct person Rule 32(7) of the CGST Rules,
2017:

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The value of taxable services provided by such class of service providers as may be notified by the Government,
on the recommendations of the Council, as referred to in paragraph 2 of Schedule I of the CGST Act, 2017 between
distinct persons as referred to in section 25, where input tax credit is available, shall be deemed to be NIL.

SCHEDULE I
ACTIVITIES TO BE TREATED AS SUPPLY EVEN IF MADE WITHOUT CONSIDERATION
2. Supply of goods or services or both between related persons or between distinct persons as specified in
section 25, when made in the course or furtherance of business:
Provided that gifts not exceeding `50,000 in value in a financial year by an employer to an employee shall
not be treated as supply of goods or services or both.

Value of supply of services in case of pure agent Rule 33 of the CGST Rules, 2017
Pure Agent means a person who:
(a) enters into a contractual agreement with the recipient of supply to act on their behalf and incur expenditure
or costs in the course of supply of goods or services or both;
(b) neither intends to hold nor holds any title to the goods or services (or both) procured on behalf of or provided
to the recipient of supply;
(c) does not use the goods or services so procured for his own interest; and
(d) receives only the actual amount incurred to procure such goods or services.

Pure
Agent
under
E
R T
PU EN
G
A

GST
The expenditure or costs incurred by a supplier as a pure agent of the recipient of supply shall be excluded from
the value of supply, if all the following conditions are satisfied namely: —
(i) the supplier acts as a pure agent of the recipient of the supply, when he makes the payment to the third party
on authorization by such recipient;
(ii) the payment made by the pure agent on behalf of the recipient of supply has been separately indicated in the
invoice issued by the pure agent to the recipient of service; and
(iii) the supplies procured by the pure agent from the third party as a pure agent of the recipient of supply are in
addition to the services he supplies on his own account.

Airport levies under GST (CBIC Circular No. 115/34/2019-GST, dated 11-10-2019):
Passenger Service Fee (PSF) or User Development Fee (UDF) levied by airport operator for services provided

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to passengers, are collected by the air lines as an agent and is not a consideration for any service provided by the
airlines. Airlines may act as a pure agent for the supply of airport services in accordance with rule 33 of the CGST
Rules, 2017.
The airport operators (like Mumbai International Airport Ltd., or Airport Authority of India or Delhi International
Airport Ltd. etc) shall pay GST on the PSF and UDF collected by them from the passengers through the airlines.
Since, the airport operators are collecting PSF and UDF inclusive of GST, there is no question of their not paying
GST collected by them to the Government.
Collection charges paid by the airport operator to airlines are a consideration for the services provided by the
airlines to the airport operator and airlines shall be liable to pay GST on the same under forward charge. ITC of the
same will be available with the airport operator.

Example 16
Corporate services firm A is engaged to handle the legal work pertaining to the incorporation of Company B.
Other than its service fees, A also recovers from B, registration fee and approval fee for the name of the company
paid to the Registrar of Companies (ROC). The fees charged by the Registrar of Companies for the registration and
approvals of the name are compulsorily levied on B. A is merely acting as pure agent in the payment of those fees.
Therefore, A’s recovery of such expenses is a disbursement and not part of the value of supply made by A to B.

Example 17
Mr. Ram is a registered dealer under GST Law. He sold furniture to a customer for `51,000 with free delivery.
In such case Mr. Ram availing the service of the transporter for his own interest and therefore, transport charges is
included in selling price of `51,000 and he would be not considered as pure agent in this case.

Illustration 34
Mr. X is a Customs Broker issues an invoice for reimbursement of a few expenses and for consideration towards
agency service rendered to an importer. The amounts charged by the Customs Broker are as below:

Sl. No. Component charges in invoice Amount in `

1 Agency income 10,000

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Sl. No. Component charges in invoice Amount in `

2 Travelling expenses 5,500
3 Hotel expenses 9,500
4 Customs duty 55,000
5 Dock dues 2,500
Find the value of taxable supply of service in the hands of Customs Broker.

Solution:
Statement showing taxable value of supply of service:

Sl. No. Particulars Amount in ` Remarks

1 Agency income 10,000 Addable into the value
2 Travelling expenses 5,500 -do-
3 Hotel expenses 9,500 -do-
4 Customs duty Not addable Pure agent reimbursement
5 Dock dues Not addable Pure agent reimbursement
Total 25,000

Illustration 35
Determine the value of supply and the GST liability, to be collected and paid by the owner, with the following
particulars:
(`)
Rent on the commercial building 18,00,000
Maintenance charges collected by local society from the owner and reimbursed by the tenant 2,50,000
Owner intends to charge GST on refundable advance, as GST is applicable on advance 6,00,000
Municipal taxes paid by the owner 3,00,000
GST rates applicable on renting of business premises is as follows:
CGST 9% and SGST 9%
Provide suitable explanations where required.

Solution:
Statement showing taxable supply and GST liability:
(`)
Rent on the commercial building 18,00,000

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Maintenance charges collected by local society from the owner and reimbursed by the tenant 2,50,000
Owner intends to charge GST on refundable advance, as GST is applicable on advance (GST not Nil
applicable on refundable advance)
Municipal taxes paid by the owner (assumed the same recovered from the tenant) 3,00,000
Taxable supply 23,50,000
GST liability
CGST 9% on `23,50,000 2,11,500
SGST 9% on `23,50,000 2,11,500

Illustration 36
Puplly Manufacturers Ltd., registered in Mumbai (Maharashtra), is a manufacturer of footwear. It imports a
footwear making machine from USA. Puplly Manufacturers Ltd. avails the services of Dada Logistics, a licensed
customs broker with its office at Ahmedabad (Gujarat), in meeting all the legal formalities for getting the said
machine cleared from the customs station.
Puplly Manufacturers Ltd. also authorises Dada Logistics to incur, on its behalf, the expenses in relation to
clearance of the imported machine from the customs station and bringing the same to its warehouse at Mumbai.
These expenses would be reimbursed by Puplly Manufacturers Ltd. to Dada Logistics on actual basis. In addition,
Puplly Manufacturers Ltd. will also pay the agency charges to Dada Logistics for the services rendered by it.

Dada Logistics raised an invoice in July, 20XX as follows:

Sl.
Particulars Amount* (`)
No.
(i) Agency charges 5,00,000
(ii) Unloading of machine at Kandla port, Gujarat 50,000
(iii) Charges for transport of machine from Kandla port, Gujarat to Dada Logistics’ 25,000
godown in Ahmedabad, Gujarat
(iv) Charges for transport of machine from Dada Logistics’ Ahmedabad godown to the 28,000
warehouse of Puplly Export Import House in Mumbai, Maharashtra
(v) Customs duty on machine 5,00,000
(vi) Dock dues 50,000
(vii) Port charges 50,000
(viii) Hotel expenses 45,000
(ix) Travelling expenses 50,000
(x) Telephone expenses 2,000
*exclusive of GST wherever applicable
Compute the value of supply made by Dada Logistics with the help of given information. Would your answer

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be different if Dada Logistics charges ` 13,00,000 as a lump sum consideration for clearing the imported machine
from the customs station and bringing the same to the warehouse of Puplly Manufacturers Ltd.?

Solution:
Statement showing taxable supply of Dada Logistics for the month of July 20XX:

Sl.
Particulars Amount* (`)
No.
(i) Agency charges 5,00,000
(ii) Unloading of machine at Kandla port, Gujarat Pure agent expenditure
(iii) Charges for transport of machine from Kandla port, Gujarat to Dada Logistics’ Pure agent expenditure
godown in Ahmedabad, Gujarat
(iv) Charges for transport of machine from Dada Logistics’ Ahmedabad godown Pure agent expenditure
to the warehouse of Puplly Export Import House in Mumbai, Maharashtra
(v) Customs duty on machine Pure agent expenditure
(vi) Dock dues Pure agent expenditure
(vii) Port charges Pure agent expenditure
(viii) Hotel expenses 45,000
(ix) Travelling expenses 50,000
(x) Telephone expenses 2,000
Total taxable supply 5,97,000

However, if Dada Logistics charges `13,00,000 as a lumsum consideration for getting the imported machine
cleared from the customs station and bringing the same to the warehouse of Puplly Manufacturers Ltd., Dada
Logistics would incur expenses (ii) to (vii) for its own interest (as the agreement requires it to get the imported
machine cleared from the customs station and bring the same to the Puplly Manufactures Ltd.’s warehouse).
Thus, Dada Logistic would not be considered as a pure agent of Puplly Manufacturers Ltd. for said services.
Consequently, in that case, value of supply will be `13,00,000.

Rate of exchange of currency for determination of value Rule 34 of the CGST Rules, 2017
The rate of exchange for the determination of the value of taxable goods or services or both shall be the applicable
reference rate for that currency as determined by the Reserve Bank of India (RBI) on the date of time of supply in
respect of such supply in terms of section 12 or as the case may be, section 13 of the Act.

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Notification No. 17/2017-CT, New Delhi, the 27th July 2017

for rule 34, the following shall be substituted, namely:
“34. Rate of exchange of currency, other than Indian rupees, for determination of value.—
(1) The rate of exchange for determination of value of taxable goods shall be the applicable rate of exchange as
notified by the Board under section 14 of the Customs Act, 1962 for the date of time of supply of such goods
in terms of section 12 of the Act.
(2) The rate of exchange for determination of value of taxable services shall be the applicable rate of exchange
determined as per the generally accepted accounting principles for the date of time of supply of such services
in terms of section 13 of the Act”;

Illustration 37
Compute the duty payable under the Customs Act, 1962 for imported equipment based on the following
information:
(i) Assessable value of the imported equipment US $10,100.
(ii) Date of Bill of Entry 25.10.2024 exchange rate notified by the Central Board of Excise and Customs US $ 1
= `65.
(iii) Date of Entry inwards 01.11.2024 exchange rate notified by the Central Board of Excise and Customs US $
1 = `60.
Find the taxable value of imported goods.

Solution:
Statement showing taxable value of imported goods:
Particulars Value in ` Remarks
Assessable value of 6,56,500 10,100 USD × `65
imported goods Exchange rate as on the date of submission of bill of entry is relevant as
per section 14 of the Customs Act, 1961.
Value of supply inclusive of integrated tax, State tax, Union territory tax Rule 35 of the CGST Rules, 2017
Where the value of supply is inclusive of integrated tax or, as the case may be, central tax, State tax, Union
territory tax, the tax amount shall be determined in the following manner, namely: —
Value Inclusive of Tax
Tax Amount = × Rate of GST
100 + GST
This formula is very useful in case where supplier may treat the particular supply as exempted from GST and
therefore will not indicate the tax amount separately in the bill of supply prepared by him. In fact it is taxable
supply with GST. In such case transaction value will be determined with help of rule 35.

Illustration 38
An assessee was under impression that his product is exempt from GST and hence sold the goods @`100
per piece without charging GST. Later, it was found that actually, the product was chargeable with IGST 18%.
Department claimed that since goods were removed without GST, transaction value should be `100 and GST is

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payable accordingly. Assessee contended that price of `100 should be taken as inclusive of GST and actual GST
payable should be calculated by back calculations. Determine the correct GST payable per piece.
(ICWAI Final Dec. 2003 model)
Solution:
As per rule 35 of the CGST Rules, 2017 transaction value and GST liability is as follows:
The Transaction value should be taken, as cum-tax-price and tax payable should be calculated by making back
calculations. Hence, the transaction value is as follows:
The transaction value = `100 × 100/118 = `84.75
IGST = `100 × 18/118 = `15.25
Total invoice price = `100.00
[CCE v Maruti Udyog Ltd. (2002) 141 ELT 3 (SC)]
Construction service vs works contract service – valuation
w.e.f. 25.1.2018: Construction service or works contract service:

Sl.
Description of Services GST Rate
No.
1. Construction of a complex, building, civil structure or a 12% with full ITC but no refund of
part thereof, intended for sale to a buyer, wholly or partly. overflow of ITC.
The value of landis included in the amount charged from
the service recipient.
2 Composite supply of works contract as defined under 18% with full ITC
section 2(119) of CGST Act, 2017 read with clause 5(b) of
Schedule II

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Sl.
Description of Services GST Rate
No.
3 w.e.f. 25.1.2018, Houses constructed under three 8% (i.e. after deducting 1/3 of the amount
components of the Housing for All (Urban) Mission/ charged for house, flat etc., towards the
Pradhan Mantri Awas Yojana (Urban) – cost of land or undivided share of land,
(i) In-situ redevelopment of existing slums using land as as the case may be).
a resource component; Summary:
(ii) Affordable housing in partnership and
Normal rate of GST 12%
(iii) Beneficiary-led individual house construction/
enhancement. Less: 1/3rd of 12% - 4%
The Council extended this tax benefit to CLSS, for Effective rate of GST 8%
Economically Weaker Sections (EWS)/Lower Income
Group (LIG)/Middle Income Group-1/Middle Income
Group-2 (MlG-2) under the PMAY (Urban) programme.
Further the GST Council extend the concessional rate
of 12% (i.e. effective rate 8%) to services by way of
construction of low cost houses upto a carpet area of 60sqm
in a housing project which has been given infrastructure
status.
In addition to the above, GST Council decided to
give exemption to leasing of land by Government to
Governmental Authority or Government entity.

Illustration 39
Mr. A agrees to undertake a works contract for M/s B Ltd. for maintenance and repair or reconstruction of
machine for `50,00,000. The breakup of the gross value charged by Mr. A to B Ltd., is as under:
(a) Value of material `30,00,000
(b) Labour charges `15,00,000
(c) Cost of consumables `2,00,000
(d) Profit margin on labour and service `3,00,000
Find the value of supply and GST liability?

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Solution:
Particulars Value in `
Value of material 30,00,000
Labour 15,00,000
Cost of consumables 2,00,000
Profit margin 3,00,000
Composite supply of works contract 50,00,000
GST @18% on `50,00,000 9,00,000

Illustration 40
ME Ltd. has entered into a contract for construction of a building with SC Ltd. As per the agreement, the amount
payable (excluding all taxes and land value) by ME to SCL is `100,00,000 inclusive of the steel and cement to be
supplied by ME for which it charged `5,00,000 from SCL. Fair market value of the steel and cement (excluding
taxes) is `10,00,000. Compute the ‘total amount charged’ pertaining to the said works contract for execution of
‘original works’. Also find the GST liability.

Solution:
Particulars Value in `
Composite supply of works contract 1,00,00,000
Add: Fair market value of material supplier by recipient of supply 10,00,000
Less: value of steel and cement charged by supplier at nominal value 5,00,000
Value of taxable supply of service 1,05,00,000
GST 18% 18,90,000

Illustration 41
M/s. Beta Construction Co. Ltd. expects a gross turnover of `2,500 crores during the coming year 2025-26
from various commercial/industrial constructions (inclusive of land value `1000 crores). It furnishes following
additional information –
The company is in a dilemma whether to opt for works contract supply or construction supply. Advise.
Solution:
Works contract service Construction contract service
Particulars
(land value excluded) (land value included)
GST Rate 18% 12%
Value of supply `1,500 crores `2,500 crores

GST liability `270 crores `300 crores

Advice: works contract service is economical.

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Illustration 42
JE Engineers, a partnership firm, registered under GST for supplying Works Contract services. JE Engineers
agreed to supply works contract services. Accordingly, company quoted an amount of `100 lakhs for a construction
work. It is agreed that if B Ltd. supplied the steel and cement, the contract amount will be reduced on the agreed
basis. B Ltd. supplied steel and cement of `10 lakh for use in the construction activities as a result the contract
amount reduced to `90 lakhs. Further JE Engineers had billed and supplied goods to B Ltd. worth `2 lakhs under a
separate agreement which was also used while providing above works contract service.
B Ltd. provided canteen facilities, electricity and water to JE Engineers free, without charge while providing the
works contract service. Cost of such services was `1,50,000.
Find out the taxable supply and GST liability?
Note: contract value excludes land value.

Solution:
Value in
Particulars Remarks
` in lakhs

Works contract supply 90.00

Add: Material supplied free of 10.00 As per Sec. 15(2)(b) of the CGST Act, 2017.
cost by recipient of service
Add: consumables 2.00 Composite works contract service includes cost of
consumables
Add: Electricity and water 1.50 Monitory values of non-monitory value should be included as
per Rule 27(b) of the CGST Rules, 2017.
Value of supply 103.50
GST 18% 18.63

W.e.f. 1-4-2019 REAL ESTATE SECTORS are summarized as under:

Conditions for the new tax rates:
~ At least 80% of the material to be procured from registered dealers. Further, on shortfall of purchases from
80%, tax shall be paid by the builder @ 18% on RCM basis.
~ However, Tax on cement purchased from unregistered person shall be paid @ 28% under RCM, and on
capital goods under RCM at applicable rates.
~ Input tax credit shall not be available.

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Applicability of new tax rates:

The new tax rates which shall be applicable as follows:
1% without input tax credit (ITC) on construction of affordable houses shall be available for:
~ Houses having area of 60 sqm in metros/90 sqm in non-metros and value upto `45 lakhs
~ Under construction affordable houses presently eligible for concessional rate of 8% GST (after 1/3rd land
abatement)
5% without input tax credit shall be applicable on construction of:
~ Under construction houses other than affordable houses presently booked prior to or after 01.04.2019. For
houses booked prior to 01.04.2019, new rate shall be available on instalments payable on or after 01.04.2019.
~ Commercial apartments having carpet area of not more than 15% of total carpet area of all apartments.
The following treatment shall apply to TDR/FSI and Long term lease for projects commencing after 1-4-
2019:
The supply of TDR, FSI, long term lease (premium) of land by a land owner to a developer shall be exempted
subject to the condition that the constructed flats are sold before issuance of completion certificate and tax is paid
on them. Exemption of TDR, FSI, long term lease (premium) shall be withdrawn in case of flats sold after issue of
completion certificate, but such withdrawal shall be limited to 1% of value in case of affordable houses and 5% of
value in case of other than affordable houses.
The liability to pay tax on TDR, FSI, long term lease (premium) shall be shifted from landowner to builder under
the Reverse Charge Mechanism (RCM).
The date on which builder shall be liable to pay tax on TDR, FSI, long term lease (premium) of land under RCM

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in respect of flats sold after completion certificate is being shifted to date of issue of completion certificate.
The liability of builder to pay tax on construction of houses given to land owner in a JDA is also being shifted
to the date of completion.

Simplified Approach:

Illustration 43
Does a promoter or a builder has option to pay tax at old rates of 8% & 12% with ITC?

Solution:
Yes, but such an option is available in the case of an ongoing project. In case of such a project, the promoter or
builder has option to pay GST at old effective rate of 8% and 12% with ITC.

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To continue with the old rates, the promoter/builder has to exercise one time option in the prescribed form and
submit the same manually to the jurisdictional Commissioner by the 10th of May, 2019.
However, in case where a promoter or builder does not exercise option in the prescribed form, it shall be deemed
that he has opted for new rates in respect of ongoing projects and accordingly new rate of GST i.e. 5%/1% shall be
applicable and all the provisions of new scheme including transitional provisions shall be applied.
There is no such option available in case of projects which commence on or after 01.04.2019. Construction of
residential apartments in projects commencing on or after 01.04.2019 shall compulsorily attract new rate of GST
@ 1% or 5% without ITC.

Illustration 44
What is the rate of GST applicable on construction of commercial apartments [shops, godowns, offices etc.] in
a real estate project?

Solution:
With effect from 01-04-2019, effective rate of GST, after deduction of value of land or undivided share of land,
on construction of commercial apartments [shops, godowns, offices etc.] by promoter in real estate project are as
under:

Description Effective rate of GST

Construction of commercial apartments in a Residential Real Estate Project (RREP), 5% without ITC on total
which commences on or after 01-04-2019 or in an ongoing project in respect of consideration.
which the promoter has opted for new rates effective from 01-04-2019
Construction of commercial apartments in a Real Estate Project (REP) other than 12% with ITC on total
Residential Real Estate Project (RREP) or in an ongoing project in respect of which consideration.
the promoter has opted for old rates

Illustration 45
What is a Residential Real Estate Project?

Solution:
A “Residential Real Estate Project” means a “Real Estate Project” in which the carpet area of the commercial
apartments is not more than 15 per cent. of the total carpet area of all the apartments in the project.

Illustration 46
GK Developers Limited (i.e. Developer) enters into an agreement with land owner Mr. Nagarajan where Transfer
Development Rights (TDRs) of the land transferred but ownership in land continues with the landowner (i.e.
license to occupy land) on 31st May, 20XX. After entering to TDRs/Joint Development Agreements, the flats
meant for landowner and builder are identified and a Supplementary Agreement (i.e. conveyance deed) is entered
into for this purpose on 15th June, 20XX. In pursuit of this agreement a total of 10 residential units will be
constructed by GK Developers Limited on the land provided by Mr. Nagarajan, whereas 40% of the units shall be
given to Mr. Nagarajan.
Answer the following:
(a) Transfer of TDRs is taxable supply? If so, who is liable to pay GST? Find the Time of supply for transfer of
TDRs?

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(b) Whether GST is payable on the owner’s share of the flats/houses/portion of the building constructed by the
builder or developer given to the landowner as per development agreement? If so, find the Time of Supply?
(c) Find the time of supply for the consideration received by the builder from other buyers?
(d) Re-work, where TDRs of the land transferred permanently and irrevocably transferred by the landowner to
the developer (i.e. sale/transfer of land). If so, transfer of TDRs is taxable supply in the hands of landowner?
Note: All 10 residential units constructed under the category of other than affordable housing project and sold
only after obtaining completion certificate.

Solution:
(a) TDRs transferred by land owner is taxable supply in the hands of promoter under RCM (Section 9(3) of
CGST Act, 2017).
Time of supply = Date of completion certificate
(b) Flats allotted under JDA is before obtaining completion certificate and hence, it is taxable supply.
Time of supply = Date of completion certificate.
(c) Allotment of Flats after completion certificate is not supply of goods or services. Hence, GST does not arise.
(d) Since, ownership on land is transferred, which is not a supply of goods nor supply of service. Therefore, GST
is not applicable.

Illustration 47
ABC Constructions Ltd. has provided the following details with respect to individual residential units constructed
by it at various cities as part of residential apartments:

Flat Capet area Amount

type (sq.ft.) charged (`)
A 1980 1,10,00,000 Part of consideration received before issuance of completion certificate
by the competent authority. Commercial apartments having carpet
area of not more than 15% of total carpet area of all apartments.
B 2000 1,00,00,000 -do-
C 2500 1,05,00,000 -do-
D 2400 99,50,000 Entire consideration received before issuance of completion certificate
by the competent authority. Commercial apartments having carpet
area of more than 15% of total carpet area of all apartments
E 2100 1,00,00,000 -do-
F 1600 80,00,000 -do-
G 1940 90,00,000 Entire consideration received after issuance of completion certificate
by the competent authority
LIG 60 sq. Mtrs. 45,00,000 Under affordable houses 34 Flats constructed and ITC not availed.
Project commenced from 1st April 2019 under Housing for All
(Urban) Mission/Pradhan Mantri Awas Yojana (Urban). Construction
value includes land value.

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Flat Capet area Amount

type (sq.ft.) charged (`)
EWS 400 sqfts 1,25,00,000 Pure labour service contracts of construction to the beneficiary-led
individual house construction under Housing for All (Urban) Mission/
Pradhan Mantri Awas Yojana (Urban).
Following details are also available:

Type of building Amount charged (`)

Multi-level parking for 3,10,00,000 Part of consideration received before issuance of
local authority completion certificate by the competent authority
Office Complex 12,20,00,000 Entire consideration received before issuance of
completion certificate by the competent authority
Shopping Mall 30,00,00,000 Entire consideration received after issuance of
completion certificate by the competent authority
Find the GST liability if any?

Solution:
Amount
Flat type Taxability GST Rate GST in `
charged (`)
A 1,10,00,000 Taxable supply 5% 5,50,000
Assumed that ITC not availed
B 1,00,00,000 -do- -do- 5,00,000
C 1,05,00,000 -do- -do- 5,25,000
D 99,50,000 Taxable supply 12% 11,94,000
ITC allowed
E 1,00,00,000 -do- -do- 12,00,000
F 80,00,000 -do- -do- 9,60,000
G 90,00,000 Not a supply -NA- Nil
LIG 45,00,000 Taxable supply 1% 45,000
EWS 1,25,00,000 Exempted supply Nil Nil
Multi-level parking 3,10,00,000 Taxable supply 12% 37,20,000
for local authority
Office Complex 12,20,00,000 Taxable supply 12% 1,46,40,000
Shopping Mall 30,00,00,000 Not a supply -NA- Nil

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Important points:

1. Whether GST is applicable on the superior kerosene oil [SKO] retained for the manufacture of Linear
Alkyl Benzene [LAB]?

Facts of the case: Linear Alkyl Benzene (LAB) manufacturers have stated that they receive superior
Kerosene oil (SKO) from, a refinery, say, Indian Oil Corporation (IOC). They extract n- Paraffin from SKO
and return back the remaining of SKO to the refinery. In this context, the issue has arisen as to whether in
this transaction GST would be levied on SKO sent by IOC for extracting n-paraffin or only on the n-paraffin
quantity extracted by the LAB manufactures. Further, doubt have also been raised as to whether the return
of remaining Kerosene by LAB manufactures would separately attract GST in such transaction.

2. Clarification on Inter-state movement of various modes of conveyance, carrying goods or passengers

or for repairs and maintenance:

It is hereby clarified that the inter-state movement of goods like movement of various modes of conveyance,
between distinct persons as specified in section 25(4) of the CGST Act, may not be treated as supply and
consequently IGST will not be payable on such supply.

However, applicable CGST/SGST/IGST, as the case may be, shall be leviable on repairs and maintenance
done for such conveyance.

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1. Inter-State Movement of Goods do not constitute Supply:

To clarify that inter-state movement of goods like rigs, tools, spares and goods on wheel like cranes, not
being in the course of furtherance of supply of such goods, does not constitute a supply. This clarification
gives major compliance relief to industry as there are frequent inter-state movement of such kind during
providing services to customers or for the purposes of getting such goods repaired or refurbished or for any
self-use. Service provided using such goods would in any case attract applicable tax. However, E-way Bill
is mandatory provided the value of goods exceeds `50,000 (i.e. for reasons other than supply).
2. ITC Available on Inter-state supply of Aircraft engines, Parts & Accessories:
It is being clarified that credit of GST paid on aircraft engines, parts & accessories will be available for
discharging GST on inter-state supply of such aircraft engines, parts & accessories by way of inter-state
stock transfers between distinct persons as specified in section 25 of the CGST Act.

Clarification on certain issues related to GST

The Central Government vide Circular No. 76/50/2018-GST, dated 31st December, 2018 clarified certain issues
under the GST Law as under:—

Sl.
Issue Clarification
No.
Whether the supply of 1. Intra-State and inter-State supply of used vehicles, seized and
used vehicles, seized and confiscated goods, old and used goods, waste and scrap made by the
confiscated goods, old and Central Government, State Government, Union territory or a local
used goods, waste and scrap authority is a taxable supply under GST.
by Government departments 2. Notification No. 36/2017-CT(R) and Notification No.
are taxable under GST? 37/2017-IGST(R) notified that such supply to any registered
person would be subject to GST on reverse charge basis.

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Sl.
Issue Clarification
No.
3. Such supply to an unregistered person is also a taxable supply
under GST but is not covered under Notification No. 36/2017-CT
(R) and Notification No. 37/2017-Integrated Tax (Rate).
4. It is clarified that the respective Government departments shall be
liable to get registered and pay GST on intra-State and inter-State
supply of used vehicles, seized and confiscated goods, old and used
goods, waste and scrap made by them to an unregistered person
subject to the provisions of sections 22 and 24 of the CGST Act.

Clarification related to treatment of sales promotion scheme under GST

The Central Government vide Circular No. 92/11/2019-GST, dated 07th March, 2019clarified the following
issues raised with respect to tax treatment of sales promotion schemes under GST:-
1. Free samples and gifts
Since the consideration is an important element of the definition supply, therefore the samples which are
supplied free of cost, without any consideration, do not qualify as “supply” under GST, except where the
activity falls within the ambit of Schedule I of the said Act.
Further, clause (h) of sub-section (5) of section 17 of the said Act clarified that input tax credit shall not be
available to the supplier on the inputs, input services and capital goods to the extent they are used in relation
to the gifts or free samples. However, where the activity of distribution of gifts or free samples falls within
the scope of “supply” as per Schedule I of the said Act, the supplier would be eligible to avail of the ITC.
2. Buy one get one free offer
It may appear at first glance that in case of offers like “Buy One, Get One Free”, one item is being “supplied
free of cost” without any consideration. In fact, it is not an individual supply of free goods but a case of two
or more individual supplies where a single price is being charged for the entire supply.
Taxability of such supply will be dependent upon as to whether the supply is a composite supply or a mixed
supply and the rate of tax shall be determined as per section 8 of the said Act. And, ITC shall be available to
the supplier in relation to such supply.
3. Discounts including ‘Buy more, save more’ offers
Discounts offered by the suppliers to customers including staggered discount under “Buy more, save more”
scheme and post supply/volume discounts established before or at the time of supply) shall be excluded to
determine the value of supply provided they satisfy the parameters laid down in sub-section (3) of section 15
of the said Act, including the reversal of ITC by the recipient of the supply as is attributable to the discount.
Further, the supplier shall be entitled to avail the ITC for such inputs, input services and capital goods used
in relation to the supply.
4. Secondary Discounts
Value of supply shall not include any discount by way of issuance of credit note(s), except in cases where
the provisions contained in clause (b) of sub-section (3) of section 15 of the said Act are satisfied. There is
no impact on availability or otherwise of ITC in the hands of supplier.

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Case Studies and Illustrations

4.5
on Valuation
Solved Case 1
Mahendra & Mahendra Ltd. is a registered supplier of bulk drugs in Delhi. It manufactures bulk drugs and
supplies the same in the domestic and overseas market. The bulk drugs are supplied within Delhi and in the
overseas market directly from the company’s warehouse located in South Delhi. For supplies in other States of
India, the company has appointed consignment agents in each such State. However, supplies in Gurgaon (Haryana)
and Noida (U.P.) are effected directly from South Delhi warehouse. The drugs are supplied to the consignment
agents from the South Delhi warehouse.
Mahendra & Mahendra Ltd. also provides drug development services to drug manufacturers located in India,
including testing of their new drugs in its laboratory located in Delhi.
The company has furnished the following information for the month of January, 2024:

Particulars (`)
Advance received towards drug development services to be provided to Hyder Ltd., a drug 5,00,000
manufacturer, located in Delhi [Drug development services have been provided in February, 2024
and invoice is issued on 28.02.2024]
Advance received for bulk drugs to be supplied to Pratap Medicals, a wholesale dealer of drugs in 6,00,000
Gurgaon, Haryana [Invoice for the goods is issued at the time of delivery of the drugs in March,
2024]
Supply of bulk drugs to wholesale dealers of drugs in Delhi 60,00,000
Bulk drugs supplied to Wood Medicals Inc., USA under bond [Consideration received in convertible 90,00,000
foreign exchange]
Drug development services provided to Gopal Ltd., a drug manufacturer, located in Delhi 6,00,000

Consignments of bulk drugs were sent to Kanna Dava Pvt. Ltd. and Bharath Medicals – agents of Mahendra &
Mahendra Ltd. in Punjab and Haryana respectively. Kanna Dava Pvt. Ltd. and Bharath Medicals supplied these
drugs to the Medical Stores located in their respective States for `60,00,000 and `50,00,000 respectively.
Bulk drugs have been supplied to Rajandra Medicals Pvt. Ltd. - a wholesale dealer of bulk drugs in Gurgaon,
Haryana for consideration of `15,00,000. Mahendra & Mahendra Ltd. owns 60% shares of Rajandra Medicals Pvt.
Ltd. Open market value of the bulk drugs supplied to Rajandra Medicals Pvt. Ltd. is `30,00,000. Further, Rajandra
Medicals Pvt. Ltd. is not eligible for full input tax credit.

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Note:
(i) All the given amounts are exclusive of GST, wherever applicable.
(ii) Assume the rates of GST to be as under:

Goods/services supplied CGST SGST IGST

Bulk drugs 2.5% 2.5% 5%
Drug development services 9% 9% 18%
You are required to make suitable assumptions, wherever necessary.
Find GST liability of Mahendra & Mahendra Ltd for the month of Jan 2024.

Solution:

Statement showing GST liability of Mahendra & Mahendra Ltd for the month of Jan 2024

Particulars CGST ` SGST ` IGST `

Advance received for drug 45,000 45,000 Nil
development services supplied to (`5,00,000 × 9%) (`5,00,000 × 9%)
Hyder Ltd., a drug manufacturer,
located in Delhi
Advance received for bulk drugs Advance is not time of
to be supplied to Pratap Medicals, supply in case of supply
a wholesale dealer of drugs in of goods.
Gurgaon, Haryana
Supply of bulk drugs to wholesale 1,50,000 1,50,000
dealers of drugs in Delhi (`60,00,000 × 2.5%) (`60,00,000 × 2.5%)
Bulk drugs supplied to Wood Export of goods
Medicals Inc., USA
Supply of drug development 54,000 54,000
services to Gopal Ltd., a drug (`6,00,000 × 9%) (`6,00,000 × 9%)
manufacturer, located in Delhi
Supply of bulk drugs to 4,95,000
consignment agents - Kanna Dava (60,00,000 +
Pvt. Ltd. and Bharath Medicals of 50,00,000) *90% *5%
Punjab and Haryana
Supply of bulk drugs to Rajandra 1,50,000
Medicals Pvt. Ltd of Gurgaon, (`30,00,000 × 5%)
Haryana
GST liability 2,49,000 2,49,000 6,45,000

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Solved Case 2
Smt. A. Vijaya v Commissioner of Central Excise, Salem (2016) 64 taxmann.com 77 (Chennai-CESTAT)
Facts of the case:
Multi-Level Marketing (MLM) is a marketing strategy in which the distributor is compensated for the sales of
the other salespeople that they recruit. This recruited sales force is referred to as the participant’s “downline”, and
can provide multiple levels of compensation. In this model, distributors sell products directly to consumers by
means of relationship referrals or by encouraging others to join the company as a distributor. In this model, usually
three kinds of incentives/rewards are earned by the distributor-
~ Profit margin earned on sale of goods purchased from the MLM company (hereafter referred to as “company”);

~ Incentive received for buying certain quantum of goods; and

~ Consideration for identification of persons who can further be appointed as distributors.

Decision: Recently, honorable tribunal held that:

(a) Profit margin: Sale of goods by distributors to the seller is not in the nature of service but is in the nature of
sale of goods, on which VAT is applicable because after sale, those products cease to belong to the company,
but belong to the Distributor. Hence Tax is not applicable. However, after GST it is treated as supply of
goods which will attract GST.
(b) Buying Commission (i.e. Discount): Incentive received for quantum of goods purchased by the distributor
from the company is in the nature of voluble discount. Hence, outside the ambit of Tax.
(c) Downline Marketing: The activity of a Distributor of identifying distributors is considered as Business
Auxiliary service on which tax will apply.
This case law is whole good under GST Law also.

Solved Case 3
CCEx. Mumbai v Fiat India Pvt. Ltd. 2012 (283) ELT 161 (SC):
Assessee Claim: Fiat UNO model cars for the past five years consistently selling at below manufacturing cost to
non-relative buyers for meeting demand in the market. Therefore, such selling price (i.e. transaction value) itself
has sole consideration for the purpose of GST.
Department Contention: The extra commercial consideration was involved in this case an additional
consideration should be added to the price for the purpose of duty. Therefore, Best Judgment Assessment has been
invoked.
Decision: Full commercial cost of manufacturing and selling was not reflected in the price as it was deliberately
kept below the cost of production. Thus, price could not be considered as the sole consideration for sale. No
prudent businessperson would continuously suffer huge loss only to penetrate market. Therefore, Best Judgment
Assessment of the department was proper said by the Hon’ble Supreme Court of India in the case of CCEx.
Mumbai v Fiat India Pvt. Ltd. 2012 (283) ELT 161 (SC).
The spirit of the above case law is also applicable under GST Law.

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Practical Illustrations:
1. ABC Consultancy, registered in Mumbai, supplies technical consultancy services to its clients. It has been
providing technical services to XY Ltd., Mumbai since past two years. Consideration is settled by XY Ltd.
assignment wise. XY Ltd. paid `45 lakh to ABC Consultancy on 10th January, 20XX on ABC consultancy
agreeing to not provide similar technical services to any other business entity in India or abroad for a period
of 8 years. ABC Consultancy is of the view that `45 lakh is not chargeable to GST.
You are required to examine whether the view taken by ABC Consultancy is valid in law. Calculate GST
liability of ABC Consultancy, if any. The technical services provided by ABC consultancy is otherwise
chargeable to GST at the rate of 18%. It may be noted that XY Ltd. is not ready to pay any further amount to
ABC Consultancy in addition to the amount already agreed.
Solution:
As per paragraph 5(e) of Schedule II of the CGST Act, 2017 provides that agreeing to the obligation to
refrain from an act or to tolerate an act or a situation or to do an act is treated as supply of service.
Since, GST is not separately collected, it will be assumed that it is included in `45 lakh. As per Rule 35 of
the CGST Rules, 2017, where the value of supply is inclusive of GST, the tax amount is determined in the
following manner.

Particulars (`)
Taxable value of supply 38,13,560
`45 lakh × 100/118

Add: CGST @9% on 38,13,560 3,43,220

SGST @9% on 38,13,560 3,43,220
Total 45,00,000

2. Red and Blue Pvt. Ltd. has provided the following particulars relating to goods sold by it to Colourful Pvt.
Ltd.

Particulars Amount in `
List price of the goods (exclusive of taxes and discounts) 50,000
Tax levied by Municipal Authority on the sale of such goods 5,000
CGST and SGST chargeable on the goods 10,440
Packing charges (not included in price above) 1,000

Red and Blue Pvt. Ltd. received `2,000 as a subsidy from a NGO on sale of such goods. The price of `50,000
of the goods is after considering such subsidy. Red and Blue Pvt. Ltd. offers 2% discount on the list price of
the goods which is recorded in the invoice for the goods.
Determine the value of taxable supply made by Red and Blue Pvt. Ltd.

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Solution:

Statement showing value of taxable supply

Particulars Amount in `
List of the goods (exclusive of taxes and discount) 50,000
Add: Tax levied by Municipal Authority on the sale of such goods 5,000
CGST and SGST chargeable on the goods Not addable
Add: packing charge 1,000
Add: Subsidy from a NGO 2,000
Less: Discount 2% on `50,000 (1,000)
Value of taxable supply 57,000

3. S Advertisers conceptualized and designed the advertising campaign for a new product launched by Moon
Pvt. Ltd. for a consideration of `15,00,000. S Advertisers owed `1,20,000 to one of its vendors in relation
to the advertising service provided by it to Moon Pvt. Ltd. Such liability of S Advertisers was discharged
by Moon Pvt. Ltd. Moon Pvt. Ltd. delayed the payment of consideration on thus, paid `15,000 as interest.
Assume the rate of GST to be 18%.

Determine the value of taxable supply made by S Advertisers.

Solution:

Statement showing value of taxable supply

Particulars Amount in `
Service charges 15,00,000
Add: payment made by Moon Pvt. Ltd to vendor of S Advertisers 1,20,000
Add: Interest (i.e. `15,000 × 100/ 118) 12,712
Value of taxable supply 16,32,712

Note: The interest in delay in payment of consideration will be includible in the value of supply but the
time of supply of such interest will be the date when such interest is received in terms of section 13(6) of
the CGST Act, 2017. Such interest will be taken to be inclusive of GST and the value will be computed by
making back calculations [Interest/100 + tax rate) × 100].

4. Hari Ltd., a registered supplier in Mumbai (Maharashtra), has supplied goods to Santhi Traders and Peace
MotorsLtd. located in Ahmedabad (Gujarat) and Pune (Maharashtra) respectively. Hari Ltd. has furnished
the following details for the current month:

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Sl. Santhi Peace

Particulars
No. Traders (`) MotorsLtd. (`)
(i) Price of the goods (excluding GST) 20,000 15,000
(ii) Packing charges 600
(iii) Commission 400
(iv) Weighment charges 1,000
(v) Discount for prompt payment (recorded in the invoice) 500

Items given in points (ii) to (v) have not been considered while arriving at price of the goods given in point
(i) above.
Compute the GST liability [CGST & SGST or IGST, as the case may be] of Hari Ltd. for the given month.
Assume the rates of taxes to be as under:

Particulars Rate of tax

Central tax (CGST) 9%
State Tax (SGST) 9%
Integrated tax (IGST) 18%

Make suitable assumptions, wherever necessary.

Note: The supply made to Santhi Traders is an inter-State supply.
Solution:
Statement showing taxable supply and GST liability:

Sl. Santhi Peace Motors

Particulars
No. Traders (`) Ltd. (`)
(i) Price of the goods (excluding GST) 20,000 15,000
(ii) Add: Packing charges 600
(iii) Add: Commission 400
(iv) Add: Weighment charges 1,000
(v) Less: Discount for prompt payment (recorded in the invoice) (500)
Value of Taxable supply 21,000 15,500
CGST Nil 1,395
SGST Nil 1,395
IGST 3,780 Nil

5. Shakthi Engineering Pvt. Ltd., a registered supplier, is engaged in providing expert maintenance and repair
services for large power plants that are in the nature of immovable property, situated all over India. The
company has its Head Office at Bangalore, Karnataka and branch offices in other States. The work is done in
the following manner.

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~ The company has self-contained mobile workshops, which are container trucks fitted out for carrying
out the repairs. The trucks are equipped with items like repair equipment’s, consumables, tools, parts etc.
to handle a wide variety of repair work.
~ The truck is sent to the client location for carrying out the repair work. Depending upon the repairs to be
done, the equipment, consumables, tools, parts etc. are used from the stock of such items carried in the
truck.
~ In some cases, a stand-alone machine is also sent to the client’s premises in such truck for carrying out
the repair work.
~ The customer is billed after the completion of the repair work depending upon the nature of the work
and the actual quantity of consumables, parts etc. used in the repair work.
~ Sometimes the truck is sent to the company’s own location in other State(s) from where it is further sent
to client locations for repairs.
Work out the GST liability [CGST & SGST or IGST, as the case may be] of Shakthi Engineering Pvt. Ltd.,
Bangalore on the basis of the facts as described, read with the following data for the month of November
20XX.

Sl. No. Particulars (`)

A Truck sent to own location in Tamil Nadu
(i) Value of items contained in the truck - `3,00,000
(ii) Value of truck - `25,00,000
B Truck sent to a client location in Tamil Nadu for carrying out repairs. Stand- alone
machine is also sent in the truck to client location for repairs
(i) Value of items contained in the truck – `2,85,000
(ii) Value of stand-alone machine - `4,00,000
(iii) Value of truck - `20,00,000
(Billing for repairs to be done afterwards depending upon the actual items used)
C Truck sent to a client location in Karnataka for carrying out repairs
(i) Value of items contained in the truck - `1,06,000
(ii) Value of truck - `20,00,000
(Billing for repairs to be done afterwards depending upon the actual items used)
D Invoices raised for repair work carried out in Tamil Nadu [including the invoice for 70,00,000
repair work done in ‘B’] -
E Invoices raised for repair work carried out in Karnataka [including the invoice for 12,00,000
repair work done in ‘C’]
Also, specify the document(s), if any, which need to be issued by Shakthi Engineering Pvt. Ltd., Bangalore
for the above transactions.
All the given amounts are exclusive of GST, wherever applicable. Assume the rates of taxes to be as under:

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Items used for repairs

CGST – 6% SGST – 6% IGST – 12%
Container truck, Stand-alone machines
CGST – 2.5% SGST – 2.5% IGST – 5%
Works contract for repairs and maintenance of immovable property
CGST – 9% SGST – 9% IGST – 18%
You are required to make suitable assumptions, wherever necessary.

Solution:
Sl. No. Particulars (`)
A. Items sent in container truck to own location in Tamil Nadu - IGST @ 12% × `3,00,000 = 36,000
Container truck sent to own location in Tamil Nadu -

Since the activity is not a supply, tax invoice is not required to be issued by Shakthi
Engineering Pvt. Ltd. However, a delivery challan is to be issued by the company in terms
of rule 55(1)(c) of CGST Rules, 2017 for sending the truck to its own location in Tamil
Nadu. Since, the value exceeded `50,000 E-way Bill is mandatory for the value of goods
of `3,00,000.
B. Stand-alone machine sent in container truck to client location in Tamil Nadu, for carrying -
out repairs a delivery challan is to be issued in terms of rule 55(1)(c) of CGST Rules,
2017 for sending the stand-alone machines and container truck to client location. E-way
Bill is also mandatory for stand alone machine.
Container truck sent to client location in Tamil Nadu a delivery challan is to be issued in
terms of rule 55(1)(c) of CGST Rules, 2017 for sending the stand-alone machines and
-
container truck to client location.
Items sent in container truck to client location in Tamil Nadu, for carrying out repairs -

It is form part of works contract service and taxable only when supply of service takes
place.
C. Container truck sent to client location in Karnataka -
Items sent in container truck to client location in Karnataka, for carrying out repairs -
D. Invoices raised for repair work carried out in Tamil Nadu: IGST @ 18% on `70,00,000 12,60,000
E. Invoices raised for repair work carried out in Karnataka: CGST 9% + SGST 9% on 2,16,000
`12,00,000

Total GST liability 15,12,000

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6. XYZ Ltd., Noida (Uttar Pradesh) is a supplier of machinery used for making bottle caps. The supply of
machinery is effected as under:
~ The wholesale price of the machinery (excluding all taxes and other expenses) at which it is supplied
in the ordinary course of the business to various customers is `42,00,000. However, the actual price at
which the machinery is supplied to an individual customer varies within a range of ± 10% depending
upon the terms of contract of supply with the particular customer.
Apart from the price of the machinery, XYZ Ltd. charges from the customer the following incidental
expenses:
● associated handling and loading charges of `10,000
● installation and commissioning charges of `1,00,000
The machinery can be dismantled and erected at another site, if required. The above charges are compulsorily
levied in every case of supply of machinery.
Transportation of machinery to the customer’s premises is arranged by XYZ Ltd. through a third-party
service provider [Goods Transport Agency (GTA)]. The customer enters into a separate service contract with
the GTA and pays the freight directly to it.
The company provides one-year free warranty for the machinery. However, the company also provides an
extended two-year warranty on payment of additional charge of `3,00,000.
A cash discount of 2% on the price of the machinery is offered at the time of supply, if the customer agrees
to make the payment within 15 days of the receipt of the machinery at his premises. In the event of failure to
make the payment within the stipulated time, the company-
● recovers the discount given; and
● charges interest @ 1% per month or part of the month on the total amount due from the customer
(towards the machinery supplied) from the date of making the supply till the date of payment. However,
no interest is charged on the tax dues.
For every machinery supplied, XYZ Ltd. receives a grant of `2,00,000 from its holding company DEF Ltd.
XYZ Ltd. has supplied a machinery to D Pvt. Ltd. on August 1, 20XX at a price of `40,00,000 (excluding
all taxes). D Pvt. Ltd has its corporate office in New Delhi. However, the machinery has been installed at
its manufacturing unit located in Gurugram (Haryana). D Pvt. Ltd. has paid the freight directly to the GTA
and opted for two year warranty. Discount @ 2% was given to D Pvt. Ltd. as it agreed to make the payment
within 15 days. However, D Pvt. Ltd. paid the consideration on 31st October, 20XX.
Assume the rates of taxes to be as under:

Bottle cap making machine

CGST – 6% SGST – 6% IGST – 12%
Service of transportation of goods
CGST – 2.5% SGST – 2.5% IGST – 5%
Other services involved in the above supply
CGST – 9% SGST – 9% IGST – 18%
Calculate the GST payable [CGST & SGST or IGST, as the case may be] on the machinery and support your
conclusions with legal provisions in the form of explanatory notes.

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Make suitable assumptions, wherever needed.

Solution:
Computation of GST liability of XYZ Ltd.

Particulars (`)
Price of machine 40,00,000
Handling and loading charges 10,000
Installation and commissioning charges 1,00,000
Transportation cost (not the responsibility of XYZ Ltd) Nil
Additional warranty cost 3,00,000
Grant from DEF Ltd. 2,00,000
Total price of the machine 46,10,000
Less: 2% cash discount on price of machinery = `40,00,000 × 2% 80,000
Taxable value of supply 45,30,000
Tax liability for the month of August 20XX
IGST @ 12% on `45,30,000 5,43,600
Tax liability for the month of October 20XX
Interest collected @ 3% on `44,10,000 1,32,300
Cash discount recovered 80,000
Cum-tax value of interest and cash discount 2,12,300
IGST = (`2,12,300/112) × 12% 22,746
Total IGST payable on the machinery (5,43,600 + 22,746) 5,66,346
Note: the cash discount recovered and interest have been considered as cum tax value on the logical
assumption that tax component counld not be recovered from the client. Thus, tax payable thereon has to be
computed by making back calculations in terms of rule 35 of CGST Rules, 2017.
7. Raja Bhai, registered in Uttrakhand has supplied 30 tons of a chemical @ `50,000 per ton (excluding taxes)
to P of Uttrakhand on 8th September, 20XX. The invoice for the supply has also been issued on the same
date. Further, following additional amounts were also charged from P:-

Particulars (`)
Freight 1,80,000
Packing charges 1,10,000
Weighing charges 20,000
Cost of instrument specially purchased by Singhals Brothers to manufacture the 3,10,000
chemical

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As per the terms of the contract of supply, Raja Bhai is required to get the chemical inspected by an independent
testing agency before the delivery of the same to P. P has paid such inspection charges amounting to `12,000
directly to the testing agency. Raja Bhai has also received `50,00,000 as a subsidy from State Government
for setting up chemical manufacturing plant in Uttrakhand.
P is required to make payment within 15 days of supply in terms of the contract. However, P delayed the
payment of consideration and made payment in November, 20XX thus paid `15,000 as interest. You are
required to calculate the GST liability in this case and due date of deposit. Assume the rate of GST to be 18%.
Note: Raja Bhai and P are not related and price is the sole consideration for the supply.
Solution:
Computation of GST liability of Raja Bhai

Particulars (`)
Price of chemicals (`50,000 × 30 tons) 15,00,000
Freight 1,80,000
Packing charges 1,10,000
Weighing charges 20,000
Cost of special instrument 3,10,000
Inspection charges 12,000
Government subsidy Nil
Value of taxable supply – September 20XX 21,32,000
Tax liability for the month of September 20XX
CGST @ 9% 1,91,880
SGST @ 9% 1,91,880
Value of taxable supply (i.e. Interest for late payment) ( `15,000 × 100/118) 12,712
CGST payable @ 9% 1,144
SGST payable @ 9% 1,144
Due dates of payment of GST:

Particulars Time of Supply Due date of deposit

GST liability of `3,83,760 for the taxable supply made by Raja
September 8, 20XX October 20, 20XX
Bhai
Interest amounting to `2,288 November, 20XX December 20, 20XX
8. A manufacturer of machinery supplied a special machine to LM Furnishers. Following details are provided
in relation to amounts charged:
Charges mentioned in (ii) to (v) are not included in (i) below. Other information furnished is—
(a) Cash discount @ 2% on price of machinery has been allowed to the customer at the time of supply and

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also recorded in invoice.

(b) GST rate – 18%.
Calculate value of supply of the special machine.

Sl. No. Particulars Value in `

(i) Price of machinery excluding taxes (before cash discount) 6,00,000
(ii) Transit insurance 11,000
(iii) Packing charges 9,000
(iv) Extra charges for designing the machine 20,000
(v) Freight 12,000

Solution:

Sl. No. Particulars Value in `

(i) Price of machinery excluding taxes (before cash discount) 6,00,000
(ii) Add: Transit insurance 11,000
(iii) Add: Packing charges 9,000
(iv) Add: Extra charges for designing the machine 20,000
(v) Add: Freight 12,000
Sub-total 6,52,000
Less: 2% cash discount on price of machinery -12,000
(6,00,000 × 2%)
Value of taxable supply 6,40,000
9. Mr. Mahendran, a registered supplier of Chennai, has received the following amounts in respect of the
activities undertaken by him during the month ended on 30th September 2024:

Sl. No. Particulars Amount (`)

(i) Amount charged for service provided to recognized sports body as selector of 50,000
national team
(ii) Commission received as an insurance agent from insurance company 65,000
(iii) Amount charged as business correspondent for the services provided to the 15,000
urban branch of a nationalized bank with respect to savings bank accounts
(iv) Service to foreign diplomatic mission located in India 28,000
(v) Funeral services 30,000
He received the services from unregistered goods transport agency for his business activities relating to
serial numbers (i) to (iii) above and paid freight of `45,000 (his aggregate turnover of the previous year was
`9,90,000).

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Note: All the transactions stated above are intra state transactions and also are exclusive of GST.
You are required to calculate gross value of taxable supply on which GST is to be paid by Mr. Mahendran
for the month of September 2024.
Working notes should form part of your answer.
Solution:
Statement showing gross value of taxable supply of Mr. Mahendran

Sl.
Particulars Amount (`) Remarks
No.
(i) Amount charged for service provided to recognized sports 50,000 Taxable
body as selector of national team
(ii) Commission received as an insurance agent from Nil Taxable under
insurance company RCM
(iii) Amount charged as business correspondent for the 15,000 Taxable
services provided to the urban branch of a nationalized
bank with respect to savings bank accounts.
Note: w.e.f 1-1-2019, business correspondent supply of
services covered under RCM.
(iv) Service to foreign diplomatic mission located in India 28,000 Taxable
(v) Funeral services Nil Excluded from the
scope of supply
Total taxable supply (forward charge) 93,000
Total taxable supply (RCM) 45,000 Freight paid to
GTA

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Key Advance Rulings 4.6

1. Specsmakers Opticians Private Limited (GST AAAR Tamil Nadu - 2019):
Facts of the case:
Applicant View: The two provisos under Rule 28 of the CGST Rules deal with specific situations. There is
no requirement that the provisos should be applied sequentially.
● The intention of the legislature was to only avoid blocking of funds by introducing second proviso; and
● Reliance was placed on the decision of Appellate AAR in the case of GKB Lens Pvt. Ltd. (supra).
● After considering the various provisions/rules of GST law, the Appellate AAR observed as under:
● There is no specific regulation in CGST Rules, that the rules are to be applied seriatim;
● The first proviso to Rule 28 does not mandate and it is at the option of the supplier, to take the value as
90% of the sale value of goods of like kind and quality;
● The second proviso is an alternative, whereby the invoice value can be taken as Open Market Value;
● The second proviso is not subordinate to the first proviso. It independently deals with a situation where
the recipient is eligible for full ITC.
Based on the above, when the supply is to the distinct person of the appellant and the recipient is eligible
for full Input tax credit, the second proviso provides the value declared in the invoice to be the ‘open market
value’ for such transaction. Also the second proviso does not restrict its application as in the first proviso,
which is to be applied for cases of ‘as such supply’ only. Therefore, the appellants may adopt the value for
supply to distinct person as provided under Proviso 2 to Rule 28 of the CGST/TNGST Rules 2017.

2. Lakshmi Tulasi Quality Fuels – 2022 (62) GSTL 71 (App. A.A.R -GST – A.P.)
Facts of the case:
Where residential building consists of several rooms are leased/rented out and lessee has not used it itself as
residence but sub-leased for its commercial interest and business for accommodating students and working
professionals in bulk numbers for a temporary period of stay.
AAAR Held:
The Appellate Authority for Advance Ruling observed that the benefit of exemption is available only where
residential dwelling is used as residence. The lessee would be involved in business of sub-leasing of property
and had no intention to use property as residence. Moreover, the intention of lessee to take property on lease
for commercial and business purposes was evident from lease deed. As a result, lessor is not eligible to
exemption and liable to 18% IGST said by AAAR.
Therefore, leasing services involving own or leased non-residential property would be classifiable under
SAC 997212 and taxable at 18%.

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3. Intas Pharmaceuticals Limited. (GST AAR Gujarat) - 2022 GSTL

Dishman Carbogen Amcis Ltd. (GST AAR Gujarat) – 2022 GSTL
Facts of the case:
Canteen charges – employee portion – Applicant providing canteen facility to tis employees at concessional
amount – part charges borne by applicant and balance collected from its employees and paid to canteen
service provider – no profit margin retained by applicant. Whether GST, at the hands of the applicant, is
leviable on the amount representing the employees portion of canteen charges, which is collected by the
applicant from employees and paid to the Canteen Service Provider?
Ruling:
GST, at the hands of the Intas Pharmaceuticals Limited, is not leviable on the amount representing the
employees portion of canteen charges, which is collected by Intas Pharmaceuticals Limited and paid to the
Canteen service provider.

4. Greenbrilliance Renewable Engergy LLP – 2022 (61) GSTL 114 (AAR – GST – Guj.)
Facts of the Case:
The applicant was supplying photovoltaic panels and Solar EPC services and empanelled as channel partner
to execute the solar rooftop system in Gujarat under the Surya Gujarat Yojna. As per the scheme, the
beneficiaries have to pay channel partner amount after deducting subsidy portion from total system cost and
after successful installation of solar system, channel partner has to apply to respective electricity distribution
company (DISCOM) of region for subsidy and funds are released by respective DISCOM directly to channel
partners. It filed an application for advance ruling to determine whether subsidy should be reduced for
arriving at taxable value of solar system in order to collect GST on goods supplied to customer under rooftop
solar project.
Subsidy granted by Government does alter taxable nature of supplies to make supply partly exempted and
partly taxable; thus section 17(2) of CGST Act, has any implication?
AAR held:
Subsidy provided Government on Solar Rooftop System is not includible in value of supply; however, since
said subsidy received by applicant also included GST element, applicant would be liable for paying back to
Government.
Subsidy granted by Government does not alter taxable nature of supplies to make supply partly exempted
and partly taxable; thus, entire supply being taxable, sub-section (2) of Section 17 of CGST Act, 2017 in
respect of input tax credit has no implication.

5. Fastrack Deal Comm Pvt. Ltd. – 2022 (61) GSTL 125 (AAR – GST – Guj.)
Facts of the case:
When sale of land is not treated as supply as per Schedule III of GST Act, 2017, whether forfeiture of
advance pertaining to sale of land will be treated as supply and accordingly attract GST?
AAR Held:
Forfeiture of advance amount in a land transaction by seller for breaching sale condition by buyer is taxable
activity of ‘refraining or tolerating or doing an act’ and taxable accordingly in hand of person forfeiting such
amount.

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6. Shanmuga Durai – 2022 (62) GSTL 210 (AAR – GST – T.N)

Facts of the case:
Renting out property by partner free of rent to his partnership firm in which he and his wife are partners and
he is managing partner holding 2/3rd shares amounts to supply?

AAR Held:
The AAR ruled that therefore the activity of renting immovable property owned by the Applicant to the
partnership firm, in which he was a major shareholding partner, is a taxable supply under CGST Act.
Valuation of renting of property free of rent by partner to his firm in which he and his wife partners and he
is managing partner holding 2/3rd shares is to be determined by applying Rule 28 of CGST Rules, 2017.

7. Antara Purukul Senior Living Ltd. – 2022 (61) GSTL 177 [AAR – GST – Uttarakhand (UK)]
The applicant has sought advance ruling from AAR Uttarakhand on the following questions:
1. Whether the electricity charges paid to Uttarakhand Power Corporation Limited (UPCL) for the power
consumed by residents in their residential apartments and recovered from them on actual cost basis
liable to GST?
2. Whether the electricity charges paid to UPCL (Electricity supply authority) for the power consumed
towards common area and recovered from residents on actual cost basis are liable to GST?
3. Whether Asset Replacement Deposits collected from residents are liable to GST?
AAR Held:
1. The electricity charges paid to Uttarakhand Power Corporation Limited (UPCL) for the power consumed
by residents in their residential apartments and recovered from them on actual cost basis is liable to GST.
2. The electricity charges paid to UPCL (Electricity supply authority) for the power consumed towards
common area and recovered from residents on actual cost basis is liable to GST.
3. The amounts collected towards Asset Replacement Deposits, amounts to advancement for future supply
of services to residents, are taxable, in terms of Section 13(2)(a) of the CGST Act, 2017.
Electricity charges – Applicant, a residential community providing residential apartments, infrastructure
etc. to senior citizens as lessor entering into “maintenance & facilities agreement” with the Lessee i.e.
service receiver – owner/occupant resident of community – Owner/occupant resident of community
cannot opt out of agreement to seek for direct supply of electricity/water by any other agency, without
using infrastructure developed by applicant – applicant using “electricity” procured from electricity
supply authority for furtherance of its interest inasmuch as all the infrastructure developed by it fully
dependent on electricity (and water also) – Services of maintenance & facilities so offered to Community
absolutely dependent on electricity – Applicant no “pure agent” – Electricity charges paid by community
to Electricity supply authority for power consumed by residents in their residential apartments and
recovered from them on actual cost basis liable to GST – Electricity charges paid to Electricity supply
authority for the power consumed towards common area and recovered from residents on actual cost
basis also liable to GST – Rule 33 of CGST Rules, 2017.

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Asset Replacement Deposit – Amount towards future supply of service – Charged by applicant, a
community providing residential apartments, infrastructure etc. to senior citizen from residents/owners
for undertaking/execution of any services in future (planned or unplanned) – Amount non-refundable
in nature – Basis for calculating these amounts directly proportional to super area taken on lease, as per
the lease deed executed between parties, indicative of fact that element of service inbuilt, although for
a future date – Advance paid in lieu of a promise to seamlessly provide services in future – Coining
and using any other term to camouflage such deposits, would not take away its basic characteristics of
“consideration” – Time of supply to be date of receipt of amount towards Asset Replacement Deposits –
Amount collected being advance for future supply of services to residents, taxable – sections 2(31) and
13(2)(a) of CGST Act, 2017.

Solved Case 1
Mahendra Co Ltd , Kolkata, a registered supplier, is manufacturing Paper products and Stationary items. It has its
factory in Dankuni. During the financial year 2025-26, the following transactions were carried out by the company :

Details GST Paid (`)

a List price of goods supplied in Orissa and Jharkhand 620000
The following adjustments were done in the price given above in (a)
Central Government Subsidy was received for supply of stationary items to 60000
Government School
Subsidy from Trade Association for supply of books 15000
Tax Levied by Municipal Authority 12000
Packing Charges 6000
Late fee paid by the recipient of supply for delayed payment of Invoice 2500

Calculate the value of taxable supply.

Solution:
Details (`) Reason
List Price of the goods 620000 List Price of Goods
Subsidy received from Central Government - Subsidy is received from a Government body
Subsidy received from a Trade Association 15000 Subsidy is received from a non-Governments
body
Tax levied by Municipal Authority 12000 Included as not GST
Packing Charges 6000 Included in value
Late Fee paid 2500 Amount paid as penalty or fine or late fee is
part of value of supply
Value of Taxable Supply 655500

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Solved Case 2
Mr Harry is an agent of Mr. Potter who operates his business from Asansol, West Bengal. Nature of business
being operated by Mr Harry is that of selling Printers. Mr Harry sells a jumbo printer Model No. Burj Khalifa to
Mr Tom Cruise for ` 74000.
On sending the records to his Principal, he realises that there is an error in invoice raised while selling the jumbo
printer to Mr Tom Cruise. By mistake, an amount of ` 45000 has been included in the invoice which belongs to the
West Bengal State Electricity Department. Calculate the GST to be charged and examine the provisions of law for
the given case. GST rate be 18%

Solution:
Firstly, any expenditure being incurred by a supplier, as a Pure Agent, does not form part of the taxable services.
Secondly, in the given scenario, it is understood that Mr Harry had done a mistake for which action has to be
taken. Here Mr Harry acts as a Pure Agent of Mr Potter to his client Mr Tom Cruise. Thus, an amount of ` 45000
which related to West Bengal State Electricity Department should be removed from the invoice billed of ` 74000.
Revised Invoice value should have been ` 74000 – ` 45000 = ` 29000
Lastly, the GST to be charged will be ` 29000 × 18% = ` 5220

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Exercise
A. Theoritical Questions

~ Multiple Choice Questions

1. The value of supply should include

(a) Any non-GST taxes, duties, cesses, fees charged by supplier separately
(b) Interest, late fee or penalty for delayed payment of any consideration for any supply of goods or
services
(c) Subsidies directly linked to the price except subsidies provided by the Central and State Government
(d) All of the above

2. When can the transaction value be rejected for computation of value of supply?
(a) When the buyer and seller are related and price is not the sole consideration
(b) When the buyer and seller are related or price is not the sole consideration
(c) It can never be rejected
(d) When the goods are sold at very low margins

3. Rule 30 of the CGST Rules inter alia provides value of supply of goods or services or both based on cost
shall be ……………% of cost of production or manufacture or the cost of acquisition of such goods or
the cost of provision of such services
(a) 100
(b) 10
(c) 110
(d) 120

4. In terms of Rule 32(7) of the CGST Rules, the value of taxable services provided by such class of service
providers as may be notified by the Government, on the recommendations of the Council, as referred
to in paragraph 2 of Schedule I of the CGST Act between distinct persons as referred to in section 25,
where ITC is available, shall be deemed to be ………………..
(a) `10,000
(b) Arm’s length price as required under the Income Tax law
(c) NIL
(d) As per the contract between the supplier and recipient

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5. Mr. Ram a second-hand car dealer purchased a second hand car for `2,50,000. He sold he same car to
Mr. Lakshman for `3,00,000. Determine value of supply?
(a) `3,00,000
(b) `2,50,000
(c) `50,000
(d) None of the above

6. Mr. Vijay purchased certain goods worth `17,000 from Big Bazaar. As a matter of security, Mr. Vijay made
a request to the supplier to provide for an additional packaging on the given item for safe transportation
which cost around `1,500. The supplier charged value of the additional packaging separately after the
supply was made. What is the final value of such supply made?
(a) `17,000
(b) `18.500
(c) `1,500
(d) None of the above

7. Thomas Cook Forex Pvt. Ltd. being a registered person under GST purchased 2000 USD from M/s R
Academy at the rate of INR 30 per USD. Actual exchange rate at that time was `70 per Dollar. RBI
reference rate not available. What shall be the value of such supply?
(a) `1300
(b) `1400
(c) `2000
(d) None of the above

8. CMA Bharath being a Practicing Cost Accountant provided certain professional services to his client.
However, during such course of action, some out of pocket expenses were incurred, which Bharath
claimed for reimbursement from his client. Does the same be included in the transaction value?______
(a) Yes
(b) No
(c) May be
(d) Does not qualify as supply

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9. Does the custom duty paid by Customs house agent forms part of transaction value for the purpose of
calculation of IGST?
(a) Yes
(b) No
(c) As per the option of customs authority
(d) None of the above

10. What will be the value of supply if X & Co., supply Sony television set for `85000 along with the
exchange of an old TV and if the price of the Sony television set without exchange is `1,00,000, the open
market value of the Sony television set is:
(a) `85,000
(b) `1,00,000
(c) `15,000
(d) `1,15,000

11. Dumdum Engineering Private Limited (DEPL), Surat (Gujarat), a supplier of heavy machinery, supplied
a machine to Gulati Manufacturers from its gowdown located in Mumbai, Maharashtra, on 1st January
at a price of ` 64,00,000 (excluding all taxes). Gulati Manufacturers has its corporate office in New
Delhi. However, the machinery was installed at its manufacturing unit located in Gurugram (Haryana)
for which installation and commissioning charges of ` 4,80,000 and handling and loading charges of
` 1,60,000, were charged by DEPL. For every machinery supplied, DEPL receives a grant of ` 3,20,000
from its holding company Dharam Ltd.
Transportation of machinery to the customer’s premises is arranged by DEPL through a third-party
service provider [Goods Transport Agency (GTA)]. Gulati Manufacturers entered into a separate service
contract with the GTA and paid the freight of ` 50,000 directly to it.
DEPL offered a cash discount of 2% on the price of the machinery at the time of s upply since Gulati
Manufacturers agreed to make the payment within 15 days of the receipt of the machinery at its
premises. However, it was agreed that in case Gulati Manufacturers failed to make the payment within
the stipulated time, DEPL would-
- recover the discount given; and
- charge interest @ 1% per month or part of the month on the total amount due (including discount
recovered) from Gulati Manufacturers (towards the machinery supplied) from the date of making
the supply till the date of payment. However, no interest is to be charged on the tax dues.
Gulati Manufacturers paid the consideration for the machine on 31st March. Since the payment was
made after the stipulated period of 15 days of the receipt of the machinery, discount given was recovered
from it and interest was accordingly charged. However, Gulati Manufacturers refused to pay tax on
interest and discount recovered.

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Assume the rates of taxes to be as under:

Supply CGST rate SGST rate IGST rate

Machinery supplied 6% 6% 12%
Service of transportation of goods 2.5% 2.5% 5%
Other services involved in the above supply 9% 9% 18%

In view of the above information, you are required to answer the following questions:

(i) The place of supply of the machinery supplied by DEPL is _______ and the nature of supply is
_________.
(a) Gujarat, intra-State supply
(b) Haryana, inter-State supply
(c) New Delhi, inter-State supply
(d) Maharashtra, inter-State supply
(ii) The GST liability of DEPL for the month of January is (approx.).
(a) 9,46,660
(b) 8,67,840
(c) 9,06,153
(d) 8,29,440
(iii) The GST liability of DEPL for the month of March is………… (approx.).
(a) 36,343
(b) 36,504
(c) 35,314
(d) Nil
(iv) Supply of machinery and supply of installation and commissioning services is ……………. supply.
Time of supply of interest received by DEPL and cash discount recovered on account of delayed
payment of consideration is _.
(a) composite, 31st March
(b) composite, 1st January
(c) mixed, 1st January
(d) mixed, 31st March

510 The Institute of Cost Accountants of India

 Valuation (Advanced)
(v) If the grant of ` 3,20,000 received by DEPL had been received from Central Government instead of
its holding company Dharam Ltd., with other facts remaining the same, the GST liability of DEPL
for the month of January would have been (approx.).
(a) 9,46,660
(b) 8,67,840
(c) 9,06,153
(d) 8,29,440

12. Shree Ram Seva Trust is a charitable institution registered under section 12AA of the Income-tax Act,
1961. It has organized a skill development programme relating to persons over the age of 65 years
residing in a well-planned city, in the month of April. It has received following amounts under the
programme:

Particulars Amount (`)

Subscription fees for the programme 50,000
Sponsorship fees 1,00,000
Consideration for supply of goods 3,00,000

Besides, the trust has received the donations of `2,00,000 in April. Hanuman, accountant of Shree Ram
Seva Trust, is not able to determine the taxability of the above amounts received under GST law. He
seeks your expertise in determining the same.
Determine the value of taxable supply of Shree Ram Seva Trust, for the month of April.
(a) Nil
(b) `6,50,000
(c) `6,00,000
(d) `4,50,000
13. Mr. Kala is a proprietor of M/s. Kala & Associates (registered under GST) which deals in sale/purchase
of second hand cars. During the current financial year, he effected following intra-State transactions:

Particulars Purchase Price Sale Price

Car 1 `5,00,000 `7,50,000

Car 2 `3,00,000 `2,75,000

Car 3 `6,00,000 `6,50,000

Car 4 `8,00,000 `9,50,000

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Indirect Tax Laws and Practice

Mr. Kala purchased Car 4 from another registered person who charged GST of `1,30,000 and accordingly,
Mr. Kala has availed the input credit of the same. Determine the GST liability of Mr. Kala assuming the
applicable rate of tax as 18%.
(a) `95,000
(b) `1,08,000
(c) `1,30,500
(d) Exempt Supply, No GST

Answer:
1. 2. 3. 4. 5. 6. 7. 8. 9. 10.
d b c c c b b a a b
11.(i) 11.(ii) 11.(iii) 11.(iv) 11.(v) 12. 13.
b b a a d d a

512 The Institute of Cost Accountants of India