GST Valuation - pkmgcorporatelaws.com

GST Valuation - pkmgcorporatelaws.com

GST Valuation By: Pradeep K. Mittal B.Com, LL.B, FCS Advocate, PKMG Law Chambers Past Central Council Member, The Institute of Company Secretaries of India, New Delhi e-mail id: [email protected] Contact Nos. +91-9811044365 In Escorts JCB Ltd. v. CCE (2003) 1 SCC 281 = 53 RLT = 146 ELT 31 (SC), the contract was for sale ex-factory. Goods were handed over to the carrier/transporter. However, insurance was

arranged by assessee, though charged separately. It was contended by department that since insurance is arranged by seller, the property in good passes to buyer only when goods reach the destination. PKMG LAW CHAMBERS Hence, buyers place will be the place of removal and hence insurance and freight will be includible in the price the above contention was rejected by SC. It was held that as per section 39 of Sale of Goods Act, delivery of goods to carrier is prima facie delivery of goods to

buyer. This judgment was followed in CCE v. Indian Carbon Ltd. (2011) 269 ELT 6 (SC). PKMG LAW CHAMBERS The Supreme Court in the case of CCE Vs. Aggarwal Industries 2011 TIOL 102 SC held as follows: It is well settled that the onus to prove under-valuation is on revenue, but once the revenue discharge the burden of proof by providing evidence of contemporaneous imports at a higher price, the onus shifts to the importer to establish that the price indicated in the invoice relied upon by

him is correct PKMG LAW CHAMBERS FUNDAMENTAL PRINCIPLE OF VALUATION: Once the sale price is genuine, it is not open to revenue to investigate whether the assessee is making profit or loss in the manufacture and sale of goods. CCE Vs. Mohan Crystal 2000(118) ELT 691 Tri. Department cannot determine the extent to which a business entity should earn its profit. CCE Vs. Limca Flavours 2006 (198) ELT 106. The goods are to be assessed in the form in which they are cleared from factory. ICI India Vs. CCE 2003(151) ELT 629 Tri.; Sirpur Paper Mills Vs. CCE 2012(280) ELT 235 Tri. PKMG LAW CHAMBERS

EACH TRANSACTON IS A SEPARATE TRANSACTION: Each transaction is a separate transaction and has to be valued separately. Prakash Industries Limited Vs. CCE 2010(250) ELT 65 (Tri). Thus, separate prices for same product to different buyers is permissible. In case of parts, prices could be different to OEM suppliers and different to Dealer when Dealers sells as a spare parts. GNK Drive Shafts Vs. CCE 2003(154) ELT 177 (Tri). Goa Industrial Products Vs. CCE 2005(181) ELT 222. Exports Sales can be treated as sale to different class of buyers and FOB Value can be adopted for valuation. Vera Laboratories Vs. CCE 2004(173) ELT 43 (Tri). PKMG LAW CHAMBERS

The different price to different dealers in different regions based on pure commercial consideration to face stiff competition is permissible. Lime Chemicals Vs. CCE 2008(229) ELT 286 (Tri). Dual pricing one for internal accounting like inter-unit transfer, sale to related persons, manufacture on job work, free supply for marketing and one set of price for independent sale. Bharat Petroleum Corporation Limited Vs. CCE 2009(242) ELT 242 (Tri). PKMG LAW CHAMBERS Section 15 (1) VALUE OF TAXABLE SUPPLY Value of taxable supply:The value of a supply of goods and/or

services shall be the Transaction Value i.e. the price actually paid or payable for the said supply of goods and/or services where the supplier and recipient of the supply are not related and the price is the sole consideration for the supply. PKMG LAW CHAMBERS MEANING OF WORD ACTUALLY PAID OR PAYABLE The Supreme Court in the case of Purolator India Limited Vs. CCE MANU/SC/0988/2015, while defining the words actually paid or payable has observed as under:-

PKMG LAW CHAMBERS The expression 'actually paid or payable for the goods, when sold' only means that whatever is agreed to as the price for the goods forms the basis of value, whether such price has been paid, has been paid in part, or has not been paid at all. The basis of 'transaction value' is, therefore, the agreed contractual price. Further, the expression 'when sold' is not meant to indicate the time at which such goods are sold, but is meant to indicate that goods are the subject matter of an agreement of sale. PKMG LAW CHAMBERS

TRANSACTION VALUE BELOW THE COST PRICE: In Gurunanak Refrigeration Corporation Vs. CCE 1996 (81) ELT 290, the Tribunal has held that : if there is no allegation of flow back of funds of money from buyer to the assessee, if the price is the sole consideration and if dealings between assessee and buyers are at arms length, assessable value will be decided on the basis of selling price, even if it is below manufacturing costs. The above view has been upheld by the Supreme Court in the case of CCE Vs. Gurunanak Refrigeration Corporation 2003 (153) ELT 249. However, in the case of CCE Vs. Fiat India (P) Ltd 2012(283) ELT 161 SC, the Supreme Court has reversed its own judgment, which in my respectful submission, requires re-consideration. PKMG LAW CHAMBERS

PRICE INCREASE SUBSEQUENT TO REMOVAL: Even if the Government has fixed maximum selling price under Drug Price Control Order (DPCO), it is price at which the goods were actually sold would be relevant for payment of excise duty. CCE Vs. Vitara Chemicals 2008(232) ELT 374. If the price was final at the time clearance, any subsequent reduction in price cannot be considered and excess duty paid is not refundable. Indian Explosives Ltd Vs. CCE 2012(284) ELT 259.

PKMG LAW CHAMBERS The cost of materials supplied free by buyers has to be added to arrive at full intrinsic value of goods. The fact that the petitioners are not the owner is irrelevant. Taxable event is manufacture and not ownership. The Board in its circular Letter F. No. 354/81/2000-TRU dated 30.06.2000 has viewed as follows:(This circular to apply equally to GST Regime) PKMG LAW CHAMBERS It may also be noted that where the Assessee charges an amount as price for his goods, the amount so charged and

paid or payable for the goods will form the assessable value. If, however, in addition to the amount charged as price from the buyer, the Assessee also recovers any other amount by reason of sale or in connection with sale, then such amount shall also form part of the transaction value for valuation and assessment purposes. Thus if Assessee splits up his pricing system and charges a price for the goods and separately charges for packaging, the packaging charges will also form part of assessable value as it is a charge in connection with production and sale of the goods recovered from the buyer. PKMG LAW CHAMBERS It would be seen from the definition of 'transaction value' that any amount which is paid

or payable by the buyer to or on behalf of the Assessee, on account of the factum of sale of goods, then such amount cannot be claimed to be not part of the transaction value. In other words, if, for example, an Assessee recovers advertising charges or publicity charges from his buyers, either at the time of sale of goods or even subsequently, the Assessee cannot claim that such charges are not includable in the transaction value. The law recognizes such payment to be part of the transaction value that is assessable value for those particular transactions. PKMG LAW CHAMBERS The Supreme Court in the case of Steel Authority of India Limited Vs. CCE MANU/SC/1401/2015 has

observed as under:It is undeniable that under Section 4 of the Act, the excise duty is to be paid on the 'transaction value' and such a transaction value has to be seen at the time of clearance of the goods. Indubitably, when the goods were cleared, the excise duty was paid taking into consideration the price that was actually charged and was reflected in the invoices raised for the said purpose. The Department cannot plead that as on that date, this was not the price charged. No doubt, when the differential payment is made at a later date, further amount towards excise duty becomes payable as a result of said differential in price. PKMG LAW CHAMBERS The Supreme Court in the case of Purolator India Ltd Vs. CCE MANU/SC/0908/2015 has observed as under:It can be seen that Section 4 as amended introduces the

concept of "transaction value" so that on each removal of excisable goods, the "transaction value" of such goods becomes determinable. Whereas previously, the value of such excisable goods was the price at which such goods were ordinarily sold in the course of wholesale trade, post amendment each transaction is looked at by itself. However, "transaction value" as defined in Sub-clause (3)(d) of Section 4 has to be read along with the expression "for delivery at the time and place of removal". PKMG LAW CHAMBERS WHAT ALL TO BE INCLUDED OR EXCLUDED IN THE TRANSACTION VALUE Section 15 (2): The value of supply shall include:-

(a): any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than this Act, the State Goods and Services Tax, the Union Territory Goods and Services Tax Act and the Goods and Services Tax (Compensation to States) Act, if charges separately by the Supplier. PKMG LAW CHAMBERS TRANSACTION VALUE Section 15 (2): The above transaction value shall include: (b): Any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price

actually paid or payable for the goods and/or services; The Supreme Court in the case of CCE Vs. Ford India (P) Ltd MANU/SC/0179/2016 has ruled that the expenditure so incurred on any advertisement campaign was liable to be included as part of the Transaction Value under the Act for purposes of levy of excise duty. PKMG LAW CHAMBERS However, in CCE v. Surat Textile Mills 2004 AIR SCW 2868=2004(5)SCC 201=167 ELT 379 (SC 3 member bench), it was held that advertisement expenditure incurred by customer can be added to sale price for determining assessable value only if manufacturer has an enforceable legal right against customer to insist on incurring of such

advertisement expenses by customer followed in Alembic Glass Industries vs. CCE 2006 (201) ELT 161 (SC). PKMG LAW CHAMBERS The Product cannot be manufactured without design and engineering charges and they are necessary to make the product marketable. CCE Vs. Thermax (P) Ltd 1994 (70) ELT 247 followed in Servall Engineering Works Vs. CCE 1999 (105) ELT 296 Tri. The Technical Know-How charges relating to manufacture are includible in assessable value on amortization basis. Ucal Fuel Systems Vs. CCE 2007(216) ELT 370 Tri. Drawing, design charges,

Art & Development Charges are includible on proportionate basis. New Tech Packaging Vs. CCE 2003(156) ELT 74 Tri. PKMG LAW CHAMBERS The Engineering and Technical Know-How charges related entirely to setting up of plant, its layout, load of equipment at each stage etc. is not related to any activity prior to manufacture or activity relating to design of goods, are not includible in the value of light fittings. NaranLala Metal Works Vs. CCE 2003(156) ELT 281 Tri. PKMG LAW CHAMBERS

When Designing charges are said to be includible in Assessable Value? In Canara Lighting Industries v. CCE (2013) 287 ELT 310 (CESTAT), the Tribunal has held as underDesign charges for preparing layout designs for light fittings (i.e. where light fittings should be installed) do not in any way contribute to the value of light fittings charges for such designs and hence not includible in the value of light fittings. PKMG LAW CHAMBERS Section 15(2)(d):Any taxes, duties, fees and charges levied under any Statute other than SGST Act or the CGST Act or the 1GST Act would be includible in Transaction Value.

The Tribunal in the case of CCE Vs. Uttam Galva Steel Limited Vs. 2016(311) ELT 261 Tri, has held that even if actual amount of tax paid has been less, the whole tax is deemed to have been paid and the assessee shall be entitled the abatement of full amount and not the amount actually paid. Some State Governments allow sales tax exemptions to new industries in the first few years as an Incentive. PKMG LAW CHAMBERS The CESTAT in the case of Hindustan Unilever

Limited Vs. CCE MANU/CB/0061/2016 has observed as under:In view of the above discussion, we hold that the appellants are entitled to claim the abatement of equalized sales tax from the transaction value. Accordingly, both the impugned orders are set aside and both the appeals are allowed with consequential relief. PKMG LAW CHAMBERS The octroi, turnover tax, sales tax is allowable even when sale is through related person. CCE Vs. Akay Cosmetics 2005(182) ELT 294 SC. Additional Tax,

Surcharge on Sales Tax, Turnover Tax will be allowed as deduction, if proved to have been paid. The deduction shall be admissible even proved to have been paid periodically. Indian Oil Corporation Ltd Vs. CCE 2007(208) ELT 584. Turnover Tax/Additional Tax is allowable as deduction even if not charged in invoice and borne by the seller.CCE Vs. Mahindra & Mahindra 2011(273) ELT Tri. Pepsico India Vs. CCE 2005(187) ELT 382. PKMG LAW CHAMBERS In Kisan Sahkari Chini Mills Ltd Vs. CCE 1999(111) ELT 762 Tri, it was held that tax, levy and impost. The above view finally approved by Supreme Court in the case of

Chhata Sugar Co Ltd Vs. CCE 2004 AIR 1528 SC. Section 15(2)(c): Incidental expenses such as commission and packing, charged by the supplier to the recipient of a supply, including any amount charged for anything done by the supplier in respect of the supply of goods and/or services at the time of, or before delivery of the goods or, as the case may be, provision of the services; PKMG LAW CHAMBERS CONTAINER SUPPLIED FREE OF COST BY BUYER, WHETHER COST OF CONTAINER IS LIABLE TO BE INCLUDED OR NOT ?

The Honble Supreme Court in the case of Jauss Polymers Ltd Vs. CCE MANU/SC/0927/2003 has observed as under:In that decision it is clearly set out that if the manufacturer asks the customer to bring his own container and does not charge anything therefore, packing cost cannot be added to the price at which the goods are sold by the manufacturer. This position was not detracted to in the decision in Government of India v. Madras Rubber Factory Ltd. (supra). In fact it was followed in: PKMG LAW CHAMBERS PACKING CHARGES: CONTAINER/CYLINDER/ CATONS The packing which is necessary for putting excisable article in condition in which it is generally sold is includible in

assessable value Royal Enfield v. CCE (2011) 270 ELT 637 (SC). Container/cylinder supplied by buyer In TCP Ltd. v. CCE (2008) 227 ELT 109 (CESTAT), buyer was supplying cylinders in which gas (liquid Sulphur dioxide) manufactured by assessee was filled in and supplied to buyer. The buyer and assessee were not related persons. It was held that value of such cylinders is not includible in assessable value of liquid Sulphur dioxide-relying on Grasim Industries v. CCE (2004) 164 ELT 257 (CESTAT). PKMG LAW CHAMBERS SECONDARY/SPECIAL PACKING DONE AT THE INSTANCE OF BUYER NOT INCLUDIBLE: The secondary packing done which is not in case of normal delivery of goods to customers is not required to be added National Leather Cloth Mfg v. UOI (2010)

256 ELT 321 (SC). Rental charges to buyer for durable containers is not includible in assessable value In CCE v. Bisleri International Pvt. Ltd. (2005) 6 SCC 58=186 ELT 257 (SC), it was held that rental charges for container (ROC) and interest charged for delayed return of container are not includible in assessable value of cold drink followed in Krishna Mohan Beverages v. CCE (2013) 289 ELT 197 (CESTAT). PKMG LAW CHAMBERS PRE-DELIVERY INSPECTION AND SERVICE CHARGES: PDI and after sales service charges incurred by dealers out of their own commission not includible CBE&C, vide Circular No.643/34/2002-CX dated 1.07.2002 had stated that cost of after sales service

and pre-delivery inspection (PDI) charges incurred by dealer out of his commission during warranty period are includible. This circular has been held as invalid in Tata Motors Ltd. v. UOI (2012) 25 taxmann.com 497 = 286 ELT 161 (Bom HC DB). PKMG LAW CHAMBERS FURTHER PROCESSING/WORK/MODIFICATION NO DUTYPAYABLE: It has been clarified by the Department if any value addition has been done by the assessee by processing the goods after removal from factory, cost of such processing is not to be added in assessable value, if such process does not amount to manufacture CBEC Circular

No.138/08/2000-CX-4 dated 3.1.2001. In the case of IVRCL Infrastructure Ltd Vs. CCE 2004(169) ELT 194 it has been held that cost of coating done on pipes after its removal from factory is not includible in assessable value. PKMG LAW CHAMBERS Section 15(2)(e)- Subsidies directly linked to the price excluding subsidies provided by the Central Government and State Government. When any subsidy such as Rs per kg is linked to either (i) manufacture or (ii) supply of such goods, that subsidy shall form part of Transaction Value and would be eligible to GST. However, CBEC vide Circular No.983/7/2014 CX- dated 10.07.2014 has confirmed that the fertilizer subsidy received from

the Government is not additional consideration to individual manufacturer of Fertilizers. PKMG LAW CHAMBERS In CCE Vs. Super Synotex India Ltd 2014(301) ELT 273 SC, the position was that as per Sales Tax Incentive Scheme of the State, assessee was allowed to charge full sales tax in his invoice, however, he was allowed to retain 75% of sale tax amount to himself and balance 25% was required to be paid by him to the Government. Hence, it was held that the assessee shall be allowed the benefit of 25% and the balance 75% shall be included in the Transaction Value. PKMG LAW CHAMBERS

In Neyveli Lignite v. CTO(2001)9 SCC 648 (SC 3 member bench) (a sales tax matter), it was held price is an essential element of contract of sale. Any other sum received by seller for a different purpose and not as consideration for the sale is not part of sale price and hence not part of turnover. In this case, it was held that subsidy received from Government of India under Fertilizer ( Control) Order is not part of taxable turnover. [Reversing Neyveli Lignite Corporation v. Dy. CTO (1999) 115 STC 51 (TNTST) (a sales tax case), where it was held that fertilizer subsidy received from Government by manufacturer on basis of retention price is includible in taxable turnover, as it is part of total consideration] followed in COT v. Bongaigaon Refinery (2016) 147 STC 358 (SC).

PKMG LAW CHAMBERS ADVERTISEMENT, GIFT AND SALES PROMOTION EXPENSES. SECTION 15(2) CBEC, vide its Circular No.643/34/2002-CX dated 01.07.2002, has clarified that even when advertisement and publicity charges are borne by dealers/buyers and dealings are on principal to principal basis, but if there is an agreement, either written or oral, that the buyer will incur certain expenditure for advertising the goods of the assessee, cost of such advertisement will be added to the price of goods to determine assessable value, as price is not the sole consideration.

PKMG LAW CHAMBERS However, in CCE v. Surat Textile Mills 2004 AIR SCW 2868=2004 (5)SCC201=167ELT 379 (SC 3 member bench), it was held that advertisement expenditure incurred by customer can be added to sale price for determining assessable value only if manufacturer has an enforceable legal right against customer to insist on incurring of such advertisement expenses by customer followed in Alembic Glass Industries v. CCE 2006 (201)ELT 161 (S.C) Honda Seils Power Products v. CCE (2015) 317 ELT 510 (CESTAT). Advertisement expenses incurred by marketing company to advertise soft drinks (aerated waters) are not includible in assessable value of concentrate CCE v. Parle International Ltd. 2006 (198) ELT 486 (SC).

PKMG LAW CHAMBERS Section 15(3): The value of the Supply shall not include any discount which is given:(a) before or at the time of the supply if such discount has been duly recorded in the invoice issued in respect of such supply; and (b) supply has been effected, if (i) such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices; and (ii) input tax credit as is attributable to the discount on the basis of document issued by the supplier has been reversed by the recipient of the supply; PKMG LAW CHAMBERS The Supreme Court, in the landmark judgment, in the case of

Government of India v. Madras Rubber Factory Ltd.MANU/SC/ 0725/1995 : 1995 (77) ELT 433 (SC), has observed as follows: What is called 'Year-ending discount' is really a bonus given by Madras Rubber Factory to its dealers @ Rupees fifty per tyre in respect of a particular type of tyres. This discount is payable only where the payments are actually received within forty five days from the date of the invoice. Under this scheme, it appears that a declaration is to be received dealer-wise and thereafter provision is to be made at the head office of MRF for the bonus. The Assistant Collector has found that this discount was allowed by the Assessee not out of any extra-commercial considerations but that they were meant only to boost the sales particularly in the year 1981-82 in respect of Leader Tyre in order to achieve the target of sales for that year He has recorded a finding that "such a system of grant of discount is prevalent in normal trade practice and the only difference may be that MRF limited have granted the discount only at the end of

the year and not at the time of actual sales". PKMG LAW CHAMBERS Price reduction after removal from factory In Traco Cable Co. v. CCE 2004 (172) ELT 33 (CESTAT), assessee gave price reduction subsequent to clearance from factory. The assessment was not made provisional. It was held that refund cannot be granted for subsequent reduction in price same view in Mauria Udyog v. CCE 2007 (207) ELT 31 (P&H HC DB) * CCE v. CESTAT 2007 (207) ELT 33 (P&H HC DB). However, subsequently, in IFB Industries Ltd. Vs. State of Kerala (2012) 4 SCC 618 = 49 VST 1 (SC), it was held that trade discounts are allowable as deduction even if not shown in invoice but given separately by credit note

(sales tax matter but principle applies here also). PKMG LAW CHAMBERS VARIOUS TYPES OF DISCOUNTS DISCOUNT MEANING, NATURE AND SCOPE The Supreme Court, in a landmark judgment, in the case of Union of India v. BombayTyre International Limited MANU/SC/ 0538/1983: 1984 (17) ELT 329 (SC) has observed as under:-

PKMG LAW CHAMBERS Trade Discounts.-Discounts allowed in the Trade (by whatever name such discount is described) should be allowed to be deducted from the sale price having regard to the nature of the goods, if established under agreements or under terms of sale or by established practice, the allowance and the nature of the discount being known at or prior to the removal of the goods. Such Trade Discounts shall not be disallowed only because they are not payable at the time of each invoice or deducted from the invoice price. PKMG LAW CHAMBERS

QUANTITY DISCOUNT: Under the scheme of Quantity Discount, a dealer receives from the assessee a stated extra quantity if he buys a certain other quantity - that this will happen is known and agreed at the time of transaction is entered into. It is, therefore, a trade discount and is allowable as deduction. CCE v. Hindustan Lever 2002 (142) ELT 513 (SC 3 member bench). Even verbal communication through salesman is sufficient to give quantity discount and then it is eligible as deduction. What were norms and criteria for giving discount is not relevant. What is relevant for assessment is whether a discount is allowed or not and not for what reason it is being allowed Hindustan Lever Ltd. v. CCE 2005 (189) ELT 434 (CESTAT). PKMG LAW CHAMBERS

Trade discount may be in form of cash discount or in the shape of goods. Quantity discount has precisely the same effect as money discount, as in both cases, there is reduction in price charged to customers and hence permissible. Queens Chemists Mfg. Deptt. V.CCE 1979 (4) ELT (J 454) (Bom HC) quoted with approval in Guljag Chemical and Plastics Pvt. Ltd. v. CCE 1993 (63)ELT 710 (CEGAT). PKMG LAW CHAMBERS In Anglo French Drugs v. CCE (2005) 2 STT 120 (CESTAT), a scheme of special trade bonus scheme was announced which was in nature of quantity discount. Dealers were asked to sell their existing duty paid stock

which was replenished by manufacturer later free of cost. It was held that such scheme is quantity discount scheme and is permissible. In Pace Marketing Specialities v. CCE, 2003 (153) ELT 621 (CEGAT), assessee was putting cash coin in his product I.e. adhesive. It was held that it is nothing but cash discount and is admissible as deduction for valuation followed in CCE v. Pace Marketing Specialities 2004 (167) ELT 401 (CESTAT) and held that this is true in respect of new section 4 also. PKMG LAW CHAMBERS The prompt payment discount is given if the buyer makes payment of bill within stipulated time. This is allowable even if it is limited to certain varieties of products. GOI

v. MRF Ltd. 77 ELT 433 = 1995 AIR SCW 2654 = (1995) 4 SCC 349. prompt payment discount is allowable as deduction if nature of discount was known at the time of removal of goods and was in fact allowed CCE v. TFL Ouinn India (2011) 267 ELT 641 (CESTAT). PKMG LAW CHAMBERS However, in CCE vs. Rishab Instruments (2008) 226 ELT 230 (CESTAT), one buyer (L&T) was given higher discount that others, on condition that he will promote sale and marketing of asessees products. The extra discount was to compensate advertisement and promotion activity undertaken by L&T. It was held that the additional discount cannot be allowed as deduction and the value of discount is liable to be

included in the assessable value. Special discount for higher purchases is allowable as deduction for valuation Sri Ramdas Motor Transport v. CCE 2005 (190) ELT 266 (CESTAT). Varying discount is permissible ElgiEquipments v. CCE (2007) 215 ELT 348 (SC). What is relevant for assessment is whether a discount is allowed or not and not for what reason it is being allowed Hindustan Lever Ltd. V. CCE 2005 (189) ELT 434 (CESTAT). PKMG LAW CHAMBERS CASH DISCOUNT: The Department has confirmed that cash discount is allowable deduction, if actually passed on to buyer, if transaction is on principal to principal basis. CBE&C Circular No.643/34/2002-CX dated 1.7.2002. The Supreme Court in the case of Purolator India Limited

Vs. CCE - MANU/SC/0908/2015 has observed In view of what has been said above, it is clear that "cash discount" has therefore to be taken into account in arriving at "price" even under Section 4 as amended in 2000. In IFB Industries Ltd. Vs. State of Kerala (2012) 4 SCC 618 = 49 VST 1 (SC), it was held that trade discounts are allowable as deduction even if not shown in invoice but given separately by credit note (sales tax matter but principle applies here also). PKMG LAW CHAMBERS Section 15(3)(b)(i) Trade Discount paid later is allowable as deduction provided it is given under any trade practice or agreement (agreement can be oral agreement also) is allowable. CCE Vs. DCM Textiles 2006 (195) ELT 129 SC. Trade Discount not shown in the invoices but allowed under the trade practice or

under agreement (both oral or written) by way of separate Credit Note, is allowable as a deduction even if not shown in the Invoice but given by way of separate credit note. IFB Industries Ltd Vs. State of Kerala 2012(4) SCC 618. (Sales Tax matter). Quantity Discount given later at Depot is permissible even if quantified on half year basis. Glenmark Pharmaceuticals Vs. CCE 2011(272) ELT 385. The commission paid to Selling Agent for services rendered by them as Agents cannot be regarded as a Trade Discount. Seshasayee Paper and Boards Limited Vs. CCE 1990(47) ELT 202 SC. PKMG LAW CHAMBERS Section 15(4)- The value of the supply of goods and/or services in the following situations which cannot be

valued under sub-section (1), shall be determined in such manner as may be prescribed. PKMG LAW CHAMBERS 8. VALUATION IN CERTAIN CASES. (1) PURE AGENT: (a) Notwithstanding anything contained in these rules, the expenditure or costs incurred by the service provider as a pure agent of the recipient of service, shall be excluded from the value of the taxable service if all the following conditions are satisfied namely:(i) the service provider acts as a pure agent of the recipient of service when he makes payment to third party for the goods and/or services procured; (ii) the recipient of service receives and uses the goods and/or services so procured by the service provider in his capacity as pure

agent of the recipient of service; (iii) the recipient of service is liable to make payment to the third party; (iv) the recipient of service authorizes the service provider to make payment on his behalf; (v) the recipient of service knows that the goods and/or services for which payment has been made by the service provider shall be provided by the third party; PKMG LAW CHAMBERS (vi) the payment made by the service provider on behalf of recipient of service has been separately indicated in the invoice issued by the service provider to the recipient of service; (vii) the service provider recovers from the

recipient of service only such amount as has been paid by him to the third party; and (viii) the goods and/or services procured by the service provider from the third party as a pure agent of the recipient of service are in addition to the services he provides on his own account. PKMG LAW CHAMBERS Explanation: For the purposes of this sub-rule, pure agent means a person who _ enters into a contractual agreement with the recipient of service to act as his pure agent to incur expenditure or costs in the course of providing taxable service:

neither intends to hold nor holds any title to the goods and/or services so procured or provided as pure agent of the recipient of service does not use such goods and/or services so procured; and receives only the actual amount incurred to procure such goods and/or services PKMG LAW CHAMBERS JUDGMENT ON RELATED PERSON. In Alembic Glass Industries vs. CCE-2002 (143)ELT 244 (S.C), the Supreme Court has held as observed The shareholder of a public limited

company do not by reason only of their shareholding have an interest in the business of the company. Similarly two public limited companies having common Directors do not have an interest in the business of each other. PKMG LAW CHAMBERS Further, the Supreme Court once again in Flash Laboratories Ltd. v. CCE 2003 (151) ELT 241 (SC) has observed it appears that the shareholding test which held the forte since Atic Industries case has now been given a go by. The interpretation placed is probably correct given the wide expressions used in the Section. Mutuality of interest in each other business is satisfied where

assessee Company selling 60% of its products to its holding Co. and the remaining 40% to another subsidiary of its holding Co., further, holding Co. also incurring expenses for sales promotion. In Ceam Electronics P.Ltd. vs. UOI 1991 (51) ELT. 309 (Bom.) has observed Merely because, goods are manufactured with customers brand name and entire production sold to customer, does not mean that sales are to related persons. PKMG LAW CHAMBERS INTERPRETATION ON GOODS OF LIKE KIND AND QUALITY The CESTAT in the case of Ashwin Vanaspati Industries

(P) Ltd Vs. CCE MANU/CE/0156/1987. Goods of like kind and quality would imply necessarily goods of the same brand or of the same supplier. It has, necessarily, to be for imported rather than indigenous goods. If, however, the market price for goods of like kind and quality is not ascertainable, the price of comparable goods of foreign origin or Indian origin in that order is to be ascertained. Ascertainment of market rate of goods of like kind and quality or similar goods on any particular day or place is, doubtless, difficult but cannot, on that account, be shirked. It is a question requiring evidence to be adduced by either party and appreciation thereof;

PKMG LAW CHAMBERS DETERMINATION OF VALUE OF SUPPLY RULE 27- Value Of Supply of Goods or Services where the consideration is not wholly in money.Where the supply of goods or services is for a consideration not wholly in money, the value of the supply shall,(a) be the open market value of such supply; (b) if the open market value of is not available under clause (a), be the sum total of consideration

in money and any such further amount in money as is equivalent to the consideration not in money, if such amount is known at the time of supply; PKMG LAW CHAMBERS (c) If the value of supply is not determinable under clause (a) or clause (b), be the value of supply of goods or services or both of like kind and quality; (d) If the value is not determinable under clause (a) or clause (b) or clause (c), be the total sum of consideration in money and such further amount in money that is equivalent to consideration not in money as determined by the application of rule 30 or rule 31 in that order. Illustration. (1) Where a new phone is supplied for twenty thousand rupees along with the exchange of an old phone and if the

price of the new phone without exchange is twenty-four thousand rupees, the open market value of the new phone is twenty-four thousand rupees. PKMG LAW CHAMBERS (2) Where a laptop is supplied for forty thousand rupees along with the barter of a printer that is manufactured by the recipient and the value of the printer known at the time of supply is four thousand rupees but the open market value of the laptop is not known, the value of the supply of the laptop is forty four thousand rupees. PKMG LAW CHAMBERS

RULE 28 Value of supply of goods or services or both between distinct or related persons, other than through an agent.The value of the supply of goods or services or both between distinct persons as specified in sub-section (4) and (5) of section 25 or where the supplier and recipient are related, other than where the supply is made through an agent, shall(a) be the 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 the value is not determinable under clause (a) or (b), be the value as determined by the 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 ninety percent 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: 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 the goods or services.PKMG LAW CHAMBERS RULE 29. Value of supply of goods made or received through an agent.-The value of supply of goods between the principal and his agent shall(a) be the open market value of the goods being supplied, or at the option of the supplier, be ninety per cent. 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. Illustration: Where 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 five thousand rupees 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 four thousand five hundred and fifty rupees per quintal. The value of the supply made by the principal shall be four thousand five hundred and fifty rupees per quintal or where he exercises the option, the value shall be 90 per cent. of five thousand rupees i.e., four thousand five hundred rupees per quintal. (b)where the value of a supply is not determinable under clause (a), the same shall be determined by the application of rule 30 or rule 31 in that order. PKMG LAW CHAMBERS RULE 30. Value of supply of goods or services or both based on cost.-Where the value of a supply of goods or services or both is not determinable by any of the preceding rules of this Chapter, the value shall be one hundred and ten percent of the cost of production or

manufacture or the cost of acquisition of such goods or the cost of provision of such services. RULE 31. Residual method for determination of value of supply of goods or services or both.- Where the value of supply of goods or services or both cannot be determined under rules 27 to 30, the same shall be determined using reasonable means consistent with the principles and the general provisions of section 15 and the provisions of this Chapter: Provided that in the case of supply of services, the supplier may opt for this rule, ignoring rule 30. PKMG LAW CHAMBERS RULE 32. Determination of value in respect of certain supplies.(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. (2)The value of supply of services in relation to the purchase or sale of foreign currency, including money changing, shall be determined by the supplier of services in the following manner, namely:- (a) for a currency, when exchanged from, or to, Indian Rupees, the value shall be equal to the difference in the buying rate or the selling rate, as the case may be, and the Reserve Bank of India reference rate for that currency at that time, multiplied by the total units of currency: Provided that in case where the Reserve Bank of India reference rate for a currency is not available, the value shall be one per cent.

ofCHAMBERS the gross amount of Indian PKMG LAW Provided further that in case where neither of the currencies exchanged is Indian Rupees, the value shall be equal to one per cent. of the lesser of the two amounts the person changing the money would have received by converting any of the two currencies into Indian Rupee on that day at the reference rate provided by the Reserve Bank of India. Provided also that a person supplying the services may exercise the option to ascertain the value in terms of clause (b) for a financial year and such option shall

not be withdrawn during the remaining part of that financial year. PKMG LAW CHAMBERS Example Mr. A goes to Mr. B for getting convered its USD 10,000 into Indian Rupees. Mr. B buys such USD from Mr. A @ Rs.70 per USD and accordingly gives Rs. 7,00,000 (USD 10,000*70) to Mr. A. Furtehr, RBI reference rate for such USD is Rs.69.25. Thus, value of services provided by Mr.B to Mr.A in this case shall be Rs. 7.500 [Rs.10,000*(7-69.25)]

However, if RBI reference rate is not available for USD, then value of service shall be Rs.7,000 (1% 7,00,000). PKMG LAW CHAMBERS Another Example Mr. A goes to Mr. B for getting converted its USD 10,000 into AED. Mr. B buys such USD from Mr. A @ AED 3.5 per USD and accordingly gives AED 35,000 to Mr. A. Further, RBI reference rate in Indian Rupees on such date for AED and USD is 19.25 and 69.25 respectively. The value of services provided by Mr B in this case shall be computed as under:1% of 35,000*19.25=6,738/1% of 10,000*69.25=6,925/Thus, value of services provided by B shall be Rs. 6,738

PKMG LAW CHAMBERS (b) at the option of the supplier of services, the value in relation to the supply of foreign currency, including money changing, shall be deemed to be(i) one per cent. of the gross amount of currency exchanged for an amount up to one lakh rupees, subject to a minimum amount of two hundred and fifty rupees; (ii)one thousand rupees and half of a per cent. of the gross amount of currency exchanged for an amount exceeding one lakh rupees and up to ten lakh rupees; and (iii)five thousand and five hundred rupees and one tenth of a per cent. of the gross amount of currency exchanged for an amount exceeding ten lakh rupees, subject to a maximum amount

of sixty thousand rupees. PKMG LAW CHAMBERS Example Mr. A, Mr. B and Mr. C go to Mr. X for converting amounts of Rs.50,000, Rs.5,00,000 and Rs.50,00,000 respectively. In this case, value of services supplied by Mr. X under this option shall be as under:Value of services provided to Mr. A:- 1% of Rs.1,00,000 i.e. Rs.1,000 Value of Services provided to Mr.B:1,000+0.5% of Rs.4,00,000 i.e. Rs. 3,000 Value of Services provided to Mr. C:5,500+0.1% of Rs.40,00,000 i.e. Rs. 9,500

PKMG LAW CHAMBERS (3) The value of the supply of services in relation to booking of tickets for travel by air provided by an air travel agent shall be deemed to be an amount calculated at the rate of five per cent. of the basic fare in the case of domestic bookings, and at the rate of ten per cent. of the basic fare in the case of international bookings of passage for travel by air. Explanation.- For the purposes of this subrule, the expression basic fare means that part of the air fare on which commission is normally paid to the air travel agent by the

airlines. PKMG LAW CHAMBERS Example Mr. A goes to Mr. X for booking two tickets one for Bangalore and another for Dubai. Further, the ticket for Bangalore is for Rs. 5,000 out of which basic fare is Rs.3,000 and for Dubai ticket is Rs.10,000 out of which Basic fare is Rs. 4,500. In this case, value of services provided by Mr. X to Mr. A shall be: = 5% of Rs.3,000 + 10% of Rs. 4,500 = Rs.600 PKMG LAW CHAMBERS

(4) The value of supply of services in relation to life insurance business shall be,(a)the gross premium charged from a policy holder reduced by the amount allocated for investment, or savings on behalf of the policy holder, if such an amount is intimated to the policy holder at the time of supply of service; (b)in case of single premium annuity policies other than (a), ten per cent. of single premium charged from the policy holder; or (c) in all other cases, twenty five per cent. of the premium charged from the policy holder in the first year and twelve and a half per cent. of the premium charged from the policy holder in subsequent years:

Provided that nothing contained in this sub-rule shall apply where premium paid by the PKMG the LAW entire CHAMBERS Example Gross premium of Rs.20,000/- is divided into Risk Portion (Rs.8,000/-) and

investment portion (Rs.12,000/-) and intimated to the concerned policy holder. Under this option Value shall be Rs.8,000. However, in case it is single premium annunity policy, the value shall be Rs. 2,000 (10%*20,000) PKMG LAW CHAMBERS

(5) 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 18 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: 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 five percentage points for every quarter or part

thereof, between the date of purchase and the date of disposal by the person making such repossession. PKMG LAW CHAMBERS Example Mr. A buys a second hand car for Rs. 1,00,000. After that Mr. A incurs an amount of Rs. 20,000 on painting and minor repairs of such car. Further, Mr.A sells such car to Mr. B for Rs. 1,50,000. In this case, value of supply shall be Rs. 50,000 (i.e. Rs.

1,50,0001,00,000) PKMG LAW CHAMBERS (6) 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. (7) 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 said Act between distinct persons as referred to in section 25, where input tax credit is available, shall be deemed to be NIL. PKMG LAW CHAMBERS Value for second hand goods Rule 32(5) of the CGST Rules, 2017 provides that 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. This is known as the margin scheme. PKMG LAW CHAMBERS THANK YOU PKMG LAW CHAMBERS

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