GOODS AND SERVICE TAX 22-07-17 - PowerPoint Presentation

Slide1

GOODS AND SERVICE TAX

22-07-17Mohd. Irshad AhmedChartered AccountantHyderabad

1

ValuationSlide2

VALUATIONOverview

2There shall be levied a tax called CGST/SGST/IGST on the value determined under Section 15 - Section 9 (1) (levy section)As per Section 15 – The value shall be the transaction valueTransaction value is the price actually paid or payable for the said supply of goods or services or bothSlide3

Valuation continued...3

Transaction valueSlide4

Valuation continued...I. Persons shall be deemed to be “related persons” if––

Such persons are officers or directors of one another’s businesses;Such persons are legally recognised partners in business;Such persons are employer and employee;Any person directly or indirectly owns, controls or holds twenty-five per cent or more of the outstanding voting stock or shares of both of them;One of them directly or indirectly controls the other;Both of them are directly or indirectly controlled by a third person;

Together they directly or indirectly control a third person; or

They are members of the same family;

II. 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.

4

Related personSlide5

Valuation continued...

Examples where price may not be a sole considerationManpower supply contract with a contractor. However, scholarship fees paid to the son of the contractorTechnical consultancy contract with a Director. However, rent free accommodation provided to a directorServices provided by an architect to the company, however architect provided similar services to another group company at a differential price5

Price is the sole consideration for the supplySlide6

Valuation continued...6

Transaction valueSlide7

Valuation continued...7

Transaction valueSlide8

Valuation continued...A develops a software for B. The total cost of developing the software is Rs. 37

lakhs. A paid profession tax on employee amounting to Rs. 1,20,000. B, deputes an employee for technical support and pays him Rs. 2,50,000 which is not included in Rs. 37 lakhs. A, also incurs certain incidental costs for B towards copyrights amounting to Rs. 50,000. SEZ developer provides subsidy linked to the price amounting to Rs. 1,00,000 which has been reduced from price.A, offers a discount of Rs. 75,000 to B before the issue of invoice. Analyse the value under Section 15 of the CGST Act, 20178

ExampleSlide9

Valuation continued...9

Example

As per Section 15, the value of supply shall include:

Transaction value - 37,00,000

Any taxes paid - 1,20,000

Amounts paid by recipient - 2,50,000

Any incidental exp - 50,000

SEZ offers subsidy to A - 1,00,000

Less:

Discount given before invoice - (75,000)

The value for the purpose of Sec 15 will be Rs. 41,45,000Slide10

Valuation continued...A sells textile goods to B for a price of Rs. 1,000 and GST paid on such supply is 10% i.e. Rs. 100. Subsequently, A offers discount of 10% i.e. 100 to B.

Determine the value under Section 15, assuming such discount is allowed u/s 1510

Example - Discount

Supplier

Value

Output liability

Value of supply

1,000

100

Less: Discount

(100)

(10)

Net receivable

900

90

Recipient

Value

ITC

Inward supply

1,000

100

Discount 10%

(100)

(10)

Net price

900

90 Slide11

Valuation continued...11

If the consideration is not wholly in moneySlide12

Valuation continued...(a) “open market value” of a 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.(b) “supply of goods or services or both of like kind and quality” means any other supply of goods or services or both made under similar circumstances that, in respect of the characteristics, quality, quantity, functional components, materials, and reputation of the goods or services or both first mentioned, is the same as, or closely or substantially resembles, that supply of goods or services or both.12

DEFINITIONSSlide13

Valuation continued...Where a new phone is supplied for Rs.20,000 along with the exchange of an old phone and if the price of the new phone without exchange is Rs.24,000, the open market value of the new phone is Rs 24,000

Where a laptop is supplied for Rs.40,000 along with a barter of printer that is manufactured by the recipient and the value of the printer known at the time of supply is Rs.4,000 but the open market value of the laptop is not known, the value of the supply of laptop is Rs.44,000. 13

ExampleSlide14

Valuation continued...14

Transactions between distinct or related persons other than through an agentSlide15

Valuation continued...Persons shall be deemed to be “related persons” if––

such persons are officers or directors of one another’s businesses;such persons are legally recognised partners in business;such persons are employer and employee;Any person directly or indirectly owns, controls or holds twenty-five per cent or more of the outstanding voting stock or shares of both of them;one of them directly or indirectly controls the other;

both of them are directly or indirectly controlled by a third person;

together they directly or indirectly control a third person; or

they are members of the same family;

15

DEFINITIONSSlide16

Valuation continued...A, a public limited company based in

Telangana is engaged in production and manufacture of tiles. A, has branches in Kerala and Orissa. A, supplies consignment valued at Rs. 5,00,000 to it’s branch ‘B’ located in Kerala. Both A & B are distinct persons within the meaning of Section 25. The cost of manufacture of the said items is Rs. 4,90,000.There is no open value and there is no like kind and quality of goods.Analyse the Valuation of supply under Section 15 of the CGST Act, 2017 and the related rules

16

ExampleSlide17

Valuation continued...17

Example

As per Rule 28 of the valuation rules the value of supply of goods between the distinct persons shall be the open market value or value of like kind and quality of goods, or 110% of cost of manufacture or value within the principles of Section 15.

As stated, there is no open value and nor value of like kind and quality of goods. Hence, the valuation shall be in accordance with Rule 30 & 31.

i.e. 110% of manufacture or value within the principles of Section 15.

The cost of manufacture is Rs. 4,90,000. Hence the 110% of the manufacture will be Rs. 5,39,000. Accordingly, the value of supply of tiles will be Rs. 5,39,000 and not Rs. 5,00,000.Slide18

Valuation continued...A, a public limited company based in

Telangana is engaged in production and manufacture of tiles. A, has branches in Kerala and Orissa. A, supplies consignment valued at Rs. 5,00,000 to it’s branch ‘B’ located in Kerala. Both A & B are distinct persons within the meaning of Section 25. The cost of manufacture of the said items is Rs. 4,90,000. ‘B’ is eligible to take input tax creditThere is no open value and there is no like kind and quality of goods.Analyse the Valuation of supply under Section 15 of the CGST Act, 2017 and the related rules

18

ExampleSlide19

Valuation continued...19

Example

As per Rule 28 of the valuation rules the value of supply of goods between the distinct persons shall be the open market value or value of like kind and quality of goods, or 110% of cost of manufacture or value within the principles of Section 15. Where the recipient is eligible for full input tax credit, the value declared in the invoice shall be deemed to be open market value.

As stated, there is no open value and nor value of like kind and quality of goods. Hence, the valuation can be in accordance with Rule 30 & 31.

i.e. 110% of manufacture or value within the principles of Section 15. However, since ‘B’ is eligible to take full input tax credit, the value declared in invoice i.e. Rs. 5,00,000 shall be deemed to be the valueSlide20

Valuation continued...20

Value of supply of goods made or received through agentSlide21

Valuation continued...Where a principal supplies groundnut to his agent and the agent is supplying groundnuts of the like kind and quality in subsequent supplies at a price of Rs.5,000 per quintal on the day of supply.

The open market value of such supply is Rs.4,550 per quintal. The value of the supply made by the principal shall be Rs.4,550 per quintal or where he exercises the option the value shall be 90% of the Rs.5,000 i.e. is Rs.4,500 per quintal.21

ExampleSlide22

Valuation continued...22

Determination of value in certain casesServices in relation toValue

Level 1Value

Level 2

Value

Level 3

Purchase or sale of foreign currency

Difference between

the buying or selling rate and the RBI reference rate multiplied by the total units of currency

If RBI reference is not available, the value

shall be 1% of the gross amount of INR provided or received

If neither

of the currencies exchanged is INR the value shall be 1% of the converted value of two currencies into INR at the reference rate

or

at the

option of the supplier of services, the value is deemed to be

1% of the gross amount of the currency

exchanged for an amount

upto

1

lakh

rupees subject to a minimum of Rs. 250

Rs. 1,000

and half of a

percent of the gross amount of the currency

exchanged for an amount

upto

1

lakh

rupees and

upto

Rs. 10

lakhs

Rs. 5,500

and one tenth of a percent

of the gross amount of the currency

exchanged for an amount exceeding Rs. 10

lakhs

subject to a maximum of Rs. 60kSlide23

Valuation continued...23

Determination of value in certain casesServices in relation toValue

Level 1Value

Level 2

Value

Level 2

Booking of tickets for travel by air provided by an air travel agent

5% of

basic fare for domestic bookings and 10% of basic fare for international bookings

NA

NA

Life insurance business except where the entire premium

paid is towards risk cover in life insurance

Gross premium charged

less

amount allocated for investment or saving

Single premium annuity policies,

10% of the single premium charged from the policy holder

In all other cases,

25% of the premium charged in first year and 12.5% premium charged in subsequent years

Where taxable supply is provided by

a person dealing in buying and selling of second hand goods and

no

ITC has been availed on purchase of such goods, the value shall be difference between the selling price and the purchase price

However, in case goods mortgaged

for a loan are repossessed, purchase value for the borrower shall be purchase price 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 repossessed.Slide24

Valuation continued...24

Determination of value in certain casesServices in relation toValue

Level 1Value

Level 2

Value

Level 2

The

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

Life insurance business except where the entire premium

paid is towards risk cover in life insurance

Gross premium charged

less

amount allocated for investment or saving

Single premium annuity policies,

10% of the single premium charged from the policy holder

In all other cases,

25% of the premium charged in first year and 12.5% premium charged in subsequent years

Where taxable supply is provided by

a person dealing in buying and selling of second hand goods and

no

ITC has been availed on purchase of such goods, the value shall be difference between the selling price and the purchase price

However, in case goods mortgaged

for a loan are repossessed, purchase value for the borrower shall be purchase price 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 repossessed.Slide25

Valuation continued...25

Value of supply of services in case of pure agentPURE AGENTThe

expenditure or cost 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:

The supplier acts as

a pure agent of the recipient of supply when he makes payment to the third on authorisation by such recipient.

The payment made by the pure agent on

behalf of the recipient has been separately indicated in the invoice of the pure agent

The supplies procured by the pure

agent from the third party on behalf of the recipient of supply are in addition to the services he supplies on his own account.Slide26

Valuation continued...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 Registrar of the Companies. The fees charged by the Registrar of the companies registration and approval of the name are compulsorily levied on B. A is merely acting as a 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.

26ExampleSlide27

QUESTIONS?27

Mobile: 9849765400Email: ca.irshadam@gmail.comTHANK YOU