Transaction Value Under GST | Key Provisions and Practical Impact

The term "Transaction Value" is defined as the price actually paid or payable for the supply of goods or services or both. This value is crucial as it is the amount on which the GST is calculated. The definition is covered under Section 15 of the GST Act. The transaction value includes not only the amount charged for the supply but also any additional amounts in money or in kind that the buyer is liable to pay.

Table of Contents

1. Introduction
2. Statutory Provisions
3. Determination of Transaction Value
4. Transaction Value Includes Value of Items Specified in Section 15(2)

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1. Introduction

Every fiscal statute levying tax on goods or services makes provision for determination of value. The tax is normally payable on ad valorem basis i.e. percentage of value of supply of goods or services. The supply of goods or services is made in different circumstances and to different persons may be related or unrelated. Provision relating to determination of value of each of the circumstances is made in the fiscal statute and the rules made thereunder. Determination of correct amount of value has always caused lot of litigation not only in Central Excise, Customs but also under Service Tax, VAT.

The major provisions relating to valuation are based on Customs (Determination of Value of Imported Goods) Rules, 2007. The Customs Valuation Rules are based on Customs Valuation provisions published by World Trade Organisation (WTO). The note for interpreting the provisions are also published by WTO.

Section 15 makes provision for the purpose of determining the transaction value of supply of goods or services in different circumstances. These provisions are discussed below:

2. Statutory Provisions

Section 15 makes provision for determination of value of taxable supply. Sub-section (5) of section 15 empowers the Government to make rules for determination of value in the circumstances specified therein. Provisions of section 15 and the rules made thereunder are as follows:

These provisions are discussed below:

• Determination of transaction value
• Meaning of related person
• Transaction value includes value of items specified in section 15(2)
• Deduction of discounts
• Determination of Transaction value under rules
• Exemption from payment of IGST on Royalty and License Fees included in value under The Customs Act
• Clarification under GST
• Meaning of ‘Consideration’ as per Contract Act

3. Determination of Transaction Value

Section 15(1) provides that the value of supply of goods or services shall be the transaction value. The provision can be divided into:

• Price actually paid or payable for the supply of goods and services
• Recipient of supply is not a related person
• Price is the sole consideration for supply
• Consideration
• Nexus with supply
• Facility provided to make supply

3.1 Price Actually Paid or Payable

Section 4 of Central Excise Act, 1944 provides for determination of value where the duty of excise is chargeable on any excisable goods with reference to value. It provides that the value shall be transaction value for delivery at the time and place of removal. The transaction value has been defined in section 4(3)(d) as follows:

‘(d) “transaction value” means the price actually paid or payable for the goods, when sold, and includes in addition to the amount charged as price, any amount that the buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in connection with the sale, whether payable at the time of the sale or at any other time, including, but not limited to, any amount charged for, or to make provision for, advertising or publicity, marketing and selling organization expenses, storage, outward handling, servicing, warranty, commission or any other matter; but does not include the amount of duty of excise, sales tax and other taxes, if any, actually paid or actually payable on such goods.’

It will be evident from this definition that phrase ‘actually paid or payable’ has been used in the definition of transaction value given in section 4(3)(d) of Central Excise Act. The said definition of ‘transaction value’ has been interpreted by Hon’ble Supreme Court in following cases:

Purolator India Ltd. 2015 (323) E.L.T. 227 (SC) – The court observed as follows:

‘18. 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”. It is clear, therefore, that what is paramount is that the value of the excisable goods even on the basis of “transaction value” has only to be at the time of removal, that is, the time of clearance of the goods from the appellant’s factory or depot as the case may be. 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. Once this becomes clear, what the learned counsel for the assessee has argued must necessarily be accepted inasmuch as cash discount is something which is “known” at or prior to the clearance of the goods, being contained in the agreement of sale between the assessee and its buyers, and must therefore be deducted from the sale price in order to arrive at the value of excisable goods “at the time of removal”.’

Super Synotex  (India) Ltd. 2014 (301) E.L.T. 273 (SC) – The court observed as follows:

‘22. It is evincible from the language employed in the aforesaid circular that set-off is to be taken into account for calculating the amount of sales tax permissible for arriving at the “transaction value” under Section 4 of the Act because the set-off does not change the rate of sales tax payable/chargeable, but a lower amount is in fact paid due to set-off of the sales tax paid on the input. Thus, if sales tax was not paid on the input, full amount is payable and has to be excluded for arriving at the “transaction value”. That is not the factual matrix in the present case. The assessee in the present case has paid only 25% and retained 75% of the amount which was collected as sales tax. 75% of the amount collected was retained and became the profit or the effective cost paid to the assessee by the purchaser. The amount payable as sales tax was only 25% of the normal sales tax. Purpose and objective in defining “transaction value” or value in relation to excisable goods is obvious. The price or cost paid to the manufacturer constitutes the assessable value on which excise duty is payable. It is also obvious that the excise duty payable has to be excluded while calculating transaction value for levy of excise duty. Sales tax or VAT or turnover tax is payable or paid to the State Government on the transaction, which is regarded as sale, i.e., for transfer of title in the manufactured goods. The amount paid or payable to the State Government towards sales tax, VAT, etc. is excluded because it is not an amount paid to the manufacturer towards the price, but an amount paid or payable to the State Government for the sale transaction, i.e., transfer of title from the manufacturer to a third party. Accordingly, the amount paid to the State Government is only excludible from the transaction value. What is not payable or to be paid as sales tax/VAT, should not be charged from the third party/customer, but if it is charged and is not payable or paid, it is a part and should not be excluded from the transaction value. This is the position after the amendment, for as per the amended provision the words “transaction value” mean payment made on actual basis or actually paid by the assessee. The words that gain signification are “actually paid”. The situation after 1-7-2000 does not cover a situation which was covered under the circular dated 12-3-1998. Be that as it may, the clear legislative intent, as it seems to us, is on “actually paid”. The question of “actually payable” does not arise in this case.’

It will be observed from the above that the amount actually paid or payable shall be determined based on the contract entered into between the supplier and recipient of goods or services. The contract will indicate the amount payable by the recipient for the supply of goods or services. This can be explained by an example.

Example. Chartered Accountant ‘A’ has entered into contract for conducting audit of Company ‘X’. The contract specifies the amount for audit fee and in addition also provides that car of Chartered Accountant ‘A’ would be refurbished by Company X. Thus the price payable for the service of auditing is not only the amount paid to Chartered Accountant ‘A’ as audit fees but will also include the expenditure incurred by Company X on refurbishing the car of Chartered Accountant ‘A’. Thus, the contract forms the basis for determining the amount actually paid or payable.

The ratio of above referred judgments will be very helpful in interpreting the words “actually paid or payable” in determining transaction value under section 15 of GST Act.

Factors to be considered while determining the transaction value 

The following factors shall always be considered while determining the value of supply:

3.1.1 Nexus Between the Amount Received and Supply Made

Section 15(1) provides that transaction value shall be the price actually paid or payable for the supply of goods or services. It clearly means that there should be nexus between the supply of goods or services and the amount received by the supplier of goods or services. This view that nexus between the amount received and the supply shall be established to consider the amount as value of supply is also supported by judgments rendered in the context of section 67 of Chapter V of Finance Act, 1994. The said section makes provision for determination of value for taxable services rendered. Section 67(1) reads as follows:

“67. (1) Subject to the provisions of this Chapter, where service tax is chargeable on any taxable service with reference to its value, then such value shall, —

(i) in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him;

(ii) in a case where the provision of service is for a consideration not wholly or partly consisting of money, be such amount in money as, with the addition of service tax charged, is equivalent to the consideration;

(iii) in a case where the provision of service is for a consideration which is not ascertainable, be the amount as may be determined in the prescribed manner.

and the explanation defines ‘consideration’ as follows:

(a) “consideration” includes—

(i) any amount that is payable for the taxable services provided or to be provided

(ii) any reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing to provide a taxable service, except in such circumstances, and subject to such conditions, as may be prescribed;

(iii) any amount retained by the lottery distributor or selling agent from gross sale amount of lottery ticket in addition to the fee or commission, if any, or, as the case may be, the discount received, that is to say, the difference in the face value of lottery ticket and the price at which the distributor or selling agent gets such ticket.”

It is evident from clause (i) of section 67(1) that this section also makes provisions for determining value of taxable services provided. It also provides that value shall be for the taxable services rendered. In this context, the Hon’ble Tribunal in the following cases has held that there should be nexus between the amount received and the taxable service rendered. In case there is no nexus between the supply of goods and services, and the amount received, the amount cannot be considered as value of taxable service. The observation of Supreme Court in the case of Bayana builders reported in 2018 (10) G.S.T.L 118 (S.C) reproduced below substantiate the same.

‘12. On a reading of the above definition, it is clear that both prior and after amendment, the value on which service tax is payable has to satisfy the following ingredients:

a. Service tax is payable on the gross amount charged – the words “gross amount” only refers to the entire contract value between the service provider and the service recipient. The word “gross” is only meant to indicate that it is the total amount charged without deduction of any expenses. Merely by use of the word “gross” the Department does not get any jurisdiction to go beyond the contract value to arrive at the value of taxable services. Further, by the use of the word “charged”, it is clear that the same refers to the amount billed by the service provider to the service receiver. Therefore, in terms of Section 67, unless an amount is charged by the service provider to the service recipient, it does not enter into the equation for determining the value on which service tax is payable.

b. The amount charged should be for “for such service provided” – Section 67 clearly indicates that the gross amount charged by the service provider has to be for the service Therefore, it is not any amount charged which can become the basis of value on which service tax becomes payable but the amount charged has to be necessarily a consideration for the service provided which is taxable under the Act. By using the words “for such service provided” the Act has provided for a nexus between the amount charged and the service provided. Therefore, any amount charged which has no nexus with the taxable service and is not a consideration for the service provided does not become part of the value which is taxable under Section 67. The cost of free supply goods provided by the service recipient to the service provider is neither an amount “charged” by the service provider nor can it be regarded as a consideration for the service provided by the service provider. In fact, it has no nexus whatsoever with the taxable services for which value is sought to be determined’

Honourable Supreme Court in case of Intercontinental reported in 2018 (10) G.S.T.L 401 (S.C) in Para 24 observed as follows:

“24. In this hue, the expression ‘such’ occurring in Section 67 of the Act assumes importance. In other words, valuation of taxable services for charging service tax, the authorities are to find what is the gross amount charged for providing ‘such’ taxable services. As a fortiori, any other amount which is calculated not for providing such taxable service cannot a part of that valuation as that amount is not calculated for providing such ‘taxable service’. That according to us is the plain meaning which is to be attached to Section 67 (unamended, i.e., prior to May 1, 2006) or after its amendment, with effect from, May 1, 2006. Once this interpretation is to be given to Section 67, it hardly needs to be emphasised that Rule 5 of the Rules went much beyond the mandate of Section 67. We, therefore, find that High Court was right in interpreting Sections 66 and 67 to say that in the valuation of taxable service, the value of taxable service shall be the gross amount charged by the service provider ‘for such service’ and the valuation of tax service cannot be anything more or less than the consideration paid as quid pro qua for rendering such a service.”

3.1.2 Nature of Supply Made

The contract between the supplier and recipient of services or goods will invariably indicate the obligation of the supplier of goods or services. The amount having nexus with the supply required to be made can only be considered as transaction value. This has been explained below by example.

Example – X Company is engaged in doing job work for Y Company. Y supplies raw and packing material to X Company and specifies the process required to be performed on the raw and packing material. X Company has agreed to supply services (in the form of labour) for the purpose of performing the activities specified by Y Company. Therefore, the amount received by X Company towards supply of his services can only be considered as value of supply. Value of raw and packing material cannot be included in the value of supply made by the job worker.

This aspect must be considered while determining the value of goods or services supplied. It may be mentioned that as per the provisions contained in section 4 of Central Excise Act, the value of raw and packing material was also required to be added in the assessable value for the purpose of payment of excise duty. The incidence of tax in case of excise duty was on manufacture of goods. The value of manufactured goods is required to be determined under Central Excise Act. Therefore, the value of input required for manufacture of goods was required to be included in the value of goods manufactured. The incidence of tax under GST is not on manufacture of goods but on supply of goods or services. Hence, first and foremost step to determine the value is to identify the goods or services supplied under the contract. Thereafter the value of that supply is required to be computed.

3.1.3 Difference Between Old Provision and New Provision

The provisions under section 4 of Central Excise Act provide for determination of value for delivery at the time and place of removal. The VAT under VAT Act is payable on the value upto the time of transfer of property in goods. Any expenses incurred thereafter will not form part of value. Thus there is always dispute whether freight and insurance in transit incurred on sale for delivery of goods to the buyer would be included in the value of goods for the purpose of payment of excise duty or VAT. There will be no such dispute under GST as the entire value of goods including freight and insurance is required to be included in the value of supply of goods.

3.2 Price is the Sole Consideration for Sale

Section 15(1) further provides that price should be the sole consideration for supply. If any additional consideration, whether in monetary or non-monetary terms, is received, the value of such consideration shall be added to the consideration to arrive at the transaction value. Interpretative Notes provides that payment made directly or indirectly by the recipient to supplier will constitute the price actually paid or payable. Example of indirect payment is settlement by the buyer whether in whole or in part of debt owned by the seller. This can be elaborated by an example. Mr. X makes supply of ` 2 lakhs to Mr. Y. The contract provides that Mr. Y will pay ` 50,000 to Mr. X and ` 1,50,000 to Mr. Z to settle the debt of Mr. X. In this case, the price of ` 50,000 is not the sole consideration for sale. The amount of ` 1,50,000 payable by Mr. Y to Mr. Z is part of consideration for supply of goods. Therefore, GST will be payable on the entire amount of ` 2 lakhs and not only on ` 50,000.

If the price is not the sole consideration for sale, some additional consideration will flow in one form or other to the supplier of goods or services. Normally, the contract will specify the nature of financial flow back from recipient to the supplier. If the contract does not specify the flow of consideration in any form, it can be concluded that the price is the sole consideration for supply. The appellate authorities in the following judgments have observed to this effect.

Rumi Herbals Ltd. 2008 (222) ELT 518

“10. We find that the fact of a Director being common in the two firms does not make the assessee and RMLM related persons. A couple of deposits each less than rupees two lakhs made in the account of RMLM were returned to RUMI. The sale price to RMLM was lower on account of cost of transportation and cost of advertisement materials which the assessee did not have to incur when they sold the goods to RMLM. RUMI did not pay overriding commission to sub-dealers (and added to assessable value) for clearances to dealers in the South unlike in the case of dealers operating under wholesale buyers in other regions. The department had no evidence of financial flow back between RUMI and RMLM. We do not find any material to substantiate a finding that RUMI and RMLM are related persons. Therefore the demands arising out of requantification of the value of clearances treating the sale price of RMLM as basis of assessable value is not sustainable. In the circumstances, we set aside the impugned order as not sustainable and allow the appeal filed by M/s. Rumi Herbals (P.) Ltd.”

Jeypore Sugars Ltd. 2000 (124) ELT 845

“10. We have carefully considered the rival submissions and records of the case. We find that in view of the fact that the Order- in-Original has not clearly recorded any finding as to how the there was a financial flow back from the buyer to the seller or as to how the price for such a large quantity contracted to be delivered over a specified period is artificially depressed price, and also in view of the fact that the judgment cited above have not been considered at all in the said order, therefore, the order before us is found to be in error of principles of natural justice. Since the matter lies in a short compass and since on consideration of the judgments cited, we are in agreement that mere relationship shall not affect the assessable value and hence the appellants have demonstrated that they have prima facie a very strong case, therefore, we order waiver of pre-deposit and stay of the recovery of the entire amounts involved and proceed to consider the appeal itself. On consideration, we find that the Ld. Commissioner has not discussed the plethora of judgments cited before him and therefore, the Order- in-Original impugned is set aside and the matter remanded for de novo consideration by said Commissioner. During this de novo proceedings, he shall give effective opportunity of hearing to the present appellants and pass a reasoned and speaking order after due consideration of the decisions noted above. The appeal succeeds by way of remand accordingly.”

3.3 Consideration

The meaning and scope of consideration as given in section 2(31).

3.4 Nexus with Supply

Anything can be considered as consideration for supply if such thing has commercial value and independent identity. The recipient shall be able to receive certain amount for thing provided to him. The supplier should receive something that he would like to acquire by payment of money. Normally in such case both parties will provide separate value to such thing. Therefore, non-monetary consideration can form consideration only if such thing has commercial value.

3.5 Facility Provided to Make Supply

The contract for making supply very often create obligation on recipients to make certain facilities available to the supplier for making a supply. Such provision is conditions of contract of making supply and cannot be considered as consideration for making supply.

The following example given in Australian Goods and Service Tax Ruling 2001/6 clarifies the same:

Example 9 – things used in making the supply

91. Eddie Engineer (‘Eddie’) agrees to supply services to Mountain Miners (‘Mountain’) at a rate of $100 per hour. Under the agreement, Eddie must perform the services on Mountain’s premises in Melbourne. Mountain agrees to allow Eddie to use its computer facilities, stationery and safety equipment on Mountain’s premises to perform the services. Mountain also agrees to fly Eddie to Melbourne and provide accommodation and meals during the period Eddie performs the services.

92. There is monetary consideration for Eddie’s services ($100 per hour). The provision of the use of computer facilities, stationery. and safety equipment and the transport, accommodation and meals is not part of the price paid for the services as it is not a payment or of value to Eddie in return for his services. They are rather conditions of the contract that go to defining the supply made by Eddie, and are used in providing the services, rather than being supplied to Eddie in return for the services. They do not provide economic value to Eddie in return for his supply. The provision of these things in these circumstances is not consideration in connection with the supply by Eddie. There is no non-monetary consideration for Eddie’s supply

4. Transaction Value Includes Value of Items Specified in Section 15(2)

Section 15 specifically provides that transaction value shall include items which are specified in clauses (a) to (e) of sub-section (2). The nature of payment stipulated in clauses (a) to (e) of sub-section (2) are discussed below:

4.1 Payment of Taxes

Clause (a) provides that any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than (CGST/SGST/UTGST/Compensation Cess) Act shall be added to the value of supply. This can be explained by example.

Example 1 – Very often, in the rent contract, the tenant is required to pay local tax either directly to the local body or the owner of the premise. Such local tax may form part of consideration for the supply of renting service. It may be mentioned that Chapter V of Finance Act, 1994 makes special provision for exclusion of local taxes from the value of services.

Example 2 – Power to levy entertainment tax by local authorities is contained in the Constitution. Even after the 122nd Constitutional amendment, the power to levy entertainment tax is still available with local bodies. The tickets purchased in any entertainment event will include the tax amount also. Normally, the tax amount should not form part of value of supply of goods or services. But, in view of specific provision in clause (a) of section 15(2), it appears that local body taxes included in the ticket will also form part of transaction value.

It is specifically provided that the amount of CGST/SGST/UTGST/Compensation Cess, shall be excluded if charged separately by the supplier.

4.1.1 Clarification by CBEC

The Association of National Exchanges Member of India (ANMI) had sought clarification on various issues of GST. One of the issue related is inclusion of STT and Stamp Duty in transaction value in view of the provisions of Section 15(2)(a) of the GST Act. The Department of Revenue, CBEC, GST Policy Wing has vide Office Memorandum dated 5-9-2017 issued from F. No. 349/40/2017-GST has clarified as follows:

Issue – Clarifications regarding applicability of GST on Securities Transaction Tax and Stamp Duty.

Comment – The Central Board of Excise and Customs (CBEC) had earlier issued Clarification F. No. 187/107/2010-CX-4 dated 17th September, 2010 (Annexure A) clarifying that in the case of stock broking services, the liability for stamp duty and the securities transaction tax (STT) is that of the purchaser or seller of the securities and not of the stock broker. The stock broker collects and deposits the same on behalf of the purchaser and seller that is in the capacity of a pure agent. Therefore, Service Tax is not payable on STT and Stamp Duty. In the light of the fact that even under the GST regime, the rationale for excluding the Stamp Duty and STT component, recovered by a stock broker from the client (seller/buyer), from the levy of GST, remains valid, GST is not payable by the Stock Broker on these recoveries and as long as the conditions of pure agent as provided in Rule 33 of the CGST Rules are met.

4.1.2 Tax Collected at Source

As per the provisions contained in section 206C of the Income-tax Act, 1961 – 2015, the person being a seller at the time of recovering the amount from the buyer in cash or by cheque or by any mode, collects from the buyer of any goods specified below and a sum equal to the percentage of value of goods specified against the goods. The said table is reproduced below:

Sr. No.	Nature of Goods	Percentage
(1)	(2)	(3)
(i)	Alcoholic Liquor for human consumption	One per cent
(ii)	Tendu Leaves	Five per cent
(iii)	Timber obtained under a forest lease	Two and one-half per cent
(iv)	Timber obtained by any mode other than under a forest lease	Two and a half per cent
(v)	Any other forest produces not being timber or tendu leaves	Two and a half per cent
(vi)	Scrap	One per cent
(vii)	Minerals, being coal or lignite or iron ore	One per cent

There was a dispute whether such amount collected by the seller which is deposited by him with the Government, will form part of the value of taxable supply u/s 15 of the GST Act. The CBIC vide Q. No. 5 of the Circular No. 76/50/2018 – GST has clarified that such amount recovered from the buyer will be included in the value of taxable service.

• Needs Re-consideration – Section 15(2) of the GST Act provides that the value of taxable supply shall include taxes, duties, cess, fees and charges levied under any law for the time being in force, if the charges are separately recovered by the charges can be included in the value of supply when these taxes, duties, cess, etc. have nexus with supply of goods. The respective law under which such charges are levied shall levy the tax, duties, etc. for supply of such goods.
• Corrigendum – The clarification given vide Circular No. 76/50/2018 – GST reproduced above has been reviewed. The Government has issued corrigendum vide letter issued from File No. 20/16/04/2018 – GST dated 07/03/2019 that the tax collected at source will not be included in the value of taxable supply as it is an interim levy not having the character of tax. Thus, the clarification reproduced above is nullified.

However, in this case, the amount is recovered u/s 206C of the Income-tax Act and the buyer receives the credit under the Income-tax Act. Thus, these taxes are paid for the income against the income tax payable by the buyer. Thus, these taxes are in respect of the income of the buyer and not in respect of the supplier of goods. Therefore, it is felt that the value of TCS collected under the Income-tax Act cannot be included in the value of taxable service.

4.2 Amount Paid by Recipient on Behalf of Supplier

Clause (b) provides that 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.