Value of Taxable Supply – Section 15 of the CGST Act

The value of taxable supply is a crucial aspect of the GST regime, as it determines the tax liability of a supplier. Section 15 of the CGST Act, 2017, provides a comprehensive framework for determining the value of supply of goods or services. Let’s explore this section in detail.

1. Transaction Value: The Basis for Taxable Supply

According to Section 15(1), the value of supply is the transaction value, which is the actual price paid or payable for the supply of goods or services. However, this applies only when:

• The supplier and recipient are not related.

• The price is the sole consideration for the supply.

2. Components Included in the Value of Supply

Section 15(2) specifies the elements that must be included in the value of supply:

a) Taxes and Duties

Any taxes, duties, cesses, fees, and charges levied under laws other than the GST laws must be included if charged separately by the supplier.

b) Supplier’s Liabilities Paid by the Recipient

If the recipient incurs any expense that the supplier is liable to pay, but it is not included in the price, such an amount must be added to the value of supply.

c) Incidental Expenses

Expenses such as commission, packing charges, and any costs related to the supply of goods or services at the time of or before delivery must be included.

d) Interest, Late Fee, or Penalty

Any additional charges due to delayed payments for the supply are also part of the taxable value.

e) Price-Linked Subsidies

Subsidies directly linked to the price, except those provided by the Central or State Governments, must be included in the value of supply.

3. Exclusions from the Value of Supply

Section 15(3) defines the exclusions, particularly discounts:

a) Discounts at the Time of Supply

Discounts given before or at the time of supply and duly recorded in the invoice are excluded from the taxable value.

b) Post-Supply Discounts

Discounts given after the supply are excluded if:

• They are as per a pre-existing agreement linked to relevant invoices.

• The recipient reverses the corresponding Input Tax Credit (ITC).

4. Determination of Value in Special Cases

If the value of supply cannot be determined as per Section 15(1), it must be determined based on the rules prescribed by the government.

5. Special Notified Cases

In certain cases, the government may prescribe a specific manner of valuation for supplies notified on the recommendation of the GST Council.

6. Understanding Related Persons Under GST

To prevent tax evasion through underpricing, Section 15 includes a detailed explanation of “related persons.” Related persons include:

• Officers or directors of each other’s businesses.

• Business partners.

• Employer-employee relationships.

• Entities with 25% or more common ownership.

• Entities controlled directly or indirectly by a third person.

• Sole agents, sole distributors, or sole concessionaires.

Conclusion

Section 15 of the CGST Act plays a vital role in ensuring tax compliance and transparency in transactions. Understanding its provisions helps businesses correctly determine the value of taxable supply, ensuring accurate GST computation and avoiding disputes with tax authorities.

For expert assistance in GST compliance and valuation of taxable supply, consult a qualified Chartered Accountant (CA).