GST Valuation | Understanding its Role and Provisions

Provision of law

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• which is the price actually paid or payable for the said supply of goods or services or both The term ‘payable’ has been used in order to ensure that price at which it has been agreed to execute the transaction shall be considered as transaction value.
• where the supplier and the recipient of the supply are not related and
• the price is the sole consideration for the supply.

Website facilitating conduct of religious functions between pundits and customers. Assessee booking services online on his own website from customers and intimating names of pundits who would perform job to customers also on online and charging to customers as per models submitted, thereby acting as Electronic commerce operator. All religious functions carried out by pundits on their own. Assessee not person who actually performs ceremony but just facilitator.  Pundits not assessee’s employee. Assessee acting as an intermediary person. Exemption under Serial No. 13 of Notification No. 12/2017-C.T. (Rate) to “services by a person by of conducting any religious ceremony” not available to assessee. Assessee liable to pay tax only on commission portion out of total consideration received online from service recipient or from pundit and not on booking value as per section 15(1). – Sadashiv Anajee Shete, In re [2018] 100 taxmann.com 291/[2019] 71 GST 619/20 GSTL 688 (AAR – Maharashtra).

Section

Provision of law

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• Other than CGST Act, SGST Act, UTGST Act and the Goods and Services Tax (Compensation to States) Act,
• if charged separately by the supplier.

What is the correct valuation methodology for ascertainment of GST on Tax collected at source (TCS) under the provisions of the Income-tax Act, 1961?

Section 15(2) of CGST Act specifies that the value of supply shall include “any taxes, duties cesses, fees and charges levied under any law for the time being in force other than this Act, the SGST Act, the UTGST Act and the GST (Compensation to States) Act, if charged separately by the supplier.” For the purpose of determination of value of supply under GST, Tax collected at source (TCS) under the provisions of the Income-tax Act, 1961 would not be includible as it is an interim levy not having the character of tax. Earlier it was stated that GST needs to be paid on TCS also. – Corrigendum F.No. 20/16/04/2018-GST, dated 7th March, 2019 to Circular No. 76/50/2018-GST, dated 31st December, 2018. Applicant is engaged in providing security services for which it recovers wages, EPF, ESI, etc. from the recipient of service. As per the Guidelines of the Health & Family Welfare Department of the State Government contractual security personnel should be paid Bonus @ 8.33% once in a year. The applicant, therefore, makes separate bill for claiming the Bonus amount without GST. It has been observed that employer’s contribution to EPF, ESI etc. and payment of Bonus at the Government approved rate are components of the applicant’s expenditure. It is entitled to pass this liability to the recipient, who, in terms of the Agreement, is apparently ready to bear that liability. Such an agreement, however, does not create a master (employer) and servant (employee) relationship between the recipient of the service and the security personnel. [Security Agencies Association v. Union of India (2013) 58 VST 295 (Kerala)/2012 (28) S.T.R. 3 (Ker.)]. Therefore, payment received from the recipient on account of the bonus paid or payable to the persons deployed as security personnel is not, therefore, guided by Para 1 of Schedule III. Accordingly, it has been held that bonus received for payment to the security personnel is liable to GST. – Ex-Servicemen Resettlement Society, In re [2019] 112 taxmann.com 20/[2020] 77 GST 512/32 GSTL 573 (AAR – West Bengal).

Applicant is state-controlled mineral producer of Government of India for which certain payments are being made like royalty, DMF, NMET, etc. Royalty is in the nature of periodical payments and collected by the State Government for right given to them to extract mineral and is payable based on quantum mineral removed or consumed. Royalty is required to be paid as per Section 9(1) of Mines and Mineral  (Development and Regulation) Act, 1957 (MMDR Act). In regards to DMF, The District Mineral Foundation (DMF) is a trust set up as a non-profit body, in those districts where mining operations are carried out. The objective of the District Mineral Foundation is to work for the interest and benefit of persons, and areas affected by mining related operations in such manner as may be prescribed by the State Government. The holder of a mining lease shall, in addition to the royalty, pay to the District Mineral Foundation an amount of 30% of royalty. In regards to NMET, a sum equivalent to 2% of the royalty paid under National Mineral Exploration Trust. Accordingly, it has been observed that there is no doubt that the amount payable to DMF and NMET are on account of supply made and are directly linked to the royalty payable and also computed as a fixed percentage of royalty. Further, it is also an admitted fact by the applicant that in case of non-payment of DMF and NMET, the mineral permits would not be issued to the applicant and hence he would not be able to use the mineral ore and thus there would be no supply at all. Though the ultimate beneficiaries are the trusts set up by the State Government and Central Government respectively, it is, like royalty, payable under the same Act. The fact that payments are made to different persons does not mean that they are different suppliers, as the amounts paid are classified on the basis of the purpose for which the amounts are applied. The service provided is only the license to extract mineral ore and also the right to use such minerals extracted is a single service where the consideration is payable under three heads and in case any one of the payments is not made, the service provider, that is the Government would not issue the permit to use the mineral ore so extracted. Hence it forms the value of the supply under Section 15 and the charges for DMF and NMET being compulsory payments, would only amount to application of the amounts paid and still would form the value of the taxable services. – NMDC Ltd.,  In re [2019] 110 taxmann.com 284/[2020] 79 GST 286/32 GSTL 357  (AAR –  Karnataka); Naren Rocks and Mines Pvt. Ltd., In re [2019] 110  taxmann.com 280/31 GSTL 122/[2020] 79 GST 312 (AAR – Karnataka); JSW Steel Ltd., In re [2019] 110 taxmann.com 286/30 GSTL 115/[2020] 79 GST 270 (AAR – Karnataka).

Charges under the Electricity Act: It has been clarified vide Circular No. 34/8/2018-GST, dated 1st March, 2018 that service by way of transmission or distribution of electricity by an electricity transmission or distribution utility is exempt from GST under Notification No. 12/2017-C.T. (R), Sl. No. 25. The other services are taxable such as, —

i. Application fee for releasing connection of electricity;

ii. Rental Charges against metering equipment;

iii. Testing fee for meters/transformers, capacitors etc.;

iv. Labour charges from customers for shifting of meters or shifting of service lines;

v. charges for duplicate bill.

Section 15 of the CGST Act do not include deductions of the amounts pertaining to EPF, ESI, Salary, or Wages. The applicant had entered into a contract with a private hospital for providing Housekeeping-services. As per the MOU, applicant will provide housekeepers and supervisor to maintain and assist medical team of hospital in maintaining cleanliness, covering 24 hours service on shift basis. The salary/wages of such employees were fixed by hospital management- Salary, wages, EPF, ESI reimbursed by Hospital management cannot form value of supply. Against each such bill, applicant was charging commission/charges. The Authority held that where applicant entered into contract with a hospital for providing housekeeping services and provided housekeepers and supervisors salaries/wages of whom are fixed and reimbursed by hospital, applicant cannot be said to be a pure agent. Further, salaries/wages, when fixed and reimbursed by hospital, salary/wages, PF, ESI would also be included in value of supply as no specific deductions had been provided under Section 15. –  Smt. Bhagyalakhsmi Devamma Vangimallu, In re [2022] 134 taxmann.com 65/89 GST 651/57 GSTL 183 (AAR – Telangana) [08-10-2021].

Statutory charges i.e. External Development Charges and Infrastructural Development Charges recovered by Applicant from buyers and paid further to respective Government Authorities, whether includible. EDC and IDC are meant to meet, respectively, cost of external development work to be carried out in respect of individual infrastructure project viz. colony, and cost on developing infrastructure in State. Said charges not related with number projects development of flats to be constructed/sold or are to be paid even if the some/all flats kept for personal use. Since, ‘External Development’ and ‘Infrastructure Development’ do contribute to value of construction service provided to flat owners by appellant, such charges form part of value of taxable supply of appellant. – Ashiana Housing Ltd. 2022 (062) GSTL 0048 App. A.A.R. GST. Haryana

Clause

Provision of law

• but which has been incurred by the recipient of the supply and
• not included in the price actually paid or payable for the goods or services or both.

Tool is provided free of cost by Tata Autocomp Systems Ltd., and the Applicant is bound to return the same to them after completion of the supply or as instructed. In other words, the Applicant is not under contract to supply components made by using the tools/moulds belonging to them but the same have been supplied by Tata Autocomp Systems Ltd., on FOC basis. The C.B.I. & C. in its Circular No. 47/21/2018-GST, dated 8-6-2018 has clarified that moulds and dies (Tools) owned by OEM that are provided to a component manufacturer on FOC basis do not constitute a supply as there is no consideration and in such cases, the value of goods provided on FOC basis shall not be added to the value of supply of components. However, in case the contractual obligation is cast upon the component manufacturer to provide moulds/dies but the same have been provided by the OEM on FOC basis, then the amortized cost of the moulds/dies is required to be added to the value of the components supplied. – Toolcomp Systems Private Limited, In re [2019] 108 taxmann.com 107/75 GST 738 /29 GSTL 137 (AAR – Karnataka); Similar cases Nash Industries (I) Pvt. Ltd., In re [2019] 103 taxmann.com 91/73 GST 234/23 GSTL 367 (AAAR – Karnataka); Lear Automotive India Pvt. Ltd., In re [2018] 100 taxmann.com 311/[2019] 21 GSTL 204 (AAR – Maharashtra).

The value of materials recovered on cost recovery basis by the Contractee from the R.A. bills issued by the applicant is includible in the taxable value of supply in terms of Section 15(2)(b) of the CGST Act, 2017. – GVS Projects Pvt. Ltd., In re [2019] 111 taxmann.com 528/[2020] 32 GSTL 307 (AAR – Andhra Pradesh)

Applicant is providing construction service and as per the agreement, Cement, Mild Steel, Tor Steel and Structural Steel required for the work will be supplied by the contractee as per the rate decided. The applicant has submitted that the value of contract is inclusive of material and labour. We find that the concerned materials are essential components for supply of construction service by the applicant to the contractee. Section 15(2)(b) very clearly states that the supplier i.e. the applicant in this case, is liable to pay in relation to such supply (supply of concerned materials by the contractee in this case) if the cost of the same has been incurred by the recipient of the supply (the contractee in this case) and the cost is not included in the price actually paid or payable for the goods or services or both. We find that the cost the materials supplied by the contractee is included in the value of the entire contract and GST is being paid on the entire value of contract and hence the applicant is discharging GST on the value of materials supplied by the contractee. As per the provisions of section of GST Act, tax is payable on the entire contract value as per certificate issued by the Architect i.e. RA Bill without deducting the value of Cement, Mild Steel, Tor Steel and Structural Steel provided by the contractee. – Tejas Constructions & Infrastructure Pvt. Ltd., In re [2019] 109 taxmann.com 311/29 GSTL 525 (AAR – Maharashtra).

As per Section 40 of Electricity Act, 2003, the duty of transmission licensee is to build, maintain and operate an efficient, coordinated and economical transmission system. As the applicant is a State transmission licensee under the Electricity Act, 2003, therefore it owns the transmission system/infrastructure with exclusive right and responsibility of its deposit work of transmission lines. In addition to the principal activity of providing services of transmission of electricity, the applicant is also providing services in the form of Deposit Works for various consumers/intending agencies, which comprise deposit works to the existing transmission system of the applicant. The deposit works service can be given under 2 options. The first option where complete work is executed by the applicant itself for customer/intending agency, complete cost incurred by the applicant (comprising of material cost, labour charges, overhead and other charges) is recovered from the consumer/intending agency along with GST. Under the second option, the customer/intending agency executes the work itself under the supervision of the applicant. Under the 2nd option, the consumer/intending agency is required to pay supervision charges to the applicant calculated at fixed % on the total cost estimate and shutdown charges along with GST. A demand note by the applicant is raised for GST on total cost estimate, i.e. on the value of deposit work by the consumer/intending agency itself by treating the amount incurred by it as value of supply of service in accordance with Section 15(2)(b) of the GST Act, 2017. Being a transmission licensee under the Electricity Act, 2003, the applicant will be the owner of the asset/infrastructure built/modified even though the cost/charges are borne by the intending agency/consumer. Therefore, under both the methods/options, the ownership of the asset/infrastructure built/modified remains with the applicant only. It is the contention of the applicant that both these cases are transactions of supply of pure services and there is no supply of goods. The only procedural difference in the two methods/options is that in the first option, the complete deposit works are executed directly by the applicant with recovery of costs as per cost estimate plus taxes and in the second option the work is got executed by the consumer/intending agency itself (by incurring costs directly) under the supervision of the applicant with payment of supervision & other charges with taxes along with tax on the value of asset/infrastructure built/modified by the consumer/intending agency itself, by treating it as value of supply of service in accordance with Section 15(2)(b) of the CGST Act, 2017.