[Opinion] Valuation Provisions under Indirect Tax Laws

CA Aakash Sarda – [2023] 155 taxmann.com 27 (Article)

1. Comparison of valuation provisions under Service Tax, Excise, Customs and VAT regime at a broad level

2. Valuation provisions under Service Tax, Excise, Customs and VAT regime are discussed in brief herein below

2.1 Service Tax

Section 67 of Finance Act, 1994: In service tax regime, the valuation of service was determined broadly on following basis:

(a) In case where consideration is in money, gross amount charged by service provider
(b) In case where consideration is not wholly or partly consisting of money, amount in money with addition of service tax charged is equivalent to consideration
(c) In case where consideration is not ascertainable, value as determined in terms of Service Tax (Determination of value Rules, 2006)

Gross amount charged includes payment by cheque, credit card, deduction from account and any form of payment by issue of credit notes or debit notes and book adjustment, and any amount credited or debited, as the case may be, to any account, whether called “Suspense account” or by any other name, in the books of account of a person liable to pay service tax, where the transaction of taxable service is with any associated enterprise.

The valuation rules under Service Tax regime were briefly as follows:

i. Rule 2A: Determination of value in case of works contract
ii. Rule 2B: Determination of value in relation to money changing
iii. Rule 2C: Determination of value of service portion involved in supply of food or any other article of human consumption or any drink in any restaurant or as outdoor catering
iv. Rule 3- Value in case where consideration is not ascertainable
v. Rule 4- Central Excise officer fixing the value by issuing a SCN
vi. Rule 5- Inclusion in or exclusion from value of certain expenditure or costs. The said rule also covers the provisions related to pure agent
vii. Rule 6- Cases in which the commission, costs etc. will be included or excluded

Under service tax regime, the primary basis of determining the value of service was to identify the gross amount charged for a particular service. Further the rules laid down the method of determining the value in case of particular services such as works contract, money changing and service portion in case of supply of food in restaurant or outdoor catering. Also, the rules provided for determining the value of service in case where consideration was not ascertainable, inclusion or exclusion of certain expenditure from service such as pure agent, valuation in respect of certain specified services such as air travel agent, insurance service, tele-communication service etc.

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