GST Valuation Rules and Determination of Value of Supply

Understand Valuation Rules and Determination of Value

Key rules to remember

Rule 27: consideration not wholly in money

Value = open market value; else money consideration + money equivalent of non-money consideration (if known); else Rule 30 or 31

Apply the options in this order. Barter and part-in-kind deals fall here.

Rule 28: distinct or related persons (not through an agent)

Value = open market value; else value of like kind and quality; else Rule 30; else Rule 31

Under the first proviso to Rule 28(1), where the goods are intended for further supply as such by the recipient, the value is, at the option of the supplier, 90% of the price charged for goods of like kind and quality by the recipient to his customer who is not a related person. Under the second proviso, where the recipient is eligible for full input tax credit, the value declared in the invoice is deemed to be the open market value. The 90% option is an alternative to the open market value, like-kind and cost steps.

Rule 29: goods supplied through an agent

Value = open market value, or 90% of the price charged by the agent to the customer (at the supplier's option); else Rule 30 or 31

Applies where the agent supplies goods on behalf of the principal.

Rule 30: cost method

Value = 110% × (cost of production or manufacture, or cost of acquisition, or cost of provision of services)

Use only when open market value and like-kind value are unavailable.

Rule 31: residual method

Value = determined by any reasonable means consistent with section 15 and the Rules

Last resort. Not a licence to pick any figure; it must be reasonable and consistent with the principles of valuation.

Rule 32(2): money changing

Option 1: Value = (buying or selling rate − RBI reference rate) × total units of currency. Option 2: slab-based amount on the gross amount of currency exchanged.

The supplier chooses between the two. The slab-based amount applies where the RBI reference rate is not available or the supplier does not use it. Check the Rule for the slabs.

Rule 33: pure agent

Value excludes expenditure incurred as a pure agent and recovered at actual cost

All the conditions of the Rule must be met. Fail one and the expense joins the value.

Rule 34: exchange rate

Rate of exchange = applicable reference rate for that currency announced by the RBI, or as per generally accepted accounting principles, for the date of the time of supply under section 12 or 13

Applies where the invoice value is in foreign currency. Fix the date by the time of supply, not by invoice or payment date. Then take the RBI reference rate (or the rate under generally accepted accounting principles) for that date.

Rule 35: tax-inclusive price

Tax amount = (tax-inclusive value × tax rate in % of IGST or CGST + SGST) ÷ (100 + sum of tax rates, as applicable). Then value = tax-inclusive price − tax amount.

Sum of the rates means CGST + SGST, or IGST, plus cess if any.

How to solve Valuation Rules and Determination of Value questions

1. 1Read the facts and ask: is the price the sole consideration and are the parties unrelated? If yes, transaction value applies and the Rules are not needed.
2. 2Identify the special situation: non-money consideration, distinct or related persons, agent, money changing, pure agent expenses, foreign currency or tax-inclusive price.
3. 3Pick the matching Rule: 27, 28, 29, 32, 33, 34 or 35.
4. 4Apply the options in that Rule in order. Move to the next option only when the earlier one is not available.
5. 5If open market value and like-kind value are not available, apply Rule 30 and compute 110% of cost.
6. 6If Rule 30 cannot be applied, apply Rule 31 and justify the method as reasonable.
7. 7Separate items that do not form part of value, such as pure agent reimbursements, and add items that do.
8. 8Compute GST on the final value and write a clear conclusion citing the Rule.

Quickest way: Rule-matching shortcut

Common mistakes in Valuation Rules and Determination of Value

• Jumping straight to cost plus 110% for related-party supplies.

  Students remember the 110% figure and forget it is only the third option.

  Fix: Always check open market value and like-kind value first. Use Rule 30 only if the question says these are not available.

• Treating all reimbursed expenses as pure agent expenses.

  The word 'reimbursement' in the question looks like a pure agent clue.

  Fix: Check every condition of Rule 33 before excluding the amount: - The supplier acts as a pure agent under a contract with the recipient to procure the goods or services. - The recipient authorises the supplier to make the payment to the third party, is liable to pay for them, and receives and uses them. - The goods or services procured are in addition to the services the supplier supplies on his own account. - The payment is separately indicated in the invoice. - The supplier recovers from the recipient only the actual amount paid to the third party. If any condition fails, add the amount to value.

• Calculating GST on a tax-inclusive price without extracting the tax.

  Students multiply the full amount by the rate.

  Fix: Use Rule 35: tax amount = inclusive price × rate ÷ (100 + rate). Then value = inclusive price − tax amount.

• Using the cost of the supplier's profit-inclusive selling price under Rule 30.

  Students confuse cost with price.

  Fix: Rule 30 starts from cost of production, acquisition or provision. Take 110% of that cost, not of the market price.

• Ignoring non-money consideration in a barter.

  Students value only the cash part.

  Fix: Under Rule 27, take the open market value, or the cash plus the money equivalent of the non-money part. Never drop the in-kind portion.

• Using the invoice date or payment date for the exchange rate in foreign currency supplies.

  The invoice date or payment date looks familiar.

  Fix: Rule 34 ties the exchange rate to the date of the time of supply under section 12 or 13. Find that date first, then take the RBI reference rate for that date.

Worked examples