Unit – III: Goods and Services Valuation and Tax Invoice

1. Definitions of Goods & Services Valuation:

• Goods Definition:

  • Goods refer to every kind of movable property, tangible or intangible, except for money and securities.

• Services Definition:

  • Services are activities performed for a consideration, including contractual obligations, performance of a duty, and the provision of benefits.

• Valuation:

  • Valuation involves determining the value of goods or services for the purpose of calculating the applicable GST.

• Transaction Value:

  • The transaction value is the price paid or payable for the supply when the buyer and seller are not related, and the price is the sole consideration.

• Open Market Value:

  • If transaction value is not available, the open market value of the goods or services at the time of supply is considered.

• Related Parties:

  • If the buyer and seller are related, the transaction value may be adjusted based on certain valuation rules.

2. Value of Taxable Goods and Services:

• Inclusions in Value:

  • The value of taxable goods and services includes the actual amount paid or payable, any taxes, duties, cesses, and incidental expenses.

• Subsidies:

  • Subsidies directly linked to the price are included, but subsidies provided by the government not linked to any specific supply are excluded.

• Discounts:

  • Discounts offered before or at the time of supply and known at the time of supply are deducted from the value.

• Interest or Late Fees:

  • Interest or late fees for delayed payment are not included in the value if separately mentioned in the invoice.

• Barter Transactions:

  • The value of goods or services exchanged in a barter transaction is determined based on the open market value.

3. Valuation Rules:

• Rule 27: Determination of Value of Supply of Goods or Services:

  • Outlines the general principles for determining the value of supply.

• Rule 28: Value of Supply of Goods or Services Between Distinct or Related Persons:

  • Specifies the valuation methodology for transactions between distinct or related persons.

• Rule 30: Value of Supply of Goods Made or Received Through an Agent:

  • Describes the valuation process when goods are supplied or received through an agent.

• Rule 31A: Value of Supply of Second-hand Goods:

  • Provides guidelines for determining the value of second-hand goods, where no input tax credit has been availed.

• Rule 32: Determination of Value in Respect of Certain Supplies:

  • Specifies the valuation rules for specific cases such as job work, electricity, and services supplied by the government.

4. Special Transactions:

• Composite Supply:

  • Composite supply is a supply consisting of two or more taxable supplies that are naturally bundled and supplied in conjunction with each other.

• Mixed Supply:

  • Mixed supply involves a combination of two or more individual supplies of goods or services that do not form a composite supply.

• Works Contract:

  • A works contract involves a combination of goods and services for the construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, alteration, or renovation of an immovable property.

• Lease Transactions:

  • Leasing of goods involves the transfer of the right to use any goods for a consideration.

• Transfer of Business Assets:

  • The transfer of business assets involves the supply of goods by one taxable person to another in the course of or for the furtherance of business.

5. Job Work:

• Definition:

  • Job work involves the processing or working on raw materials or semi-finished goods by a job worker on behalf of the principal manufacturer.

• Input Tax Credit:

  • The principal is eligible for input tax credit on the goods sent for job work.

• Return of Processed Goods:

  • The processed goods must be returned to the principal within a specified time.

• Charges for Job Work:

  • Charges for job work are usually separate from the value of the principal's goods and are subject to GST.

• Input and Capital Goods:

  • Job workers can receive goods for job work and return the processed goods, and these may include both input and capital goods.

6. Electronic Commerce:

• Definition:

  • Electronic commerce involves the supply of goods or services, including digital products, over a digital or electronic network.

• Tax Collected at Source (TCS):

  • E-commerce operators are required to collect TCS on the consideration received for the supply of goods or services.

• Registration of E-commerce Operators:

  • E-commerce operators facilitating supply are required to register under GST.

• Input Tax Credit for Sellers:

  • Sellers on e-commerce platforms can claim input tax credit for the TCS collected by the operator.

• Non-Resident E-commerce Operators:

  • Non-resident e-commerce operators must appoint an authorized representative for compliance.

7. Input Tax Credit:

• Definition:

  • Input tax credit allows a taxpayer to claim a credit for the GST paid on inputs, capital goods, and input services used in the course of business.

• Conditions for Claiming ITC:

  • To claim ITC, the taxpayer must have a valid tax invoice, the goods or services must have been received, and the supplier must have paid the tax.

• Blocked Credits:

  • Some credits, such as on food, beverages, and certain construction activities, are blocked and cannot be claimed.

• Apportionment of Credit:

  • If inputs are used for both taxable and exempt supplies, the taxpayer must apportion the credit.

• Reverse Charge Mechanism:

  • Under the reverse charge mechanism, the recipient of goods or services pays the tax instead of the supplier.

8. Input Service Distributor:

• Role of ISD:

  • An Input Service Distributor (ISD) is an office that receives invoices for services used by multiple business locations and distributes the input tax credit.

• Distribution of Credit:

  • The ISD allocates the credit proportionally based on the turnover of each location.

• ISD Registration:

  • An ISD must be registered under GST to distribute input tax credit.

• Separate Registration for Each Location:

  • Each business location that receives credit from the ISD must be separately registered under GST.

• Form GSTR-6:

  • The ISD files Form GSTR-6 to declare the distribution of credit.

9. Refunds:

• Grounds for Refund:

  • Refunds may be claimed for excess tax paid, accumulated input tax credit, and taxes on export of goods and services.

• Refund Application:

  • Taxpayers can apply for a refund through the GST portal in the prescribed form.

• Refund Processing:

  • The refund application is processed by the tax authorities, and a provisional refund may be granted.

• Refund Sanction:

  • After verification, the final refund amount is sanctioned and credited to the taxpayer's account.

• Interest on Delayed Refunds:

  • If the refund is not processed within a specified time, interest is payable to the taxpayer.

10. Interest on Refund:

• Delayed Refund:

  • If the refund is not granted within the stipulated time, interest is payable on the refund amount.

• Rate of Interest:

  • The rate of interest is specified in the GST law and is applicable from the date immediately after the expiry of the prescribed period.

• Communication of Interest:

  • The interest payable is communicated to the taxpayer along with the refund sanction order.

• Automatic Interest Calculation:

  • The GST portal automatically calculates the interest on delayed refunds.

• Adjustment in Subsequent Returns:

  • In case of excess interest paid or an adjustment in subsequent returns, the taxpayer can make the necessary corrections.

11. Tax Invoice:

• Mandatory Requirements:

  • A tax invoice is a crucial document for the supply of goods or services, containing mandatory details such as supplier's and recipient's names, GSTIN, description of goods or services, and more.

• Time of Issuance:

  • A tax invoice should be issued at the time of supply or before, depending on the type of supply.

• Credit and Debit Notes Reference:

  • Reference to credit and debit notes, if any, should be made in the tax invoice.

• Multiple Copies:

  • For certain transactions, multiple copies of the tax invoice may be required, such as for the recipient, transporter, and the supplier.

• Electronic Invoicing:

  • The GST law allows for electronic invoicing, streamlining the invoicing process for businesses.

12. Credit and Debit Notes:

• Credit Note:

  • A credit note is issued by the supplier to the recipient in case of overbilling, return of goods, or other adjustments reducing the value of the original invoice.

• Debit Note:

  • A debit note is issued by the supplier to the recipient in case of underbilling, additional goods or services supplied, or other adjustments increasing the value of the original invoice.

• Mandatory Details:

  • Both credit and debit notes must contain specific details, including the nature of the document, names and GSTINs of the supplier and recipient, and a clear description of the reason for issuance.

• Adjustment in Output Tax Liability:

  • Credit notes result in a reduction of the supplier's output tax liability, while debit notes increase it.

• Time Limit for Issuance:

  • Credit and debit notes must be issued within a specified time limit from the occurrence of the event necessitating their issuance.

13. Prohibition of Unauthorized Collection of Tax:

• Unauthorized Collection Prohibited:

  • Suppliers are prohibited from collecting GST from the recipient if they are not eligible to do so, as per the provisions of the GST law.

• Penalties for Unauthorized Collection:

  • Unauthorized collection of tax may lead to penalties and other consequences for the supplier.

• Display of GSTIN:

  • It is mandatory for suppliers collecting tax to display their GSTIN on all documents, including invoices.

• Verification by Recipients:

  • Recipients should verify the authenticity of the supplier's GSTIN and report any unauthorized collection to the tax authorities.

• Consumer Awareness:

  • Creating awareness among consumers regarding the proper collection of tax helps in preventing unauthorized collection.

14. Amount of Tax to be Indicated in Tax Invoice and other Documents:

• Separate Mention of Taxes:

  • The tax invoice must distinctly indicate the amount of CGST, SGST, IGST, and cess, if applicable, on the taxable supply.

• Inclusive or Exclusive of Tax:

  • The tax amount can be mentioned either inclusive or exclusive of the total value of the supply, depending on the agreement between the parties.

• Round-off Rules:

  • The tax amount should be rounded off to the nearest whole number according to prescribed rules.

• HSN or SAC Codes:

  • The tax invoice must also include the appropriate Harmonized System of Nomenclature (HSN) or Service Accounting Code (SAC) for goods or services.

• Digital Signature:

  • For invoices issued electronically, a digital signature is recommended for authenticity.