Inclusions of Transaction Value

Inclusions of Transaction Value

The following items will be included in transaction value for finding out taxable value, if the items are not included in transaction value or invoice price separately charged.

(1) Packing charges

The expenses associated with standard packing will be borne, as it is typically linked to or pertains to the supply. Packing provided by the recipient must be accounted for, similar to the costs of any other materials supplied. 

Occasionally, items are packaged in robust and returnable containers, such as cooking gas in cylinders, cold beverages in bottles, etc. It is understood that the gas cylinder or bottle of cold drink is sent back to the manufacturer for refilling. 'Returnable' signifies that it should generally be returnable according to the agreement or understanding established between the buyer and seller. 

The mere physical ability to return is insufficient. Manufacturers frequently require a security deposit from the buyer to guarantee the return of the container. However, these containers are not sold to the buyer. The deposit is forfeited if the container is not returned. 

The cost associated with such durable and returnable packing will not be included. The supply of such containers may be in 'relation' to the supply. Nevertheless, this relationship is only remote and indirect. There is no actual supply of the container. 

It constitutes a transaction of bailment. There is no direct 'connection' between the supply of durable and returnable containers and the sale. Therefore, in certain instances, goods are packaged in returnable packing, such as gas cylinders, drums, etc. In these cases, tax is only applicable on the consideration received for the supply. Consequently, it is unnecessary to include the amortized cost of durable and returnable packing.

(2) Taxes Other than GST

Any taxes, duties, fees, and charges imposed under any legislation other than the GST Act are to be included in the value if they are billed separately. However, CGST, SGST, IGST, and UTGST are excluded. 

Therefore, SCST and CGST will only be applicable on the net value. The term 'Value' for GST purposes will not encompass ISGT, CGST, SGST, and GST Compensation Cess. Nevertheless, other taxes (such as entertainment tax or any other cess) will be included if they are separately charged in the invoice.

(3) Amount paid by recipient on behalf of supplier

Any sum that the supplier is obligated to pay concerning such supply, which has been incurred by the recipient of the supply and is not included in the price actually paid or payable for the goods or services, or both, is included in the value.

(4) Incidental expenses

Incidental costs, including commissions and packing fees, imposed by the supplier on the recipient of a supply, encompass any charges related to actions taken by the supplier concerning the provision of goods and/or services prior to or at the time of delivery. Expenses such as weighment, factory loading, inspection, and testing conducted before the supply will be included in the 'value'. Additionally, design charges incurred prior to the supply will also be considered.

(5) Interest, late fee or penalty for delayed payment.

The interest, late fee, or penalty associated with the delayed payment of any consideration for any supply is included in the value.

(6) Outward freight, packing and other charges in tax invoice

For contracts based on the FOR basis, the supplier is responsible for arranging transportation. In this scenario, he is liable to pay GST under the reverse charge mechanism on the outward freight. Subsequently, he includes the outward freight in the tax invoice. In this instance, the outward freight charged is considered part of the total value of the goods, and GST is applicable on the value that encompasses the outward freight. Likewise, packing charges, weighment fees, and other associated charges are also included in the value for the purpose of GST levy. The GST rate is the same as that applicable to the goods, as this constitutes a composite supply.

(7) Subsidies directly linked in supply

Subsidies that are directly associated with the price, excluding those provided by the Central and State Governments, are to be included in the 'Value' for the purpose of GST charges. Explanation: The total amount of subsidy must be incorporated into the value of the supply made by the supplier who receives the subsidy.

(8) Installation charges

If the supplier assumes responsibility for the installation and erection of machinery or a plant at the recipient's site and charges for this service, the amount will be included in the overall value. If the installation fees are billed separately, they will be added to the transaction value.

(9) Design and Engineering charges

Design and Engineering Charges are crucial for the manufacturing process and therefore must be incorporated into the overall value.

(10) Compulsory after Sales Service/service in warranty period is included

The terms 'servicing' and 'warranty' have been explicitly incorporated into the definition of payments that are part of the 'transaction value'. Manufacturers frequently offer complimentary after-sale services throughout the warranty period. Although these are referred to as 'free services', the expenses associated with such services are already factored into the product's price. The assurance of after-sale service provision undoubtedly enhances the product's marketability, as it is related to the sale, and its cost is included.

Exclusion from Transaction Value

The subsequent items will be omitted from the transaction value when determining the taxable value of the supply. –

(1) Discount or incentive given after supply

The value of the supply shall not encompass any discount that is provided: 

(a) Prior to or at the moment of the supply, provided that such discount has been properly documented in the invoice issued concerning that supply; and 

(b) Following the completion of the supply, on the condition that 

(i) such discount is confirmed in accordance with an agreement made at or before the time of the supply and is specifically associated with the relevant invoices; and 

(ii) the input tax credit attributable to the discount has been reversed by the recipient of the supply. 

Therefore, a discount after the supply is allowable as a deduction only if it was known prior to or at the time of the supply. 

(2) When value is inclusive of GST

Legally, GST must be displayed separately on the tax invoice. 

However, there are provisions for cases where GST is not separately indicated on the tax invoice. If the value of supply includes IGST, CGST, SGST, or UTGST, the tax payable will be determined through back calculations as follows — 

Tax amount = [Value inclusive of tax + Tax rate in %] / 100 + sum of applicable tax rates in % It is important to note that this provision only applies to the value of supply that includes GST. 

The regulation does not state that the value is considered to be inclusive of GST.