Supply without consideration

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MATTERS TO BE TREATED AS SUPPLY EVEN IF MADE WITHOUT CONSIDERATION [IN TERMS OF CLAUSE (c) OF SUBSECTION (1) OF SECTION 3]

1. Permanent transfer/disposal of business assets where input tax credit has been availed on such assets.

2. Supply of goods or services between related persons, or between distinct persons as specified in section 10, when made in the course or furtherance of business.

3. Supply of goods—

  • by a principal to his agent where the agent undertakes to supply such goods on behalf of the principal, or
  • by an agent to his principal where the agent undertakes to receive such goods on behalf of the principal.

4. Importation of services by a taxable person from a related person or from any of his other establishments outside India, in the course or furtherance of business.

In all the above case since transaction value under section 15 read with rule 3 of valuation rules 2016 can not be determined. For valuation of above supplies following rules may be apply sequentially:

  • The value shall be determined on the basis of the transaction value of the goods and / or services of like kind and quantity supplied at or about the same time to other customers with appropriate adjustments as mentioned in rule 4(2).
  • Where value of like kind and quantity in not available then compute the cost of production etc and add the appropriate margin of profit and general expenses.
  • If the supply is made to pure agent then valuation shall be done by applying valuation rule 8(1).

Valuation rules in detail:

If value can not be determine (as in above case) and/or in case value is determine but proper officer rejected the value under rule 7, then, value shall be determine by proceeding sequentially through rules 4 to 6.

Step 1: Determination of value by comparison:

Rule 4 : Where transaction value of supply of goods or services can not be determine, value shall be determine in following manner:

  1. Transaction value of goods and/or services of like kind and quality
  2. Supplied at or about the same time to other customers,
  3. Adjusted in accordance with the provisions of sub-rule (2) which are given below:
    • Difference in dates of supply
    • Difference in commercial level
    • Difference in quantity levels
    • Difference in composition
    • Difference in quality and design
    • Difference in freight and insurance charges depending on the place of supply

When value can not be determine under rule 4:

  1. Goods and/or services of like kind and value are not available
  2. If they are available, but adjustments as required in point no 3 above can not be made

Step 2: Computed value method

If value can not be determined under rule 4 value shall be calculated under computed value method which shall be determined as below:

  • The cost of production, manufacture or processing of the goods or, the cost of provision of the services;
  • Charges, if any, for the design or brand;
  • An amount towards profit and general expenses equal to that usually reflected in supply of goods and/or
  • services of the same class or kind as the goods and/or services being valued which are made by other suppliers.

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