GST: Value of Supply, Exemptions and Reverse Charge Mechanism
Value of supply u/s 15
Transaction value is accepted where the supplier and recipient are unrelated and price is the sole consideration. It includes taxes other than GST, incidental expenses such as packing and freight, interest, late fees and penalties, and subsidies directly linked to price. It excludes discounts shown on the invoice and pre-agreed post-supply discounts where the supplier reverses the corresponding ITC. Where value cannot be determined, Rules 27 to 31 apply.
Exemptions u/s 11
Commonly tested exemptions include health care by a clinical establishment, education by an educational institution, agricultural produce, and renting of a residential dwelling to an unregistered person. Exempt supplies do not carry ITC, and a composite supply containing exempt and taxable elements follows the principal supply.
Reverse charge
- Section 9(3) covers notified goods and services, such as goods transport agency services, legal services from an advocate to a business entity, sponsorship, director's services to a company, and renting of a residential dwelling to a registered person.
- Section 9(4) covers notified supplies from an unregistered supplier to a registered recipient.
- The recipient issues a self-invoice u/s 31(3)(f) and pays tax in cash, since ITC cannot be used for the reverse charge liability.
Worked example
Price Rs.1,00,000, packing Rs.5,000, freight Rs.3,000 and an invoice discount of Rs.2,000, with GST at 18%. Value is Rs.1,00,000 plus Rs.5,000 plus Rs.3,000 minus Rs.2,000, that is Rs.1,06,000. GST is Rs.19,080.
Traps
- Allowing a post-supply discount without checking that ITC was reversed.
- Excluding interest on delayed payment from value.
- Using the electronic credit ledger to discharge a reverse charge liability.
- Assuming all health and education services are exempt without checking the conditions.