GST: Valuation of Taxable supply—Section 15(2)(b) of CGST Act, 2017
Scope
The discussion pertains to Section 15 (2) (b) of the CGST Act, which includes in the value of supply any amount that the supplier is liable to pay but is paid by the recipient. This includes contractual liabilities of the supplier paid by the recipient, but excludes free inputs or services provided by the recipient. The section ensures such payments are included for GST calculations.
Concern
Section 15 (2) (b) addresses the inclusion of amounts paid by the recipient on behalf of the supplier in the value of supply.
For instance, if a supplier is contractually obligated to pay Rs. 1,000 for materials but the recipient pays and deducts this from the supplier’s bill, this Rs. 1,000 must be added to the supply value for GST purposes.
This ensures accurate GST liability and compliance. Even if the supplier does not receive payment from the recipient for this amount, it is deemed as received. Failing to record these provisions in proper tax invoices can lead to exposure to rule 37(1). In GVS Projects P Ltd. (2020) (AAR-AP), the contract included material costs, paid by recipient supplier and deducted the value from the supplier’s bill.
It was ruled that this deducted value should be included in the supply value as per Section 15(2)(b).
Action
To ensure compliance and avoid surprises during assessment/audits following steps can be taken:
- ● Review contracts and ensure they address this issue properly by clearly mentioning scope of supply.
- ● Any transaction over and above contract should be done through tax invoice.
- ● Be vigilant, this nature of transactions can be in form of goods as well as services.
- ● Keep in mind second proviso to rule 37(1) to avoid unnecessary input tax credit reversals.
Risk
Non-compliance with Section 15(2)(b) can lead to undervaluation of supplies, resulting in insufficient GST being paid. This can lead to legal penalties, interest on unpaid tax, and potential audits.
CA Mahipal Sharma | Partner | FCA | CISA | B.Com
Contact: +91 7023030160 | email: mahipal013@gmail.com
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