Valuation of Supply – Principal to Agent and Vice Versa

As a small or medium business owner, understanding the valuation of supplies is essential for your business. This article will help you understand the concepts of valuation of supply, specifically the principal to agent and vice versa, and the value of supply of goods made or received through an agent.

What is Valuation of Supply?

Valuation of supply refers to the determination of the value of goods or services on which GST is applicable. The value of supply is generally the transaction value, which means the price paid or payable for the supply of goods or services.

However, in certain situations, the value of supply needs to be computed differently. For instance, when the supply is made by an agent or to an agent.

Valuation of Supply – Principal to Agent and Vice Versa

When a principal supplies goods or services through an agent, the value of supply is the open market value of such supply. The open market value is the value of goods or services supplied by the agent in the normal course of business, at the same time and place where the supply is made by the principal.

For instance, if a manufacturer supplies goods to a wholesaler, who further supplies the goods to a retailer, the value of supply by the manufacturer to the wholesaler is the price paid by the wholesaler to the manufacturer. However, the value of supply by the wholesaler to the retailer is the price at which the retailer sells the goods to the end customer.

On the other hand, when an agent supplies goods or services to a principal, the value of supply is the commission or margin charged by the agent. The commission or margin charged by the agent is added to the value of goods or services supplied by the agent to arrive at the value of supply.

For instance, if a supplier supplies goods to a distributor, who further supplies the goods to a retailer, the value of supply by the distributor to the retailer is the price paid by the retailer to the distributor, plus the margin charged by the distributor.

Value of Supply of Goods Made or Received Through an Agent

If goods are supplied through an agent, the value of supply is the open market value of such goods. The open market value is the value of such goods, or similar goods or services, supplied at or about the same time and place where the goods are supplied by the agent.

Similarly, if goods are received through an agent, the value of supply is the open market value of such goods. The open market value is the value of such goods, or similar goods or services, supplied at or about the same time and place where the goods are received by the agent.

For instance, if a manufacturer supplies goods to a wholesaler, who further supplies the goods to a retailer, the value of supply by the manufacturer to the retailer is the price at which the retailer sells the goods to the end customer. However, if the goods are supplied by the manufacturer to the retailer through a distributor, the value of supply by the manufacturer to the distributor is the price paid by the distributor to the manufacturer. The value of supply by the distributor to the retailer is the price at which the retailer sells the goods to the end customer.

Conclusion

Valuation of supply is an important concept under GST. As a small or medium business owner, understanding the valuation of supply, specifically the principal to agent and vice versa, and the value of supply of goods made or received through an agent, is crucial for your business. By correctly computing the value of supply, you can ensure that you are paying the correct amount of GST and avoid penalties or interest.