Valuation Rule Under GST – Specific Businesses

Goods and Services Tax (GST) has become an integral part of the Indian tax system. Small and Medium business owners and Start-up founders need to understand GST and its valuation rules to ensure that they comply with the law.

Valuation Rules Under GST

Valuation under GST is the process of determining the value of goods or services supplied. The value of supply is the transaction value, which is the price paid or payable for the supply of goods or services.

However, there are certain situations where the transaction value cannot be determined. In such cases, GST provides for valuation rules that are to be followed.

Specific Businesses

There are specific businesses for which valuation rules have been provided under GST:

Works Contract
Restaurant Services
Job Work

Works Contract

Works contract is a contract where both goods and services are supplied. Valuation of works contract under GST is based on the percentage of completion method.

The value of supply is the amount charged for the works contract. However, if the amount charged for the works contract is less than the value of goods supplied or services provided separately, then the value of supply will be the sum of:

The value of goods or services supplied
The amount charged for the works contract

Restaurant Services

Valuation of restaurant services under GST is based on the value of supply.

The value of supply is the total amount charged for the supply of food and beverages, including taxes and other charges.

Job Work

Job work is a process where goods are sent by one person to another for processing, repair or any other treatment. Valuation of job work under GST is based on the following:

The value of goods supplied by the principal
The cost of material used by the job worker
The value of services provided by the job worker

Value of Supply Between Distinct Persons

Distinct persons are persons who are not related to each other and are not under the same management or control. In such cases, the value of supply will be determined based on the open market value of the goods or services supplied.

The open market value is the value that such goods or services would fetch if sold in the open market. However, if the open market value is not available, then the value of supply will be determined based on the cost of production or manufacture.

Conclusion

Valuation rules under GST are an important aspect that small and medium business owners and start-up founders need to be aware of. It is important to comply with the law to avoid any penalties or legal action.

Understanding the valuation rules under GST can be challenging. It is advisable to seek professional help to ensure that the right amount of tax is paid and compliance is maintained.