Section 15 Of The Central Goods and Services Tax Act 2017
Original Text
15. Value of taxable supply.
(1) The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply.
(2) The value of supply shall include––
(a) any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than this Act, the State Goods and Services Tax Act, the Union Territory Goods and Services Tax Act and the Goods and Services Tax (Compensation to States) Act, if charged separately by the supplier;
(b) any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods or services or both;
(c) incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services;
(d) interest or late fee or penalty for delayed payment of any consideration for any supply; and
(e) subsidies directly linked to the price excluding subsidies provided by the Central Government and the State Governments.
Explanation.––For the purposes of this sub-section, the amount of subsidy shall be included in the value of supply of the supplier who receives the subsidy.
(3) The value of the supply shall not include any discount which is given––
(a) before or at the time of the supply if such discount has been duly recorded in the invoice issued in respect of such supply; and
(b) after the supply has been effected, if—
(i) such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices; and
(ii) input tax credit as is attributable to the discount on the basis of document issued by the supplier has been reversed by the recipient of the supply.
(4) Where the value of the supply of goods or services or both cannot be determined under sub-section (1), the same shall be determined in such manner as may be prescribed.
(5) Notwithstanding anything contained in sub-section (1) or sub-section (4), the value of such supplies as may be notified by the Government on the recommendations of the Council shall be determined in such manner as may be prescribed.
Explanation.—For the purposes of this Act,––
(a) persons shall be deemed to be “related persons” if––
(i) such persons are officers or directors of one another’s businesses;
(ii) such persons are legally recognised partners in business;
(iii) such persons are employer and employee;
(iv) any person directly or indirectly owns, controls or holds twenty-five per cent. or more of the outstanding voting stock or shares of both of them;
(v) one of them directly or indirectly controls the other;
(vi) both of them are directly or indirectly controlled by a third person;
(vii) together they directly or indirectly control a third person; or
(viii) they are members of the same family;
(b) the term “person” also includes legal persons;
(c) persons who are associated in the business of one another in that one is the sole agent or sole distributor or sole concessionaire, howsoever described, of the other, shall be deemed to be related.
Visual Summary
Transaction Value
The price actually paid or payable is the basis for tax, provided parties are unrelated and price is the sole consideration.
Inclusions
Value includes other taxes (except GST), incidental expenses (packing), interest on late fees, and non-govt subsidies.
Discounts
Deductible only if recorded in invoice at supply time, or if pre-agreed and linked to specific invoices with ITC reversal.
Summary
Section 15 of the CGST Act is the core provision that dictates how to calculate the value of goods or services upon which GST is levied. In simple terms, GST is charged on the “Transaction Value”, which is the price actually paid by the buyer to the seller.
However, this simple rule applies only if two conditions are met:
- The buyer and seller are not related (e.g., not employer-employee, partners, or family members).
- The price is the sole consideration (no hidden payments or barter involved).
If these conditions are not met, the value is determined by Valuation Rules (Rules 27-35 of CGST Rules). Furthermore, Section 15 specifies what costs must be added to the value (like packing charges, interest on late payment) and what can be subtracted (specifically, discounts that meet strict criteria).
In-Depth Analysis
1. The Concept of Transaction Value (Section 15(1)):
The GST regime trusts the commercial invoice value as the taxable value, provided the transaction is at arm’s length. This minimizes disputes compared to the earlier excise regime which often relied on “assessable value” or MRP-based valuation.
2. Mandatory Inclusions (Section 15(2)):
To prevent tax base erosion, the Act mandates adding specific costs to the transaction value:
- Taxes: Any tax other than GST (e.g., Municipal Tax, TCS under Income Tax is a subject of debate but generally excluded via circulars).
- Third-Party Payments: If the supplier is liable to pay an amount (e.g., freight), but the recipient pays it directly, it must be added to the value.
- Incidental Expenses: Costs like packing, inspection, or certification charged before delivery are taxable.
- Interest/Penalty: Interest charged for late payment is part of the value and is taxable when received.
- Subsidies: Subsidies from NGOs or private companies linked to price are taxable. Only Government subsidies are excluded.
3. The Discount Controversy (Section 15(3)):
This is a highly litigated area. Discounts given on the invoice are easily deductible. However, post-sale discounts (like year-end volume incentives) are deductible only if a written agreement existed before the supply, the discount can be linked to specific invoices, and the recipient reverses the proportionate Input Tax Credit (ITC). If these conditions aren’t met, the supplier cannot reduce their tax liability, though they may issue a “commercial credit note” for accounting purposes.
Deep Research & Legal Precedents
Section 15 has been the subject of significant judicial interpretation and recent amendments. Below are key developments:
1. Landmark Judgments
The SC ruled that in CIF contracts, Ocean Freight is already included in the value of goods (Section 15). Levying separate IGST on the service aspect of transportation amounts to double taxation. This affirmed that the “Transaction Value” of goods encompasses the freight component in CIF contracts.
This judgment impacts Section 15 regarding “Related Party” transactions. The Court held that the secondment (deputation) of employees from a foreign group company to an Indian subsidiary constitutes a taxable “Manpower Supply Service.” This forces Indian subsidiaries to value these services (often at cost/reimbursement) and pay GST under RCM.
The HC struck down the mandatory deeming fiction of 1/3rd deduction for land value in construction contracts as ultra vires Section 15. The court held that valuation must be based on actuals where available, reinforcing the supremacy of Section 15 over delegated notifications.
The Court ruled that post-sale volume discounts, even if not meeting Section 15(3)(b) criteria for tax adjustment, cannot be arbitrarily added back to the transaction value as “subsidies” unless they flow from a third party. This validates the use of commercial credit notes.
2. Critical Amendments (2023-2024)
- Corporate Guarantee (Rule 28(2)): To resolve valuation disputes for guarantees provided by holding companies to subsidiaries, a new rule deems the value at 1% of the guarantee amount or actual consideration, whichever is higher. A 2024 proviso clarifies that if the recipient has full ITC eligibility, the invoice value is deemed open market value (even if Nil).
- Online Money Gaming (Rule 31B): Valuation for online gaming is now strictly on the total amount deposited (face value) by the player, irrespective of the platform fee (GGR). This overrides the general principle of Section 15(1) for this specific sector.
Practical Examples
Example 1: Incidental Expenses (Section 15(2)(c))
Supplier ‘A’ sells machinery to ‘B’ for ₹1,00,000. ‘A’ charges an additional ₹5,000 for special protective packing and ₹2,000 for pre-delivery inspection.
Valuation: The Transaction Value is ₹1,07,000 (1,00,000 + 5,000 + 2,000). GST is levied on the total.
Example 2: Post-Sale Discount (Section 15(3)(b))
Company ‘X’ sells goods to Dealer ‘Y’ in January. The agreement states that if ‘Y’ buys over 10,000 units in a year, a 5% discount will be given. In December, ‘Y’ crosses the target.
Scenario A: ‘X’ issues a credit note, and ‘Y’ reverses the proportionate ITC. Result: ‘X’ can reduce its GST liability.
Scenario B: No prior agreement existed. ‘X’ gives a goodwill discount. Result: ‘X’ cannot reduce GST liability; it issues a financial/commercial credit note.
Example 3: Liability of Supplier paid by Recipient (Section 15(2)(b))
‘A’ hires a transporter to deliver goods to ‘B’. The contract states ‘A’ is liable for freight. However, ‘B’ pays the transporter ₹10,000 directly on delivery.
Valuation: The ₹10,000 paid by ‘B’ must be added to the value of goods charged by ‘A’ for GST calculation.
Key Takeaways
- ✔ Transaction Value is the default valuation method for unrelated parties where price is the sole consideration.
- ✔ Related Party transactions must be valued as per Rules (usually Open Market Value), even if the invoice price is lower.
- ✔ Interest on delayed payment is always taxable.
- ✔ Discounts require strict documentation (pre-agreement + ITC reversal) to be tax-deductible post-supply.
- ✔ Subsidies from the Government are NOT included in the value; private subsidies ARE included.
Process Flowchart: Determining Value of Supply
Practice Questions
Q1. Which of the following is NOT included in the value of supply under Section 15?
- A) Interest for late payment
- B) Packing charges
- C) Subsidy from Central Government
- D) Subsidy from a private NGO
Show Answer
Correct Answer: C) Subsidies provided by the Central or State Government are explicitly excluded from the value of supply under Section 15(2)(e).
Q2. For a post-supply discount to be deductible from the value of supply, which condition is mandatory?
- A) It must be given in cash
- B) It must be established via an agreement entered into at or before the time of supply
- C) It must be approved by the GST officer
- D) It must exceed 10% of the value
Show Answer
Correct Answer: B) Section 15(3)(b) requires a pre-existing agreement and the reversal of ITC by the recipient.
Related Provisions
| Section | Description |
|---|---|
| Section 9 | Levy and Collection (Tax is levied on value determined u/s 15) |
| Section 12 | Time of Supply of Goods |
| Section 13 | Time of Supply of Services |
Conclusion
Section 15 is the bedrock of GST liability quantification. While the concept of “Transaction Value” simplifies taxation for the majority of business-to-business (B2B) supplies, businesses must be vigilant regarding “Related Party” transactions and the strict documentation requirements for discounts. Recent judgments like Mohit Minerals and Northern Operating Systems highlight that valuation remains a dynamic and litigious field, requiring constant attention to evolving jurisprudence.