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Will the new GST valuation rules cause disputes in upcoming times ?
Will the new GST valuation rules cause disputes in upcoming times ?
Hey guys, the GST council has already released the GST rules for general public's consideration. It means that the government expects that people will take a look at these rules and can reply with suggestions/advices. However, already valuation rules released recently have created ripples in the market. Want to know what it is, read our complete article and you will understand.
Valuation rules set guidelines as to what will be the value on which GST is required to be paid on goods and services in situations where the amount paid/payable for consideration is not in money or where it relates to interstate stock transfer of goods or supply of services between two offices of the same company or in cases where goods are sold or bought through a pure agent. A pure agent is a person who deals on behalf of two parties without having a vested interest in the underlying asset.
As per the draft rules where the value of consideration cannot be determined then an open market value of the same is determined. GST shall be levied on this open market value. Now how this open market value will be calculated is the main point of dispute.
Though the draft has some examples of how open market value (OMV) should be calculated in the aforementioned scenarios, practically implementing them in the case of goods and services is very challenging and likely to create a lot of issues and cases.
Especially, When a good is sold in two different states, determining OMV becomes difficult because it is not necessary that it be sold at the same price in both states, as there is a different factors that comes into play. “All this will lead to a huge amount of notices by the income- tax department.
The proposed rule states that when the supply of goods or services happens for a consideration not being fully in monetary terms and OMV is not known, then valuation for GST levy will be determined based on the value of goods and services of similar/like kind and quality. This term like kind and quality is another issue which is going to disrupt the peace of the officers.
If goods are stock transferred (and therefore taxable under GST), draft rules suggest that declared invoice will be accepted. However, it is not clear whether any invoice value declared by the company (as per their internal records or business practice) would be accepted by the government, or companies would need to follow cost-plus method for this purpose. Supply of services like administration support, sharing of manpower between establishments of a legal person (head office and branch offices) in different states will be subject to GST. Attributing a value to this is very difficult.
Therefore there is a real need that the government thrashes the mist out these doubts as soon as possible so that taxpayers are better prepared for these issues.
