The document discusses factors that determine whether the price paid for a supply can be considered the "sole consideration", including whether the price is influenced by the relationship between supplier and recipient, if there are additional benefits provided, or if the price is set below cost for market penetration. It also outlines valuation rules for situations where the price is influenced, including using open market value, cost of production, or reasonable means consistent with valuation principles.

1. Meaning: Price is the sole consideration for supply
Deepak Kumar Jain
B.Com., ACA., ACS., LLB
09-Jun-2020

2. Levy of GST: Key factors
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Goods/
services
Value
Time
Place
Supply
Value [Section 15]
Shall be the transaction value:
• Which is the price actually paid or
payable
• For supply of goods or services or both
• Where the supplier and the recipient of
the supply are not related;
• The price is the sole consideration for
the supply

3. a) Any taxes, duties, cesses, fees and charges levied under any law, except GST and if
charged separately
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 charges including 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;
e) Subsidies directly linked to the price excluding subsidies provided by the Central
Government and State Governments
Inclusions in value [Section 15]
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4. • Is the price charged influenced?
• Presence of additional consideration not accounted for levy of tax
• Existence of relationship between the supplier and the recipient, influencing the
price charged
• Receipt of extraneous benefit or profit
• Consideration in kind, not valued for the levy of tax
Sole consideration: influencing factors
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5. CCE Vs. Fiat India (P) Ltd - [2012] 283 ELT 161 [SC]
a) The central excise authorities, prima facie, found that the wholesale price declared in respect of a
specified model, to be lower than the cost of production and therefore, alleged that the price so
declared could not be treated as a ‘normal price’
b) The Appellant said that the main reason behind selling the cars at a price lower than their cost, was
to penetrate the market, therefore, the price at which they were selling the Cars in the market
should be considered to be a normal price as per Section 4 of Central Excise Act
c) The Hon’ble Supreme Court held that where products are sold at considerable losses for an
unduly long period of time for the purpose of market penetration, the transaction value cannot be
accepted for the purpose of levy of excise duty and the transaction value i.e. price charged for
supply, could not be said to be the sole consideration for the supply. Further, the Hon’ble
Supreme Court also held that the assessing authority was justified in invoking provisions of the
Valuation Rules 2000, for the period even after 01-07-2000, interpreting that requirement of ‘price
being the sole consideration’, was extended post amendment.
Sole consideration: judicial meaning
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6. • In case of influence, the value shall be based on:
• Open market value of such supply
• If the open market value is not available, the sum total of consideration in money
and the monetary value of consideration not in money, if such monetary value is
known at the time of supply.
• The value of supply of goods or/and services of like kind and quality will be
considered
• The value shall be one hundred and ten percent of the cost of production or
manufacture or cost of acquisition of such goods or cost of provision of such
services
• Under residual method, be determined using reasonable means consistent with the
principles and general provisions of Section 15 of CGST Act and Rules framed
thereon
Valuation rules: presence of influence
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7. Valuation rules: rent vs. lease
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Issue Analysis
Imputation in:
• Rent with no
deposit
• Rent with deposit
• Lease
• Higher the deposit, lower the rent
• With no deposit, rent is considered to be at optimal value
• Rent does not have a market value
• In case the deposit is to ensure safety of property and not to
influence the optimal value, then one could argue for no imputation:
o Value of deposit is insignificant when compared to potential loss
of property
o It is an industry practice to accept specified value of monthly
rental as deposit
o When property is let out for long duration, short term notional
value of interest would not be material
• Definitely arguable both ways
Response
• No imputation
• On market value or
notional interest
value
• On market value or
notional interest
value

8. Valuation rules: right to use brand
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Issue Analysis
Holding Company
provides use of its
brand to subsidiary,
where:
• The subsidiary is a
captive unit
• The subsidiary has
certain
independent sales
• Branded, biscuit or bread, would be able to sell at a better price
• Brand pulls market, while unbranded goods needs to be pushed into
market
• In case of captive unit, with no independent sales, use of brand,
would not have any value for the subsidiary, from a sales perspective
• On purchases, like-wise, brand of the buyer does not influence the
purchase price but what influences is its quantitative purchasing
capacity or acceptance value of the supply
• Accordingly, the real value of right to use ‘brand’, ought to arise only
in case of subsidiary units, which have independent outward supplies
(outside its Group)
• One may therefore argue, that imputation for use of brand, should
not arise in case of captive units but in case otherwise and be
representative to the value of outward supplies made to independent
consumers
Response
• In case of captive
unit: There should
be no imputation
• Independent unit:
Would require
imputation

9. Valuation rules: incurred by recipient
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Issue Analysis
• Recipient provides
use of office
space, laptops, etc.
• Supplier mere
charges for
employee salary
cost + basic
overheads
• Whether notional
cost of such
expenses to be
added into value
of supplies
• Section 15 provides that “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”.
• Moot question is what is liable to be incurred by supplier but paid by
recipient
• To make tea: sugar or tea powder provided by recipient
• To construct building: cement and sand supplied by recipient
• To undertake development of software: recipient provides office
space, computer, application software, etc.
• The question ‘liable to be incurred’, will always be disputable
• It may be appropriate for legislature to do away with the
requirement, so long as the recipient is entitled to credit of tax so
charged
Response
• It is arguable that
if the contract is
only for supply of
skilled resource
(body shopping),
then inclusion of
operating cost such
as use of space,
capital equipments,
etc., is not required
• However,
department has
sufficient
ammunition for
any mischief

10. • Other influencing factors:
• Common expenses or head office expenses
• Employee car lease
• Free of cost software
• Special employee discounts
• Joint development agreements
• Incentives earned by Tier II from brand owner/ seller
• Warranty obligation – State of Sale Vs. State of replacement
• Give old battery and take new
• Interest vs. Processing charges
Valuation rules: Others
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email: deepak@accoletadvisors.com
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