Specific supplies (Rule 32)
Before commencement of the discussion on the provisions of Rule 32, it may be pertinent to emphasize here that the determination of valuation as per the mechanism specified is only an option available to the supplier. If the supplier feels that the valuation mechanism specified under the Rule 32 does not reflect the correct position or that the value adopted should be in accordance with Section 15 and Rules 27 to 31, he may choose to ignore the said Rule 32. He may determine the value accordingly under Section 15 and Rules 27 to 31 as the case may be. Supplies which were previously under some form of abatement of value are found in this rule, namely:
(i) supply of services involving sale/purchase of foreign currency, the value of supply will be:
(a) option (a) – difference between buying-selling rate and the reference rate published by RBI. Where reference rate is not available, 1% of gross Indian Rupee value of the transaction. And where the conversion is not into Indian Rupees, then 1% of the lesser of the Indian Rupee equivalent of each currency exchanged;
(b) option (b) – 1% of gross amount upto `1 lac, 1/2% after `1 lac upto `10 lacs and 1/10% after `10 lacs. This option (b) once exercised cannot be withdrawn during the financial year.
(ii) supply of services by travel agent of booking of tickets for air-travel, the value of supply will be 5% of basic domestic fare or 10% of basic international fare. Please note that commission to the travel agent may flow from passenger or airline or any other person and the value determined here will be the tax for all the sources of commission. In case travel agents opt to pay tax on this abated value, a customer who is registered under GST law may have to forego input tax credit. Credit referred here is not merely the GST charged by the travel agent on the abated value. Travel agent will have eclipsed the GST charged by the airline on the ticket – 5% on economy ticket and 12% on any higher class ticket. For example, on a ticket value of `1 lac, GST paid by airline could be as high as `12,000 but the travel agent would issue an invoice for `1 lac + GST of `500. Registered customer would not be willing to forego this credit of `12,000. As mentioned by someone, a credit-hungry registered customer would drive the travel agent to reverse his supply model – airline to invoice the (registered) customer directly to pass on credit and agent to invoice service fee to airline.
(iii) supply of services in relation to life insurance, the value of supply will be gros s premium reduced by investment allocation, in the case of single premium policy will be 10% of premium and in all other cases will be 25% of first year’s premium and 12.5% for other year’s premia. This rule will not apply to premium related to coverage for risk-of-life.
(iv) supply of services of person dealing in second-hand goods, the value of supply will be difference between purchase price and selling price. Please note ‘second-hand goods’ refers to goods used or otherwise employed in some process without causing any change in their nature. Used goods and not the same as pre-owned goods which need not have been put to use. For example, a motor car where mark of registration has been assigned by RTO, even if left unused for long time will not be able to satis fy that is has not been used. And similarly, the odometer reading showing ‘0 kms’ but duly registered by RTO will not override the conclusion that it is used. Please note that most appropriate tests for identifying whether the goods have been used or not may be examined. Also, this rule does not apply only to ‘supply of second-hand goods’ but to supply of services of person dealing in second-hand goods. In other words, disposal of leased car will also come within the operation of this rule Intra-State supplies of second hand goods, by an unregistered supplier to a registered person, dealing in buying and selling of second hand goods and who pays the central tax and compensation cess on the value of outward supply of such second hand goods as determined under Rule 32(5) of Central goods and Services tax Rules, 2017, is exempted. This has been done to avoid double taxation on the outward supplies made by such registered person, since such person operating under the margin scheme cannot avail input tax credit on the purchase of second hand goods. (NN 10/ 2017- Central Tax (Rate) dated 28-Jun-17 and NN 04/ 2017-Compensation cess (Rate) dated 20-Jul-17)
It is important to note that the registered taxable person disposing off used-goods would not be able to avoid payment of tax on this outward supply. Facility under this ‘margin method’ is available only when the outward supply involving sale of used-goods is by a unregistered person to a registered taxable person dealing in used-goods. In the case of used-cars, the levy of tax on outward supply has completely taken the sheen off used-car business because registered sellers cannot avail this margin-method coupled with the visibly high rates of GST plus Cess applicable. However, the Government vide notification no. 8/2018-Central Tax (Rate) dated 25.01.2018 has reduced the rate ofST to 18% and 12% on the sale of old and used motor vehicles. Further, the Cessayable on sale of old and used motor vehicle has also been exempted vide notification no. 1/2018-Compensation Cess(Rate) dated 25.01.2018. However, the major change as per the said notification was the valuation mechanism under GST. The said valuation was stated to be the margin involved i.e. the difference between the selling and purchase price. If the selling price is greater than the purchase price, then this amount should be ignored for the purpose of GST. However, where the selling price is lower than the purchase price, only the differential margin will be taxable. In case of sale by a registered person, it has been stated that the value that needs to be taken in lieu of the purchase price will be the depreciated value of goods on the date of supply. So, the taxability arises in respect of the margin if the selling price is higher than the depreciated value of the motor vehicle,
Illustration: Mr. X, a registered person in GST had purchased a motor car on 1 st June, 2016 for ` 10,00,000. The said car was sold on 25th February 2018 by him for:
a) ` 9,00,000
b) ` 7,00,000 Determine the valuation under GST Ans: The depreciated value of the car as on 1st April 2017 is ` 10,00,000 – 15*10,00,000 = ` 8,50,000. If the sale value of the car is Rs,9,00,000, ` 50,000 will be the value for charging GST. If the car is sold at ` 7,00,000, the margin will be negative and hence it should be ignored.
Proviso to Rule 32(5) speaks about the repossession of goods in case of default by an unregistered borrower. In this scenario, the purchase price for the calculation of margin will be the purchase price of such goods by the defaulter. However, such purchase price will be subject to reduction of 5% every quarter or part thereof for the period between the date of purchase and the date of disposal. Illustration: Mr. X took a car loan of ` 3,00,000 from ABC Bank Ltd. on 1st September 2017 which was entirely used for the purchase of car worth the same amount. Mr. X defaults on the loan balance and thereby his car is repossessed by the bank on 1st March 2018. This car is sold on 30th March 2018 by the bank for ` 2,50,000. Determine the valuation under GST. Answer: The purchase value to be taken will be the purchase price in the hands of the borrower – 5% per quarter or part thereof (September – March) i.e. 3,00,000 – (5%*3*300,000) = ` 2,55,000. As the sale value of the car is below ` 2,55,000, the margin will be ignored for the charging of GST (v) supply of voucher, the value will be the redemption value of the voucher. Please note voucher includes coupon, stamp, token, etc. Please refer to the discussion on vouchers under section 13 for the various forms that voucher can take including digital vouchers to which this rule will apply. Also, please note the those instruments that are approved by RBI and included in the definition of ‘money’ under the expression “…..or any other instrument approved by RBI when used as a consideration to settle an obligation…..” should not be treated as vouchers merely because they are popularly referred as ‘vouchers’. All vouchers are not vouchers attracting this rule. Reference may be had to the discussion under section 12(4)/13(4) to identify instruments that ‘are’ or ‘are not’ vouchers.
Illustration: Mr. X had purchased a voucher for ` 200 which was redeemable against purchase of a wallet worth ` 500 from Shopper’s stop. Here, the valuation that should be taken here is the redemption value of ` 500 in respect of the voucher and not the purchase value of ` 200.
(vi) supply of services between distinct persons, that are notified by Government and where input tax credit is availed will be Nil. Please note that the implications of denial of credit u/s 17(2) in case of supply being exempt will be attracted in these cases . Care should be taken to identify that the notification to be issued in this regard are ‘distinct persons’ and supplies inter se when notified will have a deemed value of Nil. No notification has been issued as yet, in this regard. But it is expected that branches of banks may be notified to avail this facility where credit is fully available to the recipient-branch and even if 50% credit facility is availed by the bank, it is applicable only at the supplierbranch under section 7(4). And this expectation is borrowed from benefit to suppliers by second proviso to rule 46