Valuation

2 Intro

What is Consideration
3

Explanation (a) to Sec. 67 - consideration includes any amount that is payable for the taxable services provided or to be provided

Inclusive definition General Meaning to be seen consideration means everything received in return for a provision of service which may be in the form of monetary or non- monetary; quid pro quo; something in return Section 2(d) of the Indian Contract Act, 1872 also defines as
when, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such Act or abstinence or promise is called a consideration for the promise

Valuation Sec. 67 Provides that

4

Consideration in terms of Money

Gross amount charged for service provided or to be provided;

Consideration not wholly or partly in terms of Money

The money equivalent plus service tax charged is equal to consideration

Consideration not ascertainable

Determined in the prescribed manner Service Tax (Determination of Value) Rules, 2006

Valuation Sec. 67 Also provides that

5

Where gross amount charged includes service tax

Cum-tax to be worked out

Gross amount charged includes amount received before/ during/ after the provision of service

Subject to the points discussed above the taxable value has to be determined as per Service Tax (Determination of Value) Rules, 2006

Valuation Sec. 67 Also provides that

6 Money includes any currency, cheque, promissory note, letter of credit, draft, pay order, travellers cheque, money order, postal remittance and other similar instruments but does not include currency that is held for its numismatic value.
Gross amount charged includes a payment by cheque, credit card, deduction from account and any form of payment by issue of credit notes or debit notes and book adjustment, and any amount credited or debited as the case may be, to any account, whether called suspense account or by any other name, in the books of account of a person liable to pay service tax, where the transaction of taxable service is with any associated enterprises.

Associated enterprises As per Section 92A of Income Tax Act, 1961

Valuation Rules 3 & 4

7

Where value is not ascertainable then Value is equivalent to similar service

gross amount charged by service provider to provide similar service to any other person in ordinary course of business price is the sole consideration

If value of similar service not ascertainable provider to determine the equivalent money value of such consideration but it shall not be less than the cost of providing such service Rejection of value determined by the S.P.
Notice should be given After hearing order can be passed

Inclusion or exclusion of certain expenditure or costs Rule 5

8

Any expenditure or cost incurred by service provider in the course of providing the service shall be included in the value for the purpose of charging service tax; Taxable value = total amount of consideration consisting of all the components and is immaterial whether they are indicated separately in the invoice. Exception Pure Agent
Meaning of Pure agent to be fulfilled Further 8 conditions to be fulfilled

In 2012, Delhi High Court in the case of Intercontinental Consultants and Technocrats P. Ltd. Vs. UOI & Others - has ruled that the provisions of Rule 5 is ultra vires Sec. 66 and Sec. 67.

Pure Agent
9

Enters into a contractual agreement with the recipient of service to act as his pure agent to incur expenditure or costs in the course of providing taxable service; Neither intends to hold nor holds any title to the goods or services so procured or provided as pure agent of the recipient of service;

Does not use such goods or services so procured; and

Receives only the actual amount incurred to procure such goods or services.

Conditions of Pure Agent

10
S.P. acts as a pure agent of the service recipient when he makes payment to third party for the goods or services procured; The service recipient receives and uses the goods or services so procured by the service provider in his capacity as pure agent of the recipient of service; Recipient of service is liable to make payment to the third party; The recipient of service authorises the service provider to make payment on his behalf; The recipient of service knows that the goods and services for which payment has been made by the S.P. shall be provided by the third party; The payment made by the service provider on behalf of the recipient of service has been separately indicated in the invoice issued by the service provider to the recipient of service; The service provider recovers from the recipient of service only such amount as has been paid by him to the third party; and The goods or services procured by the service provider from the third party as a pure agent of the recipient of service are in addition to the services he provides on his own account.

Rule 6 - Inclusions
11

The Commission or brokerage charged by a broker on the sale or purchase of securities including the commission or brokerage paid by the stock-broker to any sub-broker; The Adjustments made by the telegraph authority from any deposits made by the subscriber at the time of application for telephone connection or pager or facsimile or telegraph or telex or for leased circuit; The Amount of premium charged by the insurer from the policy holder;

The Commission received by the air travel agent from the airline;

The Commission, fee or any other sum received by an actuary, or intermediary or insurance intermediary or insurance agent from the insurer;

Rule 6 - Inclusions
12
The reimbursement received by the authorised service station, from manufacturer for carrying out any service of any motor car, Light Motor Vehicle or Two Wheeled motor vehicle manufactured by such manufacturer;

The commission or any amount received by the rail travel agent from the Railways or the customer;

The remuneration or commission, by whatever name called, paid to such agent by the client engaging such agent for the services provided by a clearing and forwarding agent to a client rendering services of clearing and forwarding operations in any manner;

The commission, fee or any other sum, by whatever name called, paid to such agent by the insurer appointing such agent in relation to insurance auxiliary service provided by an insurance agent;

The amount realised as demurrage or by any other name whatever called for the provision of a service beyond the period originally contracted or in any other manner relatable to the provision of service.

Rule 6 - Exclusions
13 Initial deposit made by the subscribers at the time of application for telephone connection or pager or facsimile (FAX) or telegraph or telex or for leased circuit Airfare collected by air travel agent in respect of service provided by him Rail fare collected by rail travel agent in respect of service provided by him Interest on delayed payment of any consideration for the provision of services or sale of property, whether moveable or immoveable; The taxes levied by any Government on any passenger travelling by air, if shown separately on the ticket, or the invoice for such ticket, issued to the passenger. Accidental damages due to unforeseen actions not relatable to the provision of service; and Subsidies and grants disbursed by the Government, not directly affecting the value of service.

Rule 2B Value of service in relation to money changing

14

For purchase and sale of foreign currency, including money changing Difference in the buying rate or selling rate, as the case may be, and the RBI reference rate for that currency at that time multiplied by the total units of currency

Examples
15

Example I :
US $ 1000 are sold by a customer at the rate of Rupees 45 per US $. RBI reference rate for US $ is Rupees 45.50 for that day. The taxable value shall be Rupees 500.

Example II :
INR 70000 is changed into Great Britain Pound (GBP) and the exchange rate offered is Rupees 70, thereby giving GBP 1000. RBI reference rate for that day for GBP is Rupees 69. The taxable value shall be Rupees 1000

16

Thank you