NO MORE MRP based valuation under GST....

Hello everyone,

DO U KNOW that, there will be no more MRP based valuation under GST…….!!!!!!!

GST valuation provisions & rules have totally wiped out that concept.

Then what is to be done, how valuation is going to be done under GST Regime.

Let us learn through history of implementing the MRP based valuation & reasons for removing same in upcoming GST Regime.

HISTORY

In 1990’s tax authorities felt that taxable value was very low as compared to RSP (Retail Sale Price, which is final price paid by the consumer) declared on packages and also there were lot issues in excise valuation relating to various business arrangements viz., contract manufacturing, job work, warehouse /depot based sales), complex distribution channels, etc

  

To tackle such issues, Govt. introduced a new method of valuation for payment of Central Excise duty based on the RSP after taking abatement, through an amendment in the year 1997, by inserting a new Section 4A in the Central Excise Act (the Act),.

And Section 4A applies to only those packaged goods which were covered by the requirement of Legal Metrology Act, 2009 (erstwhile Standards Weights and Measures Act 1976) of declaring the RSP on packages.

Currently there are 144 items covered under MRP based valuation. (Click here to view 144 items -http://www.custada.in/CUSTADA-Online/document/document/MRP_BASED_ASSESSMENT.htm )

Further, RSP based levy was also extended for payment of Countervailing Duty (CVD) on import of such packaged goods.

Thus, RSP-based valuation was resulted in to simplification of valuation of excisable goods meant for common use.

 However, lot of issues also aroused, the landmark rulings are

1.Applicability of the RSP based levy on goods sold to industrial & intuitional buyers.The Apex   Court ruled that valuation of packaged goods which are sold to industrial & institutional buyers and are not meant for retail sale would be based on transaction value and not on the basis of RSP.

 2.Further, on the issue of valuation of packaged goods sold as combipack or as promotional packs,     the Bombay High Court held RSP based valuation will not be applicable for such packs.

In respect of VAT under various tax laws there was no major change, since those are collected on value addition basis.

  

MRP rated goods under GST regime:

The valuation under GST is discussed under section 15 of the CGST Act, which states that the value of supply of goods and services shall be the ‘transaction value’ that is the price actually paid or payable for the said supply, where the supplier and the recipient are not related and price is the sole consideration for the supply.

Further, GST provisions does not make any distinction on the basis of nature of goods (packaged and non-packaged) for the purpose of valuation.

And Valuation rules were drafted for various situations which does not include MRP based valuation (those rules will be discussed in upcoming posts)

GST would be on the value addition at each stage of business with credit to be allowed of the GST paid at the earlier stages.

Thus, the RSP based levy which has been in vogue for excise duty for the last close to three decades would no longer be relevant for valuation of goods in the GST regime.

The reason would be simple, the continuance of the RSP based levy would be regressive in the GST regime and would also violate the fundamental principles of GST, which envisages tax on value addition at each stage of supply.

In current regime, for MRP based items excise duty is included in Land Price of goods for dealers or distributors or retailers and it is forming part of the cost to the dealers.

A seamless flow of GST across all B2B transactions will ensure that taxes do not form part of cost, profit margins and business decision and it makes ultimate consumer prices lower as compared to current prices.

However, the success of the new regime will depend on whether the Government is able to anticipate trade issues & framing the provisions to tackle the same.

Some of the factors to be considered are as under:

• Appropriate consideration to discounts allowed at each stage of distribution while computing the transaction value,
•  Clear rules regarding treatment of pre and post-sale discounts (like quantity discounts, cash discounts)
•  Treatment of promotional packs (whether of the identical goods or other goods) supplied free of cost or at a discounted price (like buckets, bottles, bowls supplied free along with Oil TINS & packs)
•  Treatment of incentives and commissions allowed to distribution channel partners (like sales commission)

And at last, here comes a question… Whether MRP still to be declared on packs.,?  If it is yes, then how MRP should be calculated which should include each stage dealers, wholesalers & retailers margin..?

the answer is Yes, MRP is still to be declared, because Legal Metrology Act, 2009 is not replaced by the GST regime & every FMCG sector & industrial goods (like Cement companies) shall recalculate their MRP by reconsidering the cost to the dealers & their margins.

Regards

Kumara Swamy A