Delete the term ‘open market value’ from GST Valuation Rules

Draft Valuation Rules introduces a new concept of ‘open market value’, to be the first value to be applied in case a transaction does not satisfy the requirements of Section 15

Issue

It is a new and untested concept and is not even based on a well-developed law or international convention. The overlap of open market value (OMV) with the next concept of ‘like kind and quality’ has potential to lead to litigation. Further, OMV does not all adjustments for demonstrable differences on account of variations on account of commercial circumstances of the transaction in question versus transaction of OMV. Due to the absoluteness of OMV, it can lead to sub-optimal results in resolving valuation disputes/differences. Lastly, recourse of other sub-rules is possible only is ‘OMV is not determinable’ which is an insurmountable hurdle.

The value arrived at based on ‘like kind and quality’ does not suffer from the deficiencies noted above in the case of OMV. Hence, valuation based on ‘like kind and quality’ will yield better results due to the permissibility of qualitative adjustments permitted in this provision. Also, similar phrase used in Customs Valuation (for Determination of Price of Imported Goods) Rules, 2007 has addressed many valuation disputes/differences at the assessment level itself.

Suggestion

It is suggested the concept of Open Market Value be done away with from the Valuation Rules entirely and instead valuation based on ‘like kind and quality’ be provided for.

An alternative for goods is that as Central Excise Valuation Rules are now settled, they be applied

Source ICAI Suggestions on GST Rules Submitted to Govt of India