Goods and Services Tax – GST – By: – Manish Didwania – Dated:- 18-11-2017 – The Goods and Services Tax (GST) is being introduced in the country after 13 year long journey since it was first discussed in report by Kelkar Task Force on indirect taxes. Agreeably, one could count GST as country s biggest tax reform which can trigger transformation on how businesses works across all industries and overhaul India s fractured tax system. Amongst several changes proposed in GST, one key proposal is valuation rules prescribed for transacting entities that are related to each other. As per the GST rules, the value of supply of goods and services between related persons may be determined based on the open market value of such supply. The term market value has been defined in the Central Goods and Services Act, 2017 (CGST Act) as the amount which recipient of a supply is required to pay for like kind and quality of goods/ services at or about the same time and at the same commercial level where t
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erature is already present on the subject matter which can be leveraged while determining the arm s length price of a transaction, including guidance by international bodies such as the Organisation for Economic Co-operation and Development (OECD), United Nations, substantial jurisprudence from various Tax Courts etc. It is accordingly natural that the Indian GST rules may also draw reliance from the Income-tax to frame and advocate rules on valuation of supply between related parties. On the Indirect tax front, currently, there are specific valuation provisions for import of goods under Customs which are broadly similar to what is present in Income-tax. However, despite having broadly similar rules for valuing a transaction, the taxpayers have been witnessing lack of effective ground level administrative coordination between Income-tax and customs authorities to achieve a single price for the same transaction. In the past, there have been attempts by Government to move towards converg
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Transfer Pricing audits proceedings, the tax officers have been selectively using the data furnished by taxpayers before the customs authorities (intending to show that the price paid by the taxpayer is towards the higher end and there is no loss of revenue to customs authorities) to hold that the taxpayer have overpriced the cost of goods procured from overseas related parties and consequently undertake Transfer Pricing adjustment. By dwelling further on this issue, one can make out that the root cause of the problem wherein the taxpayer ends up making separate disclosures before the Income-tax and Customs authorities, goes down to how the system has been set up and how the rules are framed by the Government. Some key areas of concern are listed below: While in the Income-tax there is a separate wing of officers who are trained and specialized in understanding the economics of the business and appreciates the fundamentals of Transfer Pricing, the Customs department follows the valuat
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