Value Of Supply Under GST When Consideration Is Not Paid


Date: 22 Sep 2022

How To Determine Value Of Supply When Consideration Is Not Wholly In Money? 


The value of goods and services is essential in determining the amount of tax levied. When goods and services are devalued, taxes aren't paid in full, resulting in non-compliance and subsequent legal repercussions. Overvaluation will result in a loss of revenue for businesses by way of additional tax. The law has established valuation procedures that serve as recommendations for companies when calculating the accurate taxable value to remove uncertainties and prevent litigation caused by inaccurate or defective values of goods or services.


Cases Where Consideration Is Not Wholly In Money

We have seen creative schemes where a buyer must pay the partial amount in cash and the remaining amount in kind, such as exchanging used products for a new product. This firm runs under a dynamic model. The supplied value will generally be the amount of money the buyer paid as consideration. But occasionally, only a portion of the consideration is monetary, and the balance is in-kind. In such scenarios, the value of supply shall be:

  • The open market value of such supply. OMV will be the amount that is relatively available in the open market.

  • Suppose the open market value is not available. If so, the value of the supply will equal the whole of the consideration paid in money and any additional amounts paid in money that, if understood at the time of supply, would be equivalent to the consideration paid in kind. To sum up the partial consideration, the monetary value of the partial consideration will be added to the monetary consideration.

  • If the value cannot be determined using the above method, the value of the supply of products or services is used to calculate the supply's value.

  • Suppose the value is not determinable under all the above clauses. In that case, The value shall be the total of the consideration in money and a further amount of money equivalent to the consideration not in money as determined based on the cost or residual method. 


Open Market Value of Supply

The whole monetary value, minus the GST and Cess payable by a person for the transaction, is the open market value of the provision of goods or services.

For example, a refrigerator is supplied at Rs. 30,000 to exchange for an old refrigerator. If the price of a refrigerator without exchange is Rs. 35,000, then the open market value will be Rs. 35,000, and the GST will be levied on that value.


Sum Total Of Consideration In Money And Monetary Value Of Consideration Not In Money

The valuation method is applicable when the open market value of goods and services is unavailable. The money received is added to the monetary worth of the goods or services received to determine the taxable value.

Taxable Value=Consideration In Money+Monetry Value of Consideration Not In Money

For example, A company supplies a new washing machine to a loyal customer before its launch for Rs. 30,000 and an offer to exchange for an old washing machine. The value of the old machine at the time of supply is Rs. 5000, but the open market value of the machine is not available.  

The company cannot apply the transaction value to arrive at the taxable value as the price is not the sole consideration. Since the market value is unavailable, the open market value also cannot be used. The taxable value is the sum of cash consideration received and the monetary value of goods or services obtained. Hence the taxable value of machines will be:

Consideration In money 30,000 + Monetary Value Of ashing Machine is Rs. 5000= Rs. 3500


Value Of Supply Of Goods/Services of Kind And Quality

This method is applicable when the open market value of goods or services is unavailable, and the value cannot be determined by applying consideration in money. The monetary value of consideration is not in money. In such a case, the value of the supply of goods/services will be determined base on the price of products of the “like kind and quality” of the product being supplied. The value of products of the “like kind and quality” is determined by considering factors like goods and services provided should have the same characteristics, quality, quantity, functional components, materials, and reputation, or they must closely or substantially resemble goods or services in question. 

For Example, A company has introduced a new product, a makeup organiser, offered to customers as part of a product promotion. In this case, the product is still being developed; the value in this scenario cannot be established by using the "Open Market Value approach" or by valuing the consideration in terms of money because it does not have a monetary value. In this case, the last method of comparing with a product of ‘like kind and quality can be applied to determine the value. 

The company has a product sold at Rs. 5000 with a similar configuration, functionalities, and additional functions. Hence the value of the organiser is Rs. 5000 for tax assessment. 

The supply value will be determined using either the residual technique or the cost of the product plus 10% if the method mentioned above cannot be used for whatever reason.