GST Laws: Analysis of “Time of Supply of Goods and Services”
At an informal business meet, our senior addressed to a group of businessmen – “You all are well aware that GST comprises of IGST, CGST and SGST taxes. A simple question: Can anyone tell when or at what moment will you have to pay the taxes?”
As many floundered for words, few of them gave hazy, even humorous, replies – After sale of goods, after providing a service, at the end of the month, at the start of the quarter, within so-and-so days of the next month!
The simple question, it seemed, was more than could meet the eyes. The GST act, our senior replied, contains an entirely separate chapter designated for determining the time when GST liability has to be disbursed.
So, let’s take a look at the provisions of “Time and Place of Supply” under the GST laws in an understandable manner:
The taxable event under the GST laws is referred as the ‘Supply’ of goods and/or services. However, the time of supply when the liability to pay CGST/SGST (Intra-state) or IGST (inter-state) on goods and/or services arises, shall be determined as follows:
The time of supply of goods and services shall be the earliest of the following:
Date of issue of invoice by the supplier or
The last date (due date) on which the supplier is required to issue the invoice (under section 28) with respect to the supply
Date on which the supplier receives the payment with respect to the supply.
Let’s take a simple example:
Masters India, dealing in software/applications, receives advance payment from a customer amounting to Rs 100000 in the month of October 2017. It delivers the goods concerned in the month of November 2017. The ‘taxable event’ in such a case will be the earliest event i.e., the receipt of payment. And thus, “time of Supply” will be October 2017 for the purpose of calculating Tax liability.
A question may arise – What does “Last date on which he is required to issue the invoice” really connote?
The GST Act clearly explains the provisions for raising the invoice as follows:
For supply of Goods:
In case it involves “movement” of such goods, the invoice should be raised before or at the time of “removal of goods for supply to the recipient.”
In any other case, the invoice should be raised before or at the time of “delivery of goods or making available thereof to the recipient.”
For Supply of Services: Invoice will be raised “before or after the provision of service but within a period prescribed [i.e. 30 days in all cases( 45 days in case of banking and financial institution) from the date of supply of services]”
An example for lucid understanding is as follows:
Mr A, dealing in electronic goods in Delhi, removes the goods from warehouse on 31.10.2017 and dispatches the same to a customer at Kolkata along with an invoice. The Goods are received at Kolkata on 02.11.2017. Mr A has dated the invoice as 01.11.2017. The customer makes payment on 15.11.2017.
In the above case, in the light of GST Act, the “last date on which the invoice was required to be issued” by A was at the time of removal of goods i.e., on 31.10.2017. The actual invoice date 01.11.2017 is irrelevant for the purpose of determining “Supply of Goods”. Since the payment was made afterwards, the earliest taxable event happens at the time of removal of goods, i.e. 31.10.2017. Thus the time of supply of Goods will be in October 2017.
What will be the Time of supply in case of continuous supply of goods?
As per GST Act, ‘continuous supply of goods’ is defined to mean a supply of goods which is provided, or agreed to be provided, continuously or on recurrent basis, under a contract, for which the supplier invoices the recipient on a regular or periodic basis. The new Act does not have any specific provision for this. Accordingly, the time of continuous supply of goods will be the same as explained above for supply of goods.
Time of Supply under reverse charge mechanism (“RCM”)
For Supply of Goods under RCM, the earliest of the following will be the taxable event:
Date of receipt of goods by the recipient;
Date on which the payment is entered in the books of accounts of the recipient;
Date on which payment is debited in the bank account of the recipient;
Date immediately following thirty days from the date of issue of invoice by the Supplier
For Supply of Services under RCM, the earliest of the following will be the taxable event
Date on which payment is made, or
Date immediately following 60 days from the date of issue of invoice by the supplier
In ALL the above cases, where it is not possible to determine the time of supply of Goods or Services, the time of supply shall be “the date of entry in the books of account of the recipient of supply.”
Change in Rate of Tax in respect of supply of goods or services
The practical question is: How to determine the rate of tax in case there is a change in the tax rates under GST regime?
In such a case, three important events need to be considered are–
Date of raising an invoice.
Receipt of payment and
Completion of supply.
If any two of the three events occur before the change in rate of tax, then the old rate will apply; else the new rate will apply.