GUEST COLUMN

TIME OF SUPPLY ? MODEL GST LAW

 

CA Khyati Kalavadia

 

With the GST soon to be implemented in India, it is necessary to understand the important concepts of the model law. Under the GST Model law the levy is on supply of Goods and/or services. However, the liability to pay tax would arise at the time of supply. Thus, Time of Supply plays an important role.

 

Under the current regime of indirect taxation, there are multiple taxes so as is the point of taxation. Let us first understand the Point of Taxation of various laws under the present regime:

 

 

Under the GST Law, Section 12 of the CGST/SGST Act, deals with the time of supply of goods. Section 13 of the CGST/SGST Act deals with the time of supply of service. The board baskets of the time of supply of goods as well as of services is as under:

 

 

Time of Supply-Goods

 

1)    General Rule

The time of supply of goods shall be the earliest of:

 

(a)  (i) Date of removal of goods in case where goods are removed

(ii) Date of making goods available to the recipient in case where goods are not removed

 

(b)  Date of issuance of invoice by supplier

(c)   Date of receipt of payment by supplier

(d)  Date on which recipient shows the receipt of the goods in his books of accounts

 

Example:

 

Unlike the existing law, where VAT and Excise Duty are not payable at the time of receipt of payment, under GST Law, GST would be payable on receipt of advances. Thus, without actual supply of goods being made there will be a tax implication. Further, it is difficult to identify the date on which the recipient shows the receipt of goods. These issues are bound to create litigation. The law seems to have given ?More teeth to the department?.

 

2)    Continuous Supply of Goods 

(a)  If successive statements of accounts or payment are involved, time of supply would be the date of expiry of the period to which such successive statements of accounts or successive payment relate to.

(b)  In all other cases, time of supply would be earlier of date of issue of invoice or date of receipt of payment

Example:

 

3)    Goods under Reverse Charge

The time of supply shall be the earliest of:

 

(a)  Date of the receipt of goods

(b)  Date on which the payment is made

(c)  Date of receipt of invoice

(d)  Date of debit in the books of accounts

Example:

  

4)    Goods sent on approval or return or any other similar basis

The time of supply shall be the earliest of:

 

(a)  Date when it becomes known that the supply has taken place

(b)  Six months from the date of removal of goods 

Example:

 

 

5)    Residual Rule

The time of supply shall be the earliest of:

 

(a)  When periodical return is to be filed, date on which such return is to be filed

(b)  In any other case, date on which the CGST/SGST or IGST paid

 

Time of Supply-Services

 

1)    General Rule  

(a)  When invoice is issued within prescribed time period ? Earliest of date of invoice or payment

(b)  When invoice is not issued within prescribed time period ? Earliest of completion of service or date of receipt of payment

(c)  In other case ? Date when recipient records receipt of service in his books of accounts

Example:

 

 

2)    Continuous Supply of Service  

(a)  If due date of payment is ascertainable from the contract ? Last date of payment

(b)  If due date of payment is not ascertainable from the contract ? Earliest of date of invoice or receipt of payment

(c)  If payment is linked to the completion of an event ? Time of completion of that event

 

Example 

 

In case of continuous supply of service, where due date is ascertainable from the contract, receipt of money is not of relevance. That is to say, GST is not payable at the time of receipt of advance. Can this be considered as drafting mistake?

 

3)    Services under Reverse Charge  

The time of supply shall be the earliest of:

 

(a)  Date of the receipt of services

(b)  Date on which the payment is made

(c)  Date of receipt of invoice

(d)  Date of debit in the books of accounts of the receiver

 

Example: 

 

The time of supply under reverse charge in case of goods and services are similarly worded. However, the law makers fails to understand that services are intangible in nature and therefore it is difficult to identify receipt of service.

 

4)    Incomplete Supplies

In case where supply of services ceases under a contract before its completion, such service would be deemed to have been provided at the time when the supply ceases.

 

5)    Residual Rule

The time of supply shall be the earliest of:

 

(c)  When periodical return is to be filed, date on which such return is to be filed

(d)  In any other case, date on which the CGST/SGST or IGST paid 

Conclusion

As evident from above there are various challenges that the tax payer would face. In event the advance is received in FY 1 and actual supply takes place in FY 2, the GST law requires to pay tax on advances whereas revenue will be recognized in FY2. This will lead to mismatches, reconciliation complexity etc. In many cases advances are received for supplies covering inter-state as well as intra-state transaction. However, breakup may not be ascertainable at the time of receipt of advance. Further, there would be blockage of fund as input tax credit can only be claimed on actual receipt of goods/services. Lets? hope that the Government considers the submission made by various forums so as to ensure smooth functioning of the GST.

?The health of our economy will not improve until we inject the ?S? factor into our fiscal laws, and make them Sane, Simple and Stable.?

-Shri Nani Palkhiwala

 

[The author is Senior Manager at S B Gabhawalla & Co., Chartered Accountants. Views expressed are strictly personal]