All You Need To Know About Time Of Supply Concept Under GST Law

All You Need To Know About Time Of Supply Concept Under GST Law

GST is required to be paid by the taxpayer on the basis of the time of supply of goods or services as the case may be. In order to calculate and discharge tax liability, it is important to know the date when the tax liability arises i.e. the date on which the charging event has occurred. In GST law, it is known as Time of Supply. GST law has provided separate provisions to determine the time of supply of goods and time of supply of services.

GST law has provided separate provisions to determine the time of supply of goods and time of supply of services.

In this article we are covering the provisions in relation to the time of supply along with examples for clear understanding: –

Time Of Supply Under Excise, Service Tax & VAT Laws

Time of supply is pertinent in GST as the liability to pay is dependent on the time of supply. However, the taxable event under excise, VAT and service tax was different, which is summarized below:-

Excise: –

  • As per Section 3 of the Central Excise Act, 1944, taxable event under excise was manufacture and liability to pay arises at the time of manufacture.
  • However, as per Rule 4 of Central Excise Rules, liability to pay was at the time of removal of goods,
  • If the goods are consumed within the factory, the date of the issue for use shall be construed as the date of removal.

Service Tax: –

  • Point of taxation Rules, 2011 are prescribed to ascertain the time of supply and accordingly liability to pay tax is computed.
  • As per Rule 3 of Point of Taxation Rules, 2011, point of taxation shall be –
  • If an invoice is issued within 30 days (45 days in case of banks, financial institutions and like) –
  1. Date of invoice; or
  2. Date of payment;

Whichever is earlier.

  • If an invoice is not issued within the above time then –
  1. Date of invoice; or
  2. Date of payment

Whichever is earlier.

VAT:-

  • VAT is a state levied tax, was governed by individual state VAT laws. However, there was uniformity in terms of taxable event and time of supply
  • The point of taxation under varied state VAT laws is the transfer of property in goods from the seller to the buyer.

Time Period For Raising An Invoice

Ascertaining time of supply under GST is dependent on the date and time within which an invoice is generated. Section 31 of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as the “CGST Act”) provides for a time limit within which the invoice is required to be generated. There are different provisions for raising an invoice in case of a supply of goods and supply of services which are explained as under: –

  • Supply of Goods: –

The invoice is required to be generated before or at the time of,-

  1. Removal of goods for supply to the recipient, where the supply involves movement of goods; or
  2. Delivery of goods or making available thereof to the recipient, in any other case.
  • Supply of Services: –
    The invoice is required to be generated –
  1. Within 30 days from the date of supply of service,
  2. However, in the case of the supplier being an insurer or a banking company or a financial institution or an NBFC, the time period is 45 days instead of 30 days,
  3. Additionally, the above type of companies is provided a relaxation to raise an invoice before or at the time such supplier records the same in his books of account or before the expiry of the quarter during which the supply to distinct person as per section 25 of CGST Act was made.

Time Of Supply Of Goods

As per Section 12 of CGST Act, the liability to pay tax in case of the supply of goods shall arise as per the provisions of this section only which are explained below:-

  • Forward Charge Mechanism

Earlier Of:

  1. Date of issue of invoice or the last day on which supplier is required to issue the invoice (as per point 1 explained above in relation to Section 31); or
  2. The date on which the supplier receives the payment with respect to the supply.

This provision mandated GST applicability on advances received which was creating a business disruption. To ensure small advances do not mandate raising of invoices, a proviso stating that in case of advances received up to INR 1,000/-, the time of supply shall at the option of supplier, be the date of issue of an invoice.

Vide explanation provided in the section, the date on which the supplier receives the payment” shall be the date on which the payment is entered in his books of account or the date on which the payment is credited to his bank account, whichever is earlier.

Additionally, Notification No. 66/2017 – Central Tax dated 15th November 2017, relaxed the provision of issuing an invoice in case of advances received in case of the supply of goods.

  • Reverse Charge Mechanism

Earlier Of:-

  1. Date of the receipt of goods; or
  2. Date of payment as entered in the books of account of the recipient or the date on which the payment is debited in his bank account, whichever is earlier; or
  3. Date immediately following thirty days from the date of issue of invoice or any other document, by whatever name called, in lieu thereof by the supplier.

To avoid genuine hardships, it was provided that where it is not possible to determine the time of supply as per the above provisions, the time of supply shall be the date of entry in the books of account of the recipient of the supply.

  •  Voucher Sales

The Time Of Supply Shall Be

  1. Date of issue of voucher, if the supply is identifiable at that point; or
  2. Date of redemption of voucher, in all other cases.
  • Interest, Late Fees & Penalty

In the business scenario, interest, late fees, and penalty are in the nature of uncertain income and is often not realized. The lawmakers acknowledge the fact of the uncertainty of such an addition in the value of supply. Hence it is provided that time of supply in such scenarios shall be the date on which the supplier receives such addition in value.

  • Residuary

The general business scenarios get covered with the above provisions, however, there may be exceptional scenarios which do not fall in any of the above cases, time of supply is provided in the law as under: –

  1.  The periodical return has to be filed, be the date on which such return is to be filed; or
  2. In any other case, be the date on which the tax is paid.

Time Of Supply Of Services

Provisions relating to the time of supply of services are similar to those pertaining to the time of supply of goods. However, the difference is because of the extended-time period allowed to raise an invoice in case of the supply of services. The time of supply of services for varied scenarios as provided in section 13 of CGST Act are explained below: –

  • Forward Charge Mechanism

Earlier Of:-

  1. Date of issue of invoice by the supplier, if the invoice is issued within the period prescribed as explained in point 1 above or the date of receipt of payment, whichever is earlier; or
  2. Date of provision of service, if the invoice is not issued within the period prescribed or the date of receipt of payment, whichever is earlier;
  3. In case the above two are not applicable, then the time of supply shall be the date on which the recipient shows the receipt of services in his books of account.

This provision mandated GST applicability on advances received which was creating a business disruption. To ensure small advances do not mandate raising of invoices, a proviso stating that in case of advances received up to INR 1,000/-, the time of supply shall at the option of supplier, be the date of issue of an invoice.

Vide explanation provided in the section, the date on which the supplier receives the payment” shall be the date on which the payment is entered in his books of account or the date on which the payment is credited to his bank account, whichever is earlier.

It is pertinent to note that Notification No. 66/2017 – Central Tax dated 15th November 2017, relaxed the provision of issuing an invoice in case of advances received in case of the supply of goods but no such relaxation is provided in case of the supply of services. Hence advances received in case of the supply of services continue to be taxable.

  • Reverse Charge Mechanism

Earlier Of:-

  1. Date of payment as entered in the books of account of the recipient or the date on which the payment is debited in his bank account, whichever is earlier; or
  2. Date immediately following sixty days from the date of issue of invoice or any other document, by whatever name called, in lieu thereof by the supplier.

To avoid genuine hardships, it was provided that where it is not possible to determine the time of supply as per the above provisions, the time of supply shall be the date of entry in the books of account of the recipient of the supply.

Additionally, in case of supply by associated enterprises, where the supplier of service is located outside India, the time of supply shall be the date of entry in the books of account of the recipient of supply or the date of payment, whichever is earlier.

  • Voucher Sales

The time of supply of services in the case of vouchers is absolutely the same as that provided for the supply of goods. The same is re=iterated below –

  1. Date of issue of voucher, if the supply is identifiable at that point; or
  2. Date of redemption of voucher, in all other cases.
  • Interest, Late Fees & Penalty

The need for having a separate provision for time of supply in case of addition in the value of supply due to interest, late fees, and penalty, in case of the supply of goods, stands for the supply of services as well. Hence it is provided that time of supply in such scenarios shall be the date on which the supplier receives such addition in value.

  • Residuary

The general business scenarios get covered with the above provisions, however, there may be exceptional scenarios which do not fall in any of the above cases, time of supply is provided in the law as under: –

  1. The periodical return has to be filed, be the date on which such return is to be filed; or
  2. In any other case, be the date on which the tax is paid.

Change In Rate Of Tax

The provisions for time of supply of goods and services as explained above cannot be followed in case there is a change in the rate of tax. Section 14 of the CGST Act, prescribes the time of supply in case there is a change in the rate of tax.
There are two scenarios which emerge:-

  • Supply is completed before the change in the rate of tax;
  • Supply is completed before the change in the rate of tax.

To ascertain the time of supply and rate of tax in the above two scenarios it is imperative to know the date of the invoice and date of payment. The provisions in the above two scenarios are tabulated below: –

In case the supply is completed before the change in the rate of tax: – 

Invoice Issued BEFORE Change In Rate Of Tax Payment Received BEFORE Change In Rate of Tax Time of Supply Applicable Rate of Tax

No

No

  • Date of invoice
  • Date of payment

Whichever is earlier

New Rate of Tax

Yes

No

Date of issue of invoice

Old rate of tax

No

Yes

Date of receipt of payment

Old rate of tax

In case the supply is completed after the change in the rate of tax: –

Invoice Issued BEFORE Change In Rate Of Tax Payment Received BEFORE Change In Rate of Tax Time of Supply Applicable Rate of Tax

No

No

  • Date of invoice
  • Date of payment

Whichever is earlier

Old Rate of Tax

Yes

N0

Date of receipt of payment

New rate of tax

No

Yes

Date of issue of invoice

New rate of tax

Important Note: – Date of receipt of payment in case of a change in the rate of tax

  1. Normally the date of receipt of payment is the date of credit in the bank account of the recipient of the payment or the date on which the payment is entered into his books of account, whichever is earlier. Further, the date of credit in the bank account is relevant if such credit is after four working days from the date of the change in the rate of tax.
    2. The special procedure for payment of tax by suppliers of goods (other than composition dealers) notified by Government vide notification no. 66/2017-Central Tax dated 15.11.2017, will continue to govern even in the above situation. In a nutshell, suppliers of goods other than composition dealers will have to pay tax at the time of issue of invoice only

Advance Ruling In Relation To Time Of Supply

Authority for advance ruling, Tamil Nadu in the case of M/s. Kalyan Jewelers India Limited

Facts of the case: –

  • Applicant is a manufacturer and trader in gold and other jewelry items
  • As part of sales promotion, it introduced pre-paid instruments
  • Applicant issued these instruments on two broad approaches
  1. On receiving the face value as per the requirement of customer
  2. Issuing at a discounted value to the third party who further sells to customers at face value
    • Applicant’s view is these instruments to be considered as an actionable claim
    • Applicant sought to rule on the taxability of these instruments and time of supply

Ruling Pronounced:-

  1. As per Section 2(118), voucher means an instrument where there is an obligation to accept it as consideration or part consideration for a supply of goods or services or both and where the goods or services or both to be supplied or the identities of their potential suppliers are either indicated on the instrument itself or in related documentation, including the terms and conditions of use of such instrument. Hence it was held the instruments are vouchers and hence taxable
  2. As per Section 12(4), In case of the supply of vouchers by a supplier, the time of supply shall be-
  3. Date of issue of voucher, if the supply is identifiable at that point; or
  4. – Date of redemption of voucher, in all other cases.
  • In the given case, it was held that the time of supply of such pre-paid instruments by the applicant to the customers shall be the date of issue of vouchers if the vouchers are specific to any particular goods specified against the voucher. If the gift vouchers/ gift cards are redeemable against any goods bought, the time of supply is the date of redemption of voucher.

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