INTRODUCTION
In the erstwhile laws, there were provided certain events basis which the leviability of tax was attracted, generally called the ‘taxable event’. If we talk about the Central Excise laws, such taxable event was manufacturing of goods, in case of service tax laws, such event was provision of services and in case of VAT laws, such event was sale of goods. However, in terms of GST laws, the terms manufacturing, provision of services or sale of goods have not been given such an importance, as it was in the erstwhile laws and taxable event under GST has been given to be ‘supply’ which is much wider in scope than the terms manufacturing, provision of services, sale etc.
Hence, it can be understood that the term ‘supply’ holds the key to incidence of GST, but it is the ‘Time of Supply’ that dictates the occasion when such incidence of tax comes to a rest and tax becomes payable. There is no point in levying a tax unless the law provides for the timing when such tax is to be paid to the Government. Speaking of Excise laws, though excise duty was levied on event of manufacturing of the goods, but such excise duty became payable on the removal of goods from the factory. Similar provisions relating to Time of supply are contained under Section 12 and Section 13 of the Central Goods and Services Tax Act, 2017 (‘CGST Act’) which provide for the time when the tax levied on a particular supply becomes payable to the Government.
Provisions relating to time of supply of goods are contained under the provisions of section 12 of the CGST Act. Such provisions in so far as those relate to supply of services are contained under Section 13 of the CGST Act. However, our discussion in this article shall be limited to the provisions in far as those relate to time of supply of goods.
ANALYSIS OF LEGAL PROVISIONS
Section 12(1) of the CGST Act provides that liability of pay tax, in respect of supply of goods, shall arise at the Time of supply, as determined in terms of Section 12. From the wordings of the provision, it can be understood that the Time of supply shall be the one as has been provided under the law and the supplier or even the legislature, has no discretion available to them, to determine the Time of supply other than the one given in the law. Hence, the time of supply shall be the one that is stated in the law, and nothing else.
Time of supply of goods- Forward Charge
Section 12(2) provides that the time of supply in respect of goods shall be the earlier of the following two dates;
1. Date of issuance of invoice or the due date to issue invoice in terms of section 31 of the CGST Act; or
2. Date of receipt of payment by the supplier with respect to the supply.
Earlier of the above two date shall be treated as Time of supply and accordingly, the tax shall become payable on that very date. In terms of the Notification 66/2017-Central Tax dated November 15, 2017, exemption from payment of tax in respect of advance received in case of goods has been given, such Time of supply in case of supply of goods shall be determined in accordance with (a) above only i.e. date of issuance of invoice or the due date to issue invoice in terms of section 31 of the CGST Act and hence, receipt of amount against the supply, is not material.
In terms of Clause (a) above, Time of supply shall be the date of issuance of invoice by the supplier or the due date to issue invoice in terms of provisions of section 31. By making the due date to issue invoice in terms of section 31, as the time of supply, this provision captures the situation where the supplier was liable to raise the invoice, but did not raise such invoice. Accordingly, even if the invoice is not issued by the supplier, which ought to have been issued by a particular date, such particular date shall be treated as Time of supply and liability to pay tax in respect of such supply of goods shall be attracted.
Section 31(1) provides for the due date, by which, an invoice should be raised for a supply of goods. It provides for the various situations, concerning supply of goods, wherein invoice is to be raised by a specified date.
Removal of goods, where supply involves movement of goods
Where the supply involves movement, invoice should be raised on or before removal of the goods. It is pertinent to understand the meaning of removal of goods in context of time of supply. In terms of Section 2(96) of the CGST Act, removal, in relation to goods means;
- dispatch of the goods for delivery by the supplier or any other person acting on his behalf (i.e. agent, job-worker, transporter etc.); or
- collection of goods by recipient thereof or by any other person acting on his behalf (i.e. agent, transporter).
As regards movement of goods, such movement can be both by the supplier (including his agent or transporter) or by recipient (including his agent or transporter). Where such movement is caused by the supplier, the removal time shall arise when such goods are dispatched from the place of business of such supplier. In case of movement by recipient, such removal will arise when the goods are collected by the recipient from the premise of the supplier.
Where supply does not involve movement of goods
Where supply does not involve movement, the invoice should be raised at a time when goods are delivered or are made available to the recipient. Here, the term ‘delivery’ should be given due importance in order to properly appreciate the provision, as determining the time at which the delivery gets completed, involves certain complexities. Mode and time of delivery is the unilateral choice a recipient has and supplier is under an obligation to comply with the stipulation as dictated by the recipient in so far as such stipulation pertains to mode and timing of delivery of goods. Once supplier comply with conditions and delivers the goods to the satisfaction of the recipient, then only it (supplier) is released from its obligation under the contract.
Continuous supply of goods
In case where the contract involves continuous supply of goods, where successive statements of accounts or successive payments are involved, the invoice shall be raised at a time determined in terms of provisions contained under Section 31(4) of the CGST Act. It provides that, in such a situation, invoice shall be raised on or before issuance of such statement or receipt of payment, as the case may be.
Continuous supply of goods is defined in terms of Section 2(32) to mean a supply of goods which is provided or agreed to be provided continuously or on recurrent basis, under a contract whether or not by means of wire, cable, pipeline or other conduit and for which supplier invoices the recipient on a regular or periodic basis and includes supply of such goods as Government my subject to such conditions, as it may, by notification, specify.
From the definition given above, it can be seen that the following attributes should be present in a supply of goods so as to treat the same a continuous supply;
1. Supply should be provided on a continuous or recurrent basis.
2. The supplier should be invoicing recipient on a regular or periodic basis
Regularity in supply does not necessarily imply continuous supply of goods. May be each supply is complete and there is a delay in billing. A deliberate delay in billing would not make a regular supply as a continuous one. Payment criterion, as regards time lines to issue invoice, cannot be applied in case where the consideration is not payable in terms of money like transaction involving barter or exchange. In such a case, where transaction has non-monetary consideration and involves continuous supply, the payment criterion goes away and time of supply should be determined basis the invoice or actual supply only.
Goods sent or taken on approval for sale or return basis
There are situations where customer would want a supplier to send goods to him so that the same may be examined/tested as to whether his (customer’s) requirements are being fulfilled. The customer can at its behest, approve the said supply or return the goods sent to him by rejecting them. Where such goods are returned, no supply shall be deemed to have taken place, whereas in case of approval, supply shall be said to have taken place.
Section 31(7) of the CGST Act provides for provisions pertaining to timelines for issuance of invoice where goods sent or taken on approval for sale or return basis. In terms of the said section, invoice, in respect of goods sent on approval for sale or return basis, shall be issued at earliest of; (i) time of supply or; (ii) date immediately after the expiry of 6 months from the date when goods were removed.
Here, the time of supply shall be the time when the confirmation is given by the recipient that he is willing to accept the goods. Hence, the due date to raise an invoice for the supply of goods shall be the date of communication of acceptance, subject to such acceptance being communicated before expiry of 6 months from the date of removal of such goods. Where such acceptance, though communicated, is after 6 months, due date to raise the invoice in respect of such supply shall be the date immediately after the expiry of the said 6 months from the date of removal of such goods.
Time of supply of goods- Reverse Charge
In respect of supply of goods, where tax is payable under Reverse Charge Mechanism (‘RCM’) the time of supply shall be earliest of:
- date of receipt of goods; or
- date of payment; or
- 30 days from the date of invoice or any other document, by whatever name called, raised by the supplier.
In case any of the above dates are not determinable, the time of supply shall be date at which the transaction is recorded in the books of accounts of the recipient.
Here the date of payment shall be the date at which such payment has been entered into the books of accounts of the recipient of goods or the date at which the payment is debited in the bank account, whichever is earlier.
Time of supply of vouchers
Provisions relating to time of supply of vouchers have been separately provided under the Act, so as to make the time of supply provisions, in so far as those relate to time of supply of goods, inapplicable to supply of such vouchers.
The term voucher has been defined under section 2(118) of the CGST Act to mean 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. Example of such voucher would include coupons, token, tickets, license, permit, pass etc.
Time of supply provisions for vouchers are contained under section 12(4) of the CGST Act. In terms of the said section, time of supply of voucher shall be;
- Date of issue of such voucher, where supply is identifiable at that point; or
- Date of redemption of such voucher, in all other cases.
Time of supply- Residuary
Where none of the provisions discussed above help in determining the time of supply of goods, such time of supply shall be determined in terms of the residuary provisions contained under section 12(5). Such residuary provisions provide for time of supply of goods as;
- Where a periodical return has to be filed, the due date to file such return;
- Date of payment of tax, in any other case.
It is worth mentioning here that residuary provisions to determine time of supply be applicable only in the cases where other specific provisions are not applicable. Residuary provisions cannot be resorted to merely on account of some difficulties are being faced in determining facts required to determine such time of supply in terms of specific provisions.
Time of supply-Special charges
Sometimes, supplier may impose certain special charges on account of some deviation from the terms and conditions of the contract at the recipient’s end. These special charges may be provided by the contract specifically but may not be attracted at the time of supply. There may be situations where these special charges are agreed upon at a later date on occurrence of such special circumstances warranting such special charges, where not specifically provided by the contract. These special charges are listed in law as interest, late fee or penalty for delayed payment of consideration.
In terms of the provision of section 12(6) of the CGST Act, time of supply in respect of such interest, late fee or penalty for delayed payment of consideration shall be the date of receipt of such interest late fee etc.
From the provision contained under section 12(6) certain questions arise like, whether three listed charges are exhaustive or illustrative, whether delay in payment is the only situation that will warrant the invocation of this provision, will special charges imposed for any other reason linked to original supply will also necessarily attract these provisions, whether time of supply in respect of special charges imposed (other than on account of delay in payment of consideration) be determined in terms of the provisions of section 12(6) i.e. only on receipt basis or they shall be liable to tax on accrual basis.
It may be viewed that the three listed cases are exhaustive, not by three listed cases only, but by the circumstances in which they can be imposed i.e. delay in payment of consideration. It can be said that any form of special charges, in so far as those charges are on account of delayed payment of consideration, shall be chargeable to tax on receipt basis. Special charges imposed on account of any other default at recipient’s end are to be examined whether they are linked to the original supply or are separate supply in themselves.
If such charges are linked to original supply, time of supply shall be determined basis the document raised (generally a debit note or any other like document) for charging them and hence may not enjoy the status of charges (like interest, late fee etc. on account of delay in payment of consideration) being taxed on receipt basis only. Where not linked to original supply, such charges shall be evaluated independently and may not be charged to tax where they do not satisfy the criteria of being classified as supply in terms of CGST Act.
CONCLUSION
Time of supply provision play a vital role in the GST laws as they provide for the determination of time when the liability to pay tax, in respect of a supply, arises. Where this ‘time’ is not determined correctly and strictly in terms of the provisions contained under the law, such a situation would warrant the interest implication of account of delayed payment of tax, in case such an incorrect determination of time of supply amounts to delayed time of supply being determined.
Hence, it is very important to analyze the nature of transaction being undertaken and appropriately applying the provisions relating to time of supply so as to ensure that due taxes are paid to the Government within the due timeframe and interest or other adverse consequences could be avoided.
Disclaimer: Views expressed in this article are personal views of the author and are for guidance purposes only. It is advised that the same should not be treated as legal advice and should not be acted upon in business scenarios. It is further advised that appropriate legal/professional advice is taken prior to acting upon the above while undertaking business transactions.
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