Continuous Supply of Services under GST: Determining Time of Supply with Practical Examples

Under the GST framework, determining the correct Time of Supply (ToS) is crucial, as it directly determines when the tax liability arises. While this is relatively straightforward for one-time services, complexities arise in long-term or recurring contracts, which are governed by the concept of ‘Continuous Supply of Services’.

This article explains the difference in the provisions of ToS in a normal supply of service  Vis-a-Vis,  a  continuous supply service, and illustrates the differences with practical examples  with legal references and circulars.

I. Time of Supply in respect of Supply of Services including  Continuous supply of services:

As per Section 13(2) of the CGST Act, the time of supply of services shall be:

• If the invoice is issued within the time prescribed under Section 31, then ToS = Date of invoice, or date of receipt of payment, whichever is earlier.
• If the invoice is not issued within such time, ToS = Date of service completion or date of receipt of payment, whichever is earlier.

The timelimit for issuance of invoice in acse of a normal supply of service ( otherthan continuous supply of service) is discussed in   Rule 47 of CGST Rules, 2017. As per which  , the invoice shall be issued within 30 days from the date of supply of service (45 days in case of insurance and banking companies).  Based on these provisions , let’s try to understand what will be the ToS in the case of a normal service with an illustration.

Illustration: Normal Supply of Service

• Service Completion Date: 31st March
• Payment Received: 10th June
• Invoice Date:
  • Case 1: 25th April (within 30 days) → ToS = 25th April ( earlier of the date of invoice and receipt of payment)
  • Case 2: 10th May (after 30 days) → ToS = 31st March (earlier of service completion and  date of payment

II. Definition of Continuous Supply of Services

As per Section 2(33) of the CGST Act:

“Continuous supply of services” means a supply which is provided or agreed to be provided continuously or on a recurrent basis, under a contract, for a period exceeding three months, with periodic payment obligations.

III. Invoicing Rules for Continuous Supply – Section 31(5)

Section 31(5) of the CGST Act provides three specific rules for invoicing in case of continuous supply:

1.Contract specifies due dates for payment → Invoice must be issued on or before each such due date.

2. No due date specified in contract for payment → Invoice must be issued on or before the date of receipt of payment.

3. Payment linked to completion of an event → Invoice must be issued on or before the date of completion of that event.

However, in sofar as the provisions of ToS are concenred they remain same even in the case of a continouos supply of service. The only change is timelines for issuing the invoice. As a result, the ToS shifts to a different date.  To understand this better, let us revisit the earlier illustration in the context of a continuous supply of service. For the sake of brevity, I am assuming that there is no specific due date in the contract for making the payment.

Illustration: Continuous Supply of Services (Clause 2)

Assume:

• Service Completion: 31st March
• Payment Received: 10th June
• No due date specified in contract → Clause 2 applies

Invoice issued on 10th June (on payment date)

• ToS = 10th June
• GST to be paid in June return

IV. Relevance for Government Contractors

• Generally, Government contractors and public sector vendors  receive payments after long delays even after completion of the specified service . In such cases, they have to examine the terms of the contract carefully. Incase, their case falls under   Clause 2 of Section 31(5)  ,it  allows them to defer tax liability until the actual receipt of payment — provided they issue the invoice on or before that date.Missing this deadline even by a single day nullifies the benefit, and the tax becomes due from the service completion date. Going back to the same illustration, let’s understand what wii be the due date for a delay of a single day in issuing the invoice.

Assuming that the  Invoice is issued on 11th June (after payment). Since, the invoice is not issued within the timelimit ,   the Time of Supply would be earlier of service completion (31st March) or payment (10th June) . Accordingly, ToS is to be treated as 31 March .   The problem in this case is , the ToS is not known untill the date of issuane of invoice. In case, the ToS shifts to a previous date ,due to the isauane of the invoice beyond the time limit specified in Section 31(5),  the Taxpayer has to pay the tax alongwith interest.

V. Key Takeaways

• Rule 47 applies only when Section 31(5) is not triggered.
• For normal services, invoice must be issued within 30 days to avoid retrospective ToS.
• For continuous supply, invoice timing depends on contract terms:
  • Due dates → invoice by due date
  • No due date → invoice on/before payment
  • Event-based → invoice on/before event completion

Conclusion

The Time of Supply rules for services, especially continuous supply, are a fine balance between legal timelines and commercial realities. Businesses, especially those dealing with long-term service contracts and delayed payments, must understand and implement the correct invoicing practices under Section 31(5) to  defer their tax liability legitimately .

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Disclaimer: The author is a Superintendent in Central Tax. The views expressed in this article are strictly personal.