In the previous article, we discussed about the taxable event ‘supply’ for the purpose of GST levy. Now we move on to time of supply of services.
Time of supply of service refers to point of time when levy occurs. The liability to pay GST on the services shall arise at the time of supply as determined in terms of provisions of section 13 of the GST Act.
Presently, provisions of the Point of Taxation Rules 2011 determine the point at which services are subject to payment of service tax. Time of supply of services set out in Model GST law is more or less similar to that of existing Point of Taxation Rules.
Under Model GST Law:
The time of supply of Services shall be the earliest of the following dates, namely –
a) the date of issue of invoice or the date of receipt of payment, whichever is earlier [if the invoice is issued within the prescribed period],
or
b) the date of completion of the provision of service or the date of receipt of payment, whichever is earlier [if the invoice is not issued within the prescribed period],
or
c) the date on which the recipient shows the receipt of services in his books of account [in a case where the provisions of clause (a) or (b) do not apply]
The draft GST Invoice Rules provides that the invoice shall be issued within 30 days of supply of service (‘Prescribed Period’).
Time of supply of service could be better understood by following example:
| Situation | Date of completion of service | Date of invoice | Date of payment | Date when recipient shows receipt of services | Time of supply of service |
| Invoice issued within prescribed period of completion of service | 15.4.2017 | 19.4.2017 | 29.04.2017 | 21.04.2017 | 19.04.2017 |
| Invoice issued within prescribed period of completion of service | 28.10.2017 | 30.10.2017 | 25.11.2017 | 30.09.2017 | 30.09.2017 |
| Invoice issued after the
Prescribed period of completion of service |
26.4.2017 | 26.9.2017 | 18.05.2017 | 18.05.2017 | 26.04.2016 |
| Invoice issued after the
Prescribed period of completion of service |
05.5.2017 | 05.10.2017 | 30.4.2017 | 06.10.2017 | 30.4.2017 |
| Invoice issued after the
Prescribed period of completion of service |
30.10.2017 | 01.12.2017 | 15.12.2017 | 30.09.2017 | 30.09.2017 |
It is further provided that, the supply shall be deemed to have been made to the extent it is covered by the invoice or, as the case may be, the payment. This means, suppose the consideration for an assignment is say Rs. 10 lacs and advance payment received is Rs. 2 lacs, then the date of payment of advance is time of supply of service to the extent of Rs. 2 lacs and not for Rs. 10 lacs. The date of receipt of payment shall be the date on which the payment is entered in the supplier’s books of accounts or the date on which the payment is credited to his bank account, whichever is earlier.
The criteria (c) mentioned above, practically could cause hurdle to the assessees in identifying the date when his customer records the service in his books of accounts. For example, in case of statutory audit of companies, since the liability of audit fee is crystallised, the company shall provide for the audit fee in books of accounts on 31st March and complies with the TDS provisions under Income Tax Act. Whereas the actual audit may conclude in June and invoice will be issued in July and payment happens subsequently. In such cases, as on 31st March, neither service is being provided/invoice is being raised nor the payment is received, but because of the said provision, the point of taxation would be 31st March! Accordingly, the auditor will have to discharge his GST liability!
Continuous Supply:
In case of continuous supply of services, say annual maintenance contract services, the time of supply shall be determined as follows:
(a) Where the due date of payment is ascertainable from the contract, the date on which the payment is liable to be made by the recipient of service, irrespective of whether or not any invoice has been issued or any payment has been received by the supplier of service;
(b) Where the due date of payment is not ascertainable from the contract, each such time when the supplier of service receives the payment, or issues an invoice, whichever is earlier;
(c) Where the payment is linked to the completion of an event, the time of completion of that event shall be considered as time of supply.
‘Continuous supply of service’ as defined in model GST law means a supply of services which is provided, or agreed to be provided, continuously or on recurrent basis, under a contract, for a period exceeding three months with periodic payment obligations. Further Central/State Government may specify certain services to be deemed as continuous supply of services.
Example: a) Where the due date of monthly payment towards renting of factory building is fixed to be 5th of each month in agreement, the date on which the payment is liable to be made by the service receiver i.e 5th of succeeding month is treated as date of supply of service.
b) Where the due date of payment is not mentioned in renting agreement: For April 2017, supplier issues invoice on 5th May 2017 and the payment received on 15th May 2017. Time of supply of service is 5th May 2017.
c) When payment linked to completion of each floor of the commercial building in case of construction services and the time of supply would be the date of completion of each floor.
Reverse Charge:
In case of supplies in respect of which tax is paid or liable to be paid on reverse charge basis, the time of supply shall be the earliest of the date of receipt of services, or the date on which the payment is made,or the date of receipt of invoice, orthe date of debit in the books of accounts.
In a case where the supply of services ceases under a contract before the completion of the supply, such services shall be deemed to have been provided at the time when the supply ceases. Hence even the incomplete services are subject to levy.
If the time of supply of service cannot be determined during the normal course of business then time of supply will be determined as follows:
a) in a case where a periodical return has to be filed, be the date on which such returns to be filed; or
b) in any other case, be the date on which the CGST/SGST is paid.
The above stated residual provision is not practical as to determine either of the above criteria one shall first identify the time of supply based on earlier provisions.
Change in Rate:
Sec 14 provides for mechanism to arrive time of supply in cases where there is a change in the effective rate of tax in respect of services. These provisions are akin to the existing point of taxation rules.
When the taxable service has been provided before the change in effective rate of tax, the time of supply would be determined as follows:
(a). Where the invoice for the same has been issued and the payment is also received after the change in effective rate of tax, the time of supply shall be the date of receipt of payment or the date of issue of invoice, whichever is earlier;
(b). Where the invoice has been issued prior to change in effective rate of tax but the payment is received after the change in effective rate of tax, the time of supply shall be the date of issue of invoice;
(c). Where the payment is received before the change in effective rate of tax, but the invoice for the same has been issued after the change in effective rate of tax, the time of supply shall be the date of receipt of payment;
When the taxable service has been provided after the change in effective rate of tax, time of supply of services would be determined as follows:
(a). Where the payment is received after the change in effective rate of tax but the invoice has been issued prior to the change in effective rate of tax, the time of supply shall be the date of receipt of payment;
(b). Where the invoice has been issued and the payment is received before the change in effective rate of tax, the time of supply shall be the date of receipt of payment or date of issue of invoice, whichever is earlier;
(c). Where the invoice has been issued after the change in effective rate of tax but the payment is received before the change in effective rate of tax, the time of supply shall be the date of issue of invoice.
In simple terms the rate applicable in respect of supply of service would be the rate which is prevalent when two out of the following three events take place:
a. Date of invoice or
b. Date of provision of service or
c. Date of receipt of payment
Discussion on Revenue recognition Principle:
Accounting Standard on revenue recognition (AS-9) provides for when to recognize the revenue in the books of accounts. Though the revenue recognition is more relevant from accounting and income tax point of view, we could relate the same to time of supply.
AS- 9 provides for recognition of revenue on rendering of services in either of the two methods namely proportionate completion method and completed service method. Even under GST, revenue recognition principle would hold good to certain extent. Though there are multiple events prescribed to determine the time of supply of services, date of completion of service and date of various milestones prescribed under a contract would certainly influence the time of supply. The understanding of the difference between AS-9 and Time of supply would help the assessee in maintaining reconciliation between books and statutory returns.
Important decisions under Indirect tax laws:
- CCE Vs Vazir Sultan Tobacco Co. Ltd [1996 (83) ELT 3 (SC): There cannot be any tax liability if the taxable event happened before the introduction of levy. Decision could be relied upon even in GST regime as regards to tax liability on the supplies taxed for the first time/newly introduced taxes.
- General Motors (I) Pvt Ltd Vs CCE Pune [2015 (40)STR 962 (Tri): In case of associated enterprise there is no difference between provisional entry & Final entry and service tax became due in accordance with the date of provisional entry made by time in their books of accounts.Specific provision in this regard to determine time of supply in case of associated enterprises is expected in GST rules.
- Reliance Infratel Ltd Vs CCE [2015-TIOL-2160-CESTAT-MUM]: Amount of lease rent equalisation shown in Balance sheet is not an ‘income’ for the purpose of computing income tax resultantly; it is also not a ‘payment’ actually received or receivable. Though income tax act cannot be relied for each case to determine the consideration/payment, wherever there is lack of clarity in GST law, other taxation laws shall come handy.
- Larsen and Turbo Ltd Vs CST [2015-TIOL-2921-CESTAT-Del]: Service tax was payable as and when mobilisation advance was received with reference to the mobilisation of advance whereas contrarily held in case of Thermax Instrumentation Ltd Vs CCE [2015-TIOL-2736-CESTAT-Mum]: Mobilization advance is backed up by bank guarantee to be treated as loan/deposit and not consideration. In our view, any refundable advances shall be treated as loan/deposit and not consideration as far as they are not adjusted towards payables from the recipient of service.
Conclusion
The provisions of Section 13and 14 of the Model GST Laware more or less inspired from the present point of taxation rules.Hence, various currently existing issues like time limit for issue of invoices, question of liability on debtors in case of newly introduced taxes etc would continue to exist in GST regime. It is hoped that Government address these issues either proactively or based on representations from various stakeholders of GST.
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Note: Further the readers may kindly refer the book on Goods and Service Tax – A Primer – October 2016 2nd Edition by Madhukar Hiregange and K.S.Naveen Kumar published by Walters Kluwer – CCH for detailed discussion.
Index to GST Series of Article by Authors
| S. N. | Date | Title of the Article |
| 1. | 16.09.2016 |
Indirect Tax: Present Vs GST – 1 |
| 2. | 22.09.2016 |
Taxation Event – Levy: Present Vs GST– 2 |
| 3. | 04.10.2016 |
Deemed Supply – Present Vs GST – 3 |
| 4. | 14.10.2016 |
Time of Supply of Goods – Present Vs GST – Part 4 |
| 5. | 29.10.2016 |
Time of Supply of Services – Present Vs GST– 5 |
(Author can be reached at [email protected], [email protected])
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