An effort has been made in this article to analyse the possibility of converting the regular supplies into ‘continuous supply of goods’ in order to reduce the compliance burden for the person registered under GST.
In GST, the term “continuous supply of goods” has been defined to mean “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 a wire, cable, pipeline or other conduit, and for which the supplier invoices the recipient on a regular or periodic basis and includes supply of such goods as the Government may, subject to such conditions, as it may, by notification, specify”.
From the above definition, again it is important to understand important aspects such as continuity, need of supply under a contract etc. which would be relevant to explore the option of converting the regular supplies to ‘continuous supplies’.
Continuity as the name suggests, there should be continuous or recurrent supply of goods. The word “recurrent” can be understood as occurring often or repeatedly or regularly.
Supply has to be under a contract. Contract means agreement made between the two parties which is enforceable under law. Such contracts can be oral as well. Many oral contracts have been held valid by Indian courts including Indian Contract Act 1872.
Means of supply can be anything such as through wire, cable, pipeline or other conduit or any other mode.
Another important aspect is issuing of invoices on regular or periodic basis by the supplier.
Time of supply in case of supply of goods would be earlier of the date of issue of invoice by the supplier or the last date on invoice to be issued under section 31 OR the date on which the supplier receives the payment with respect to the supply.
In terms of Section 31, in case of continuous supply of goods, where successive statements of accounts or successive payments are involved, the invoice needs to be issued before or at the time each such statement is issued or, as the case may be, each such payment is received.
From these provisions, it can be understood that in case of regular supply of goods wherein the statement of account or payment is issued on periodical basis, such date can be the date for issue of invoice which becomes the time of supply.
It is also relevant to note that in case of HP India Sales Private Limited [TS-587-AAR-2018-NT], the advance ruling authority has held that supply of printing ink and other consumables such as oil, bib for press machines for which running invoice was being issued once in 15 days can be held as continuous supply of goods.
In automobile and engineering industries it is very common to use the just in time concept where goods are produced and procured just when needed. This concept helps in elimination of unnecessary manufacturing cost, inventory cost and saves time. However, in this concept, the number of supply transactions are more with equal number of tax invoices under GST. The suppliers, in order to reduce the number of invoices, can follow the concept of continuous supply which may have following advantages:
1. Reduction in number of invoices to be generated.
2. Reduction in time and effort required for accounting transactions both by supplier and customers.
3. Reduction in reconciliation of transactions between their books of account.
4. Reduction of effort involved in payment processing, follow ups for payment, bank reconciliations and more.
5. Reduction in number of transactions for filing returns, claim of credits.
6. Better compliance of new Rule 36(4) of CGST Rules 2017 which restricts 90% credit on undisclosed entries in GSTR-2A.
7. Reduction in time spent for reviews / audit of transactions in different audits
Preparation before adopting the concept
Before adopting the continuous supply concept, the tax payers need to take care of few important points so that there is no dispute from the department in future regarding such arrangement with the supplies or customers. Impact of non-GST laws, if any, along with implication of such decision on business should also be considered. The concept would work well when same types of goods are supplied. Few others are as follows:
1. Enter into a contract (ideally written) for continuous / regular supply with periodical statement / payment system. Period can be weekly, fortnightly, monthly etc.
2. Purchase order terms should be in line with agreed terms of contract for continuous supply.
3. Documentation for movement of goods such as delivery challan, invoice, e-way bill should be in line with law. While generating e-way bill, suppliers can select sub type of outward supply as ‘others’ specifying the sub-supply as continuous supply of goods. A tax invoice can be issued with reference of all such removals made in a period according to time of supply schedule.
4. Intimation to the department before adopting this concept seeking confirmation. Such confirmation letter could accompany goods so that there is no dispute during the movement of goods.
Industries where there are regular supplies of goods of similar goods to specified customers, this concept can be explored to save substantial time in compliance. As many are not following this concept though there is no restriction, department could object to such concept. On conservative basis, the proposed procedure needs to be disclosed to department. If objected, then an advance ruling can also be sought to confirm
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