Section 13 & 14 of CGST Act 2017 simplified

Today I will discuss provisions of Section 13- Time of supply of services and Section 14 – Change in rate of tax in respect of supply of goods or services of CGST Act 2017 in simplified manner.

Section 13- Time of supply of services

• The liability to pay tax on services shall arise at the time of supply, as determined in accordance with the provisions of this section.
• The time of supply of services shall be the earliest of the following dates, namely:—

1. the date of issue of invoice by the supplier, if the invoice is issued within the period prescribed under section 31 or the date of receipt of payment, whichever is earlier; or

2. the date of provision of service, if the invoice is not issued within the period prescribed under section 31 or the date of receipt of payment, whichever is earlier; or

3. 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 clause (b) do not apply:

Provided that where the supplier of taxable service receives an amount up to one thousand rupees in excess of the amount indicated in the tax invoice, the time of supply to the extent of such excess amount shall, at the option of the said supplier, be the date of issue of invoice relating to such excess amount. 

Analysis:   Time of Supply – Forward Charge

Similar to goods as discussed in my previous article, time of supply of services is prescribed to be the earlier of

a) date of issue of invoice and

b) date of receipt of payment.

Date of issue of invoice requires us to examine section 31 which deals with the requirement to issue a “tax invoice”. In relation to services, section 31 requires that a tax invoice be issued whether before or after provision of service

Rule 47 of the CGST Rules prescribes the time period within which such invoice should be issued. It states that in case of the taxable supply of services, invoice should be issued within thirty days from the date of supply of services.

In case of banking company/financial institution/non-banking financial company, the time period becomes forty five days from the date of supply of services. When these banking/financial institution/non-banking financial Institution/telecom operator companies make taxable supplies of services between distinct persons invoice may be issued before or at the time such supplier records the same in his books of account or before expiry of the quarter during which the supply was made.

If the invoice is issued within the prescribed time period, the time of supply will be the earlier of the date of issue of invoice or the date of payment. Now question comes in your mind if invoice not issued within prescribed time limit of 30 days or 45 days as case may be then the time of supply will be the earlier of the date of completion of service or the date of payment. If none of these two cases are applicable, then the time of supply will be the date when the recipient shows the receipt of services in his books of accounts.

Now take an example to understand-

Answer- For Rs 10000 date of issue of Invoice or date of payment whichever is earlier i.e 08.04.2019

And for balance amount, Rs 40000 time of supply will be 15.04.2019 earlier of payment.

Exceptions:  When an amount in excess of tax invoice is received up to ` 1,000/-, the time of supply in respect of such excess at the option of the supplier shall be the date of such invoice.

Example- A Telephone Company receives ` 4,000 on 27th July 2019 against an invoice of `3,700 on 23rd July 2019 in respect of the services provided. The excess amount of ` 300 can be adjusted against the invoice to be issued in the next month. Time of supply will arise only for ` 3700 on 23rd July 2019. For the balance amount of ` 300, the time of supply may not arise on 27th July 2019 at the option of the supplier and may be adjusted against the next month’s invoice. But if amount exceeds Rs 1000 there is no option available with the supplier.

Continuous supply of services-  As per Section 2(33) of the CGST Act 2017, continuous supply of services 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 and includes supply of services as the Government may subject to such conditions as it may by notification specify.

For instance an annual maintenance contract, construction contract etc. may be considered as continuous supply of services if the aforesaid conditions are satisfied.

The date of issuance of invoice in respect of continuous supply of services has been given under Section 31(5) of the CGST Act 2017 as follows:

(I) Where the due date of payment is ascertainable from the contract, the invoice will be issued on or before the due date of payment.

(II) Where the due date of payment is not ascertainable from the contract, the invoice will be issued before or at the time when the supplier of services receives the payment

(III) When the payment is linked to the completion of an event, the invoice will be issued on or before the date of completion of that event.

For example- Mr. X is getting construction services from a developer against buying of an under-construction flat for the period 01/07/2017 to 31/03/2018 for ` 150,00,000.

Situation 1- Equal instalments to be paid at the end of every quarter

Situation 2: In this situation, due date of payment is not ascertainable from the contract. So, the invoice is to be issued before or at the time when the supplier of services receives the payment.

Situation 3: In this situation, the payment is linked to the completion of event.

Cessation of supply of services before the completion of the supply–  As per Section 31(6) of the CGST Act 2017 where the supply of services ceases before the completion of the supply, the invoice is to be issued at the time when the supply ceases and such invoice shall be issued to the extent of the supply made before such cessation.

(3) 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 earlier of the following dates, namely:––

(a) the 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

(b) the 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:

Provided that where it is not possible to determine the time of supply under clause (a) or clause (b), the time of supply shall be the date of entry in the books of account of the recipient of supply:

(4) In case of supply of vouchers by a supplier, the time of supply shall be––

(a) the date of issue of voucher, if the supply is identifiable at that point; or

(b) the date of redemption of voucher, in all other cases.

(5) Where it is not possible to determine the time of supply under the provisions of subsection (2) or sub-section (3) or sub-section (4), the time of supply shall––

(a) in a case where a periodical return has to be filed, be the date on which such return is to be filed; or

(b) in any other case, be the date on which the tax is paid.

(6) The time of supply to the extent it relates to an addition in the value of supply by way of interest, late fee or penalty for delayed payment of any consideration shall be the date on which the supplier receives such addition in value.

√ Analysis- Time of Supply – Reverse Charge

• Where tax is payable on reverse charge basis, the time of supply is appointed to be the earlier of date of payment or 60 days from the date of issue of invoice by the supplier. If for any reason, one or all of these two dates cannot be determined then the time of supply will be the date of recording the supply in the books of the recipient.

Example-  Mr. X provides legal services as an advocate to Mr.Y which fall under reverse charge basis.

10.04.2019 – The services are provided to Mr.Y

12.04.2019 – Mr. X issues an invoice to Mr.Y

10.07.2019 – The payment is made by Mr.Y through a cheque and recorded in his books of accounts

15.07.2019 – The payment gets debited from Mr. Y’s bank account

What will be the time of supply?

Answer- Earlier of 10.07.2019 or 61 days from 12.04.2019 , Time of supply will be 12.06.2019

√ Now, the time of supply in the case of vouchers is stated to be:

(i) the date of issue of voucher if the supply is identifiable at that point; or

(ii) in all other instances, the date of redemption of the voucher.

When vouchers are issued for specific end-use, then they are taxable as supply provided they otherwise satisfy the requirements of section 7 of the Act. Since, a specific provision exists in respect of time of supply of vouchers, they are not goods or services in themselves, but are singled out for the limited purposes of prescribing the time of their supply. And the rate of tax will be that applicable to goods or services they are issued in respect of or that applicable at the time of redemption.

√ Time of Supply – Residuary

Where none of the above provisions are able to satisfactorily answer the time of supply, it is to be determined based on the residuary provision which states that the time of supply is:

(i) where a periodical return has to be filed, the due date prescribed for such return; or

(ii) in any other case, the date of payment of the tax.

√ Time of Supply – Special Charges –special charges are listed as interest, late fee or penalty on account of delay in payment of consideration. In these cases, the time of supply is appointed to be the date of receipt by the supplier.

Section 14- Change in rate of tax in respect of supply of goods or services

Notwithstanding anything contained in section 12 or section 13, the time of supply, where there is a change in the rate of tax in respect of goods or services or both, shall be determined in the following manner, namely: ––

(a) in case the goods or services or both have been supplied before the change in rate of tax, ––

i) where the invoice for the same has been issued and the payment is also received after the change in 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; or

ii ) where the invoice has been issued prior to the change in rate of tax but payment is received after the change in rate of tax, the time of supply shall be the date of issue of invoice; or

iii) where the payment has been received before the change in rate of tax, but the invoice for the same is issued after the change in rate of tax, the time of supply shall be the date of receipt of payment;

(b) in case the goods or services or both have been supplied after the change in rate of tax, ––

(i) where the payment is received after the change in rate of tax but the invoice has been issued prior to the change in rate of tax, the time of supply shall be the date of receipt of payment; or

(ii) where the invoice has been issued and payment is received before the change in rate of tax, the time of supply shall be the date of receipt of payment or date of issue of invoice, whichever is earlier; or

(iii) where the invoice has been issued after the change in rate of tax but the payment is received before the change in rate of tax, the time of supply shall be the date of issue of invoice:

Analysis-  Payment of tax requires the presence of all the following events:

(i) supply of goods or services

(ii) issue of invoice

(iii) payment for the supply

When there is a change in the rate of tax during the occurrence of these three events, there may be some concern about the applicability of the correct rate of tax. Section 14 addresses this aspect clearly.

Determination of time of supply under Section 14 has been provided as under:

 I have tried to cover all aspects related to Section 13 & 14 of CGST Act 2017, any queries /doubts can be mailed at [email protected]