CA Nagendra Hegde (L) & vetted by CA Vasant K. Bhat (R)

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The liability to pay CGST / SGST or IGST on the goods or service shall arise at the time of supply as determined in terms of the Model GST Act. The point of time of supply refers to the point of time when an activity attracts the levy of GST in terms of the provisions of section 12.

In the absence of specific provisions to determine time of supply, there could be lot of ambiguity in determining the exact time of supply as the event of supply could contain many sub events. For example, in case of sale of goods, supply could be understood as transfer of title or transfer of possession and control or time of final settlement etc. The amount of chaos is even more in case of provision of services.

Present Law: In case of excise duty, it is a levy on manufacture and collection is on removal. In State VAT laws, there is legal fiction which provides that sale of goods is completed when ownership of goods is transferred or possession of goods is handed over to the buyer. The other Indirect taxes like octroi/ entry tax/ local body tax/ amusement park are on the entry into the area/ State/ others.

Under the GST regime, transfer of ownership or possession of goods is not relevant.

The time of supply of goods shall be the earliest of the following dates, namely:

(a) (i) the date on which the goods are removed by the supplier for supply to the recipient [in a case where the goods are required to be removed] or

(ii) the date on which the goods are made available to the recipient [in a case where  the goods are not required to be removed, ex: machine embedded to earth, lifts etc];

or

(b) the date on which the supplier issues the invoice with respect to the supply;

or

(c) the date on which the supplier receives the payment with respect to the supply;

or

(d) the date on which the recipient shows the receipt of the goods in his books of account.

Where removal of the goods is involved, it would be fairly simpler to determine the time of supply, like any sale of goods at factory gate, from warehouse/depots etc. Even in the case of goods being made available to the recipient, like sales at departmental shop etc also there shall not be any issues.

When supply does not involve removal of goods but happens by transferring the title of documents, like sale in transit etc, the time of supply would be the date on which supplier issues the invoice.

Presently neither excise duty nor sales tax is to be paid on advance received for supply of goods. Only in case of service tax, liability arises on receipt of advance for service to be provided. However, in GST, even when advance is received from customer for goods to be supplied, GST liability would arise.

In certain cases, the supplier might not have issued the invoice or not have received the money/not accounted the receipt of money also, but the recipient has recorded the purchase in his books and factored this in his returns. In such cases, the time of supply would be the date on which the recipient has accounted as received in his books. Practically it would be an exceptional situation where the supplier is evading / missed recording his supplies. After the monthly returns filed by both the supplier and recipient, upon receipt of communication of the discrepancy by the dept. the supplier would be required to include such supplies in his returns and pay tax with interest and regularize the transaction.

Further it is provided that in the following cases removal of the goods is not required to attract levy and accordingly the date on which goods is made available to the recipient shall be considered as time of supply of goods:

(a) Where the goods are physically not capable of being moved; or

(b) Where the goods are supplied in assembled or installed form; or

(c) Where the goods are supplied by the supplier to his agent or his principal.

In case of continuous supply of goods, where successive statements of accounts or successive payments are involved, the time of supply shall be the date of expiry of the period to which such successive statements of accounts or successive payments relate. If there are no successive statements of account, the date of issue of the invoice (or any other document) or the date of receipt of payment, whichever is earlier, shall be the time of supply.

For example, when the continuous supply of goods is made through a conduit/pipes, the billing would be done based on quantity of goods supplied for a particular period. At the end of the billing period, an invoice will be issued for the quantity of goods supplied and the last date of the billing period would be the time of supply.

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 following dates, namely—

(a) the date of the receipt of goods,

or

(b) the date on which the payment is made,

or

(c) the date of receipt of invoice,

or

(d) the date of debit in the books of accounts.

At present there is no excise duty/VAT payable under reverse charge mechanism. But under GST, notified supply of goods would be liable for payment of GST under RCM. This would be an additional burden to the industries.

If the goods are sent or taken on approval, sale or return or similar terms, the time of supply shall be the time when it becomes known that the supply has taken place or six months from the date of removal, whichever is earlier. Thus, if the goods are sent on approval basis, the sale has to be completed within 6 months from its removal, otherwise, it shall be deemed to be a supply and levy would attract.

A residual provision has been inserted in Sec. 12 to provide that if the time of supply of goods cannot be determined in terms of the specific provisions discussed earlier, then time of supply would be determined as follows:

(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 CGST/SGST is paid.

Discussion on revenue recognition principle:

Accounting Standard on revenue recognition (AS-9) provides fair idea on when to recognize the revenue in the books of accounts. Though the revenue recognition is more relevant from accounting and income tax aspects, we could relate the same to time of supply.

AS- 9 provides for recognition of revenue on sale of goods when the seller transfers the property (Significant risk and reward) to the buyer. 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 goods, transfer of property in goods is interlinked such events such as removal of goods, raising of invoice, receipt of payment etc. 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:

  • Wallace Floor Mills Co Ltd Vs UOI [1989 (44) ELT 598 (SC)]: Collection of duty at the time of removal does not mean that the taxable event is removal – Presently point of levy of excise duty and point of collection of excise duty are different. Under GST point of collection of tax would coincide with point of levy.
  • Bhopal Sugar Industries Ltd Vs D P Dube, STO- AIR 1964 SC 1037: Self consumption of goods by owner of goods is not sale of goods – The term supply is not exhaustive enough to cover self-consumption of goods in business! Though temporary application of business assets to personal use is deemed to be a supply, captive consumption of goods for further manufacturing is not deemed to be a supply of goods.
  • TISCO vs S.R Sarkar [(1960) 11 STC 655 (SC): A transaction of sale is subject to tax on completion of sale. A mere contract of sale is not a sale for the purpose of levy VAT/CST. In GST, tax would be levied at the time of supply of goods in terms of Sec 12. Hence, mere contract to supply may not attract GST.
  • Agarwal brothers Vs State of Haryana 1999 AIR SCW 2423(SC) it was held that if the transaction is a deemed sale, sales tax can be levied. There need not be legal transfer of goods. This would hold good in GST also as the tax could be levied on deemed supply.

Conclusion

The provisions provided in Section 12 of the Act to determine the time of supply of goods is with the objective of collecting the revenue as early as possible. The practical difficulties in implementing the rules have not thought of. Considering too many events to identify the time of supply not only increases the administrative hurdle for the assesse but it also creates opportunity for the bureaucrats to harass the assessee for noncompliance.

The provisions of time of supply of services in GST are influenced by present point of taxation rules 2011, which would be discussed in our next article.

We value your feedback which may be send to – nagendra@hiregange.com, vasant.bhat@hiregange.com

Note: Further the readers may kindly refer the book on Goods and Service Tax – A Primer by Madhukar Hiregange and K.S.Naveen Kumar published by Walters Kluwer – CCH for better understanding.

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 nagendra@hiregange.com, vasant.bhat@hiregange.com)

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