Lalit JR Sharma

Lalit JR Sharma

1.0 Introduction:

Point of Taxation refers to a situation where a transaction of either goods or service is to be taxed. Under the present indirect system, there are different points of taxation explained as below:

1.1 Point of Taxation under Excise Duty

Under the Excise Act, excise duty is levied on manufacturing of goods, however the liability to pay the tax comes on the removal of excisable goods from the factory. Hence no duty shall be collected until or unless goods are removed from the factory.

1.2 Point of Taxation under Service Tax

Under Service Tax, Point of taxation is the earliest of following events:

a) Issuance of invoice for the service provided or agreed to be provided; or

b) Receipt of payment

 However the invoice is not issued within the stipulated time, the point of taxation is the completion of service.

1.3 Point of Taxation under VAT & CST

Under the VAT or CST, point of taxation is the transfer of property in goods from the seller to buyer.

1.4 Time of Supply of Goods under GST

Section 12 of Proposed GST Law provides the point of taxation i.e. the time of supply of when a taxable person shall be liable to pay tax to Government. Where Section 7 “Meaning of Supply” prescribes “What is tax is imposed, time of supply decides “When this tax is imposed” If the events have not occurred, then the levy of tax is postponed until the taxable events occur.

 1.4.1 As per Section 12 (1), the time of supply of goods shall be determined according to the   provisions of this section.

Time of supply of goods is

a) The date of issue of invoice by the supplier or the last date on which he is required, under sub-section (1) of section 31, to issue the invoice with respect to the supply b) The date on which the supplier receives the payment with respect to the supply {Advance Payment}
                       Whichever is earlier {Section 12(2)}

1.4.2   Section 31(1) of GST Law provides that A Registered Person supplying the goods shall on or before the

a) Removal of goods for supply to the recipient, where the supply involves movement of goods b) Delivery of goods or making available thereof to the recipient, in any other case i.e. when goods are not required to be removed

Issue a tax invoice showing the description, quantity and value of goods, the tax charged thereon and such other particulars as may be prescribed:

Provided that the Government may, on the recommendations of the Council, by notification, specify the categories of goods or supplies in respect of which a tax invoice shall be issued, within such time and in such manner as may be prescribed

Hence supply of goods could not be made without the issuance of invoice.

 1.4.3. Section 2(105) provides the meaning of Supplier as follow

Supplier” in relation to any goods or services or both, shall mean the person supplying the said goods or services or both and shall include an agent acting as such on behalf of such supplier in relation to the goods or services or both supplied;

1.4.4 Section 2(96) “Removal means—

a) Dispatch of the goods for delivery by the supplier or by any other person acting on behalf of such supplier or;

b) Collection of the goods by the recipient thereof or by any other person acting on behalf of such recipient.

Removal should be understood from the actual transportation of goods by the supplier of goods to recipient.  Actual transportation should be understood when goods are taken by the supplier with intention of transportation to the recipient, not when the goods are actually placed in the hand of supplier.  It is important to note that removal must be made with purpose i.e. whenever removal is referred, it must be used with reference to the purpose behind each removal.

If Goods are not required to be removed, then goods should be made available to recipient i.e. the effective control of goods should be given by supplier to recipient. If effective control is given by supplier to recipient, it would be treated as supply.

The supplier must do an act which indicates that goods are required to be removed and goods are in deliverable state. If goods are not in deliverable state, even it is for furtherance of business, there would be no tax incidence.

Goods in deliverable state mean that no action or act is required to be performed by supplier to make them usable for recipient and are taken up for transportation in case goods are  required to be removed or made available to recipient if goods are not required to be removed.

1.4.5. Section 2(95) “Recipient of Supply

Recipient” of supply of goods or services or both, means—

a) Where a consideration is payable for the supply of goods or services or both, the person who is liable to pay that consideration;

b) Where no consideration is payable for the supply of goods, the person to whom the goods are delivered or made available, or to whom possession or use of the goods is given or made available; and

c) Where no consideration is payable for the supply of a service, the person to whom the service is rendered,

And any reference to a person to whom a supply is made shall be construed as a reference to the recipient of the supply and shall include an agent acting as such on behalf of the recipient in relation to the goods or services or both supplied

1.4.6. It is further provided that for the purpose of Section 12(2)(a) or Section 12(2)(b) supply shall be deemed to have been made to the extent it is covered by the invoice or as the case may be by the receipt of invoice. {Explanation 1}

1.4.7. For the purposes of Section 12(1)(b), “the date on which the supplier receives the payment” shall be

a) The date on which the payment is entered in his books of account or

b) The date on which the payment is credited to his bank account,

Whichever is Earlier.

A registered person shall, on receipt of advance payment with respect to any supply of goods or services or both, issue a receipt voucher or any other document, containing such particulars as may be prescribed, evidencing receipt of such payment; {Section 31(3)(d)}

1.4.8. First Proviso to Section 12(2)

Where the supplier of taxable goods receives an amount upto 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 in respect of such excess amount.

This mean where any supplier of taxable goods receives advance payment over and above the payment to be received against invoice value, no tax is to be paid on such advance as specified in Section 12(2)(d). Liability to tax shall be raised only at the time when goods are removed against such advance and an invoice is issued for the supply of said goods.

1.4.9 The above provisions are explained with an example as below:

S.No. Particulars Date of Removal Date of Invoice Date  when goods made available to recipient Date on which recipient records receipt of goods in his book Date of Receipt of Payment in Bank Account Time of Supply
1. If goods are required to be removed 21.04.2017 21.04.2017 22.04.2017 22.06.2017 20.06.2017 21.04.2017
2. If Goods are not required to be removed (Note No. 1.4.10) 18.05.2017 18.05.2017 25.07.2017 21.07.2017 18.05.2017
3. Issue of Invoice 21.05.2017 20.05.2017 26.05.2017 23.05.2017 10.08.2017 20.05.2017
4. Receipt of Payment 10.06.2017 10.06.2017 16.06.2017 10.06.2017 09.06.2017 09.06.2017
5. Recipient recording receipt of goods 11.07.2017 11.07.2017 17.07.2017 10.07.2017 15.07.2017 10.07.2017

1.4.10. Goods are not required to be removed when goods:

a) Are physically not capable of being moved.

b) Are supplied is assembled or installed from

c) Are supplied by the supplier to his agent or his principal.

Goods are placed at the disposal of the recipient.

1.4.11. So time of supply can’t be decided by “Issuance of Invoice” on standalone basis. Therefore time of supply is left to be decided based on issuance of invoice or receipt of payment, applies in cases where something is done that subverts the time of supply under sub clause (i) and (ii) of clause (a) of Sub Section 2.

1.5.0 Time of Supply i.e. Point of Taxation under Reverse charge Mechanism

Reverse Charge is a mechanism in which the recipient is liable to pay the tax. Under the present system, such mechanism is operated under Service Tax or one or more state vat like UP VAT, in which the recipient of Service or Goods are liable to make the payment of respective tax.

1.5.1 Reverse Charge under the Present Indirect Tax

a) Under the Present UP VAT,

If taxable goods are purchased from a person other than a registered person i.e. purchase from unregistered dealer, then such registered person is liable to pay tax on turnover of purchase at the same rate at which the turnover of sale of tax goods are liable to tax in accordance with the provision of UP VAT. {Section 5(1) of UP VAT}

b) Under the Present Service Tax

Proviso to Section 68 provides that the Central Government may notify the service and the extent of service tax which shall be payable by such person and the provisions of this Chapter shall apply to such person to the extent so specified and the remaining part of the service tax shall be paid by the service provider. Initially Reverse Charge mechanism was introduced with effect 1st January 2005 through Notification No. 36/2004, which further extended by including partial reverse charges with effect from 1st July 2012 by vide Notification No. 30/2012 amended by time to time vide Notification No. 45/2012, 10/2014 and by 7/2015.

1.5.2. Reverse Charge Mechanism under GST

a) The proposed GST Law has prescribed a mechanism of reverse charge for the goods on similar basis as contained in present system. Section 2 (98) prescribe the meaning of Reverse Charges as follows:

“Reverse Charge” means the liability to pay tax by the recipient of supply of goods or services or both instead of the supplier of such goods or services or both under sub-section (3) or sub-section (4) of section 9, or under sub-section (3) or subsection (4) of section 5 of the Integrated Goods and Services Tax Act.

c) The Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both. {Section 9(3)}. For understanding we could draw the inference from the present systems of Custom where Counter Veiling duty is levied equivalent to excise duty or special counter veiling duty levied equivalent to VAT in case of import of goods from outside India.  The Government is yet to notified such class of supply of goods.

d) The central tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis as the recipient and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both. {Section 9(4)}{Similar to current system of UP VAT}

e) 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 earliestof the following date  namely—

1. The date of receipt of goods; or {Section 12(3)(a)}

2. (i)  The date of payment entered in the books of account of the recipient; or

(ii) Date on which the payment is debited in his bank account; (whichever is earlier){Section 12(3)(b)}{ Advance payment for the goods to be received} or;

3. The date immediately following the thirty days from the date of issue of invoice or any other document by whatever name called, in lieu thereof by the supplier. {Section 12(3)(c)}{For this, inference can be drawn from the import of goods from outside India where counter veiling duty and special counter veiling duty are levied on the import to goods and commercial invoice is issued by the supplier.}

4.  Where the provisions of Section 12(3)(a) or 12(3)(b) or 12(3)(c) become inapplicable then, time of supply shall be the date of entry in the books of account by the recipient of supply {Proviso to Section 12(3)}

f) The registered person liable to pay tax under reverse charge mechanism, shall issue an invoice to the supplier who is not registered under GST, in respect to goods or service received by him {Section 31(3)(f)}

h) The registered person liable to pay tax under reverse charge mechanism shall issue a payment voucher at the time of making payment. {Section 31(3)(g)}

i)  With the help of following presentation, we can illustrate the above provisions:

S.No. Particulars Date of receipt of Goods Date of Payment entered into Books of Recipient Date of Payment made through Bank Date immediately following 30 days from the date of issue of invoice Time of Supply.
1. When Goods are required to be removed / or goods made available to recipient 10.4.2017 19.04.2017 20.04.2017 Invoice Issuance date 25.04.2017 + 30days = 26.05.2017 10.04.2017
 
2. Issue of Payment 20.04.2017 10.04.2017 11.04.2017 Invoice Issuance date 25.04.2017 + 30days = 26.05.2017 10.04.2017
3. Issue of Payment 20.04.2017 11.04.2017 10.04.2017 Invoice Issuance date 25.04.2017 + 30days = 26.05.2017 10.04.2017
4. Issuance of Invoice 20.05.2017 25.06.2017 27.06.2017 Invoice Issuance date 14.04.2017+ 30days =15.05.2017 15.05.2017

1.6.0. Time of Supply in case of Vouchers:

a) Vouchers are simply a piece of paper that entitle that holder of voucher to get discount or that may be exchanged for goods or service.

b) These vouchers are considered as actionable claim. Actionable Claim” means a claim to any debt, other than a debt secured by mortgage of immovable property or by hypothecation or pledge of movable property, or to any beneficial interest in movable property not in the possession, either actual or constructive, of the claimant, which the civil courts recognize as affording grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional or contingent{Section 3 of Property Act 1882}

c) Under the Present System, these vouchers are not considered as goods. Under the Sales of Goods Act  1930, Goods” means every kind of movable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale” (Clause  7 of Section 2 of Sales of Goods Act 1930)

d) However under the GST Act, these vouchers are considered as goods by including the actionable claim under the definition of goods.  Due to increase of practice of discount vouchers offered by online e –commerce sites, it is necessary to include these vouchers under the Tax preview.

e) Taxability of Vouchers

As Per Section 2(118) of GST Act “Voucher” means an instrument where there is an obligation to accept it as consideration or part consideration for a supply of goods or services or both and where the goods or services or both to be supplied or the identities of their potential suppliers are either indicated on the instrument itself or in related documentation, including the terms and conditions of use of such instrument.

In Modern Era, trends of electronic vouchers like promo code or festival vouchers are increasing considerably. Under the Present System, the taxability of these vouchers is defeated because these vouchers are considered as Actionable Claims and under the Sales of Goods Act 1930, actionable claims have been excluded from the meaning of Goods.

Hence GST Act specifically provides the provisions for taxability of these vouchers in the following manners:

1. The date of issue of voucher, if the supply is identifiable at that point;

or;

2. The date of redemption of voucher, in all other cases {Section 12(4)}

f) Here supply means those goods / service along with these vouchers are given. For example, if supplier of Refrigerator gives offer that in case of purchase of Refrigerator amounting to Rs. 10000/-, buyer will get discount vouchers worth of Rs. 500/- to be redeem in next purchase of anything.  In this case supplier has to pay tax on the vouchers along with the refrigerator in following manner:

Particulars Amount (Rs)
Refrigerator Price 10000/-
Voucher 500/-
Total Sales Price 10500/-
Add:
CGST (Assume 5%) 525/-
SGST (Assume 5%) 525/-
Total Bill Value 11550/-

When buyer shall redeem this voucher in against the next purchase of any other item, sales price would be reduced and tax would be levied on the net purchase value. {Explanation to Point 1)

g) In case supplier give free discount vouchers like PAYTM offer discount voucher code called promo called to be redeem with any purchase on PAYTM. In this, tax on such promo code would be levied when redeem with purchase.

1.7.0. In case  if it is not possible to determine the time of supply under the provisions of Sub section (2) (3) or (4), the time of supply shall:

a) In case where a periodical return has to be filed, be the date on which return is to be filed or

b) In any other case, be the date on which CGST/ SGST paid.  {Sub Section 5  of Section 12}

1.8.0. Goods Sent on Return or Approval Basis : Time of Supply

Section 31(7) which has overrule effect provide that

Notwithstanding anything contained in sub-section (1) of Section 31, where the goods being sent or taken on approval for sale or return are removed before the supply takes place, the invoice shall be issued:–

a) before or at the time of supply;  or

b) six months from the date of removal,

 whichever is earlier

This is important to note that each removal should be made with the intention of supply. Where the goods are removed with the intention for giving property in goods at future date, then time of supply shall be:–

a) When Buyer approve the goods; or

b) Lapse of six months time period; whichever is earlier.

1.9.0. Time of Supply : Change in Rate of  Tax {Section 14}

Under the Present system of Indirect Tax, Rule 4 of Point of Taxation under Service Tax, prescribes procedures to determine the point of taxation and levy of tax, in case of change in effective rate. Similar provisions have been introduced in GST by covering the goods also.

1.9.1.  Situation I: Date of Supply of goods before the Change in Rate of Tax.

Where goods have been supplied before the change in rate of tax, the time of supply shall be determined in the following manner. For example, Goods has been delivered on 28th May 2017 where present rate of tax is 10% and from 31st May 2017, rate of tax would be 15%

S.No. Date of Supply of Goods Date of Issuance of Invoice Date of Receipt of Payment Time of supply Applicable Rate
1. Before the change in Rate Issue of Invoice After the Change in Rate of Tax Receipt of Payment After the Change in Rate of Tax Time of Supply would be issuance of invoice or receipt of payment whichever is earlier New Rate
  28th May 2017 1st June 2017 2nd June 2017 1st June 2017 15%
It is important to note that as per Section 31 (1)- Registered Person should issue an invoice before or at the time of supply of goods. Hence removal of goods is not possible without issuance of invoice. This means applicability of Point 1 might not be possible. Further GST has not prescribed any concept of sending the goods on challan, and issuance of invoice at later date.  However when goods are removed on return or approval basis then applicability of Point 1 comes into picture.  Further where there is continuous supply, this could be possible (discussion at later point)
           
2. Before the change in Rate Issuance of  invoice before the Change in rate of Tax Receipt of Payment after the change in rate of tax Time of Supply shall be issuance of Invoice. Old Rate
28th May 2017 28th May 2017 2nd June 2017 28th May 2017 10%
 
3 Before the change in rate Issuance of Invoice after the change in rate of Tax Receipt of Payment Before the change in rate of Tax Time of supply shall be Receipt of Payment Old Rate
28th May 2017 2nd June 2017 26th May 2017 26th May 2017 10%
This situation is possible where goods is to be delivered at future date and payment received on advance basis.

 1.8.1.  Situation II: Date of Supply of goods after the Change in Rate of Tax.

Where goods have been supplied after the change in rate of tax, the time of supply shall be determined in the following manner. For example, on 28th May 2017 present rate of tax is 10% and from 31st May 2017, rate of tax would be 15%

S.No. Date of Supply of Goods Date of Issuance of Invoice Date of Receipt of Payment Time of supply Applicable Rate
1. After the change in Rate of Tax Issue of Invoice After the Change in Rate of Tax Receipt of Payment Before the Change in Rate of Tax Time of Supply would be issuance of invoice New Rate
  2nd June 2017 2nd June 2017 28th May 2017 2nd June 2017 15%
It is important to note that as per Section 31 (1)- Registered Person should issue an invoice before or at the time of supply of goods.
           
2. After the change in Rate Issuance of  invoice before the Change in rate of Tax Receipt of Payment after the change in rate of tax Time of Supply shall be issuance of Invoice. New Rate
2nd June 2017 28th May 2017 2nd June 2017 2nd June 2017 15%
This is possible in a situation where supplier issue the invoice before the change in rate of tax and removal of goods is made after the change in rate of  tax.  in this case supplier shall issue an supplementary invoice.
 
3 After the change in rate Issuance of Invoice Before the change in rate of Tax Receipt of Payment Before the change in rate of Tax Time of supply shall be Receipt of Payment or issuance of invoice whichever is earlier Old Rate
2nd June 2017 28thMay 2017 26th May 2017 26th May 2017 (to the extent 10%
This situation is possible where goods is to be delivered at future date and payment received on advance basis.

2.0 Time of Supply of Service

Under the Present System of Service Tax, Service Provider as specified under Section 68(1) or Service Receiver as specified in Section 68(2) of Finance Act 1994, is liable to pay tax in accordance to Rule 3 (Determination of Point of Taxation) Point of Taxation Rule 2011 notified from 1st April 2011.

As Per Rule 2(e) “Point of Taxation means the Point in Time when a service shall be deemed to have been provided”.

With the help following table, a comparative analysis is provided to give better understanding:

Situation Present Provisions GST Provisions Difference
Invoice is issued with the prescribed Period of Time a) Date of Issue of Invoice; or

b) Date of Receipt of Payment

(whichever is earlier)

a) Date of Issue of Invoice; or

b) Date of Receipt of Payment (Note 2.1);

(whichever is earlier) {Section 13(2)(a)}

No Difference
     
Prescribed Time Period Rule 4A of Service Tax Rule 1994 prescribes the Time Period which is as follow:

a) 30 Days from the Completion of Service for every sector other than Banking & Financial Sectors

b) 45 days from the completion of service in case of Banking & Financial Sectors

Rule for Tax Invoice in pursuant to Section 31(2) prescribes the Time Period which is as follow:

a) 30 Days from the date of supply of service for every sector other than Banking & Financial Sectors

b) 45 Days from the date of supply of service in case of Banking and & Financial Sectors.

No Difference
       
Invoice is not issued within the Prescribed Period of Time a) Date of Completion of Service; or

b) Date of Receipt of Payment (whichever is earlier)

a) Date of Provisions of Service; or

b) Date of Receipt of Payment;

(whichever is earlier){Section 13(2)(b)}

No Difference
       

The above provisions should be explained with the help of following examples

S.No. Situation Date of Completion of Service Date of Issue of Invoice Date of Receipt of Payment Time of Supply
1. Invoice is issued within the prescribed Time Period 10th April 2017 28th April 2017 29th April 2017 Date of issuance of Invoice or Receipt of Payment whichever is earlier i.e. 28th April 2017
 
2. Invoice is issued within the prescribed Time Period 10th April 2017 30th April 2017 27th April 2017 Date of issuance of Invoice or Receipt of Payment whichever is earlier i.e. 27th April 2017
 
3. Invoice is issued within the prescribed Time Period 10th April 2017 28th April 2017 50% Payment received on 9th April 2017 i.e. Advance Payment Received and Balance 50% on 30th April 2017 For Advance 50% Payment Received, Time of Supply shall be 9th April 2017 as advance payment shall be considered as Supply and for Remaining 50%, Time of Supply shall be 28th April 2017
 
4 Invoice is not issued within the Prescribed Time Period 5th April 2017 6th May 2017 28th April 2017 Date of Completion of Service or Receipt of Payment whichever is earlier i.e. 5th April 2017
5. Invoice is not issued within the Prescribed Time Period 6th April 2017 10th May 2017 4th April 2017 Date of Completion of Service or Receipt of Payment whichever is earlier i.e. 4th April 2017
 
6. Invoice is not issued within the Prescribed Time Period 10th April 2017 15th May 2017 50% Payment received on 9th April 2017 i.e. Advance Payment Received and Balance 50% on 30th April 2017 For Advance 50% Payment Received, Time of Supply shall be 9th April 2017 as advance payment shall be considered as Supply and for Remaining 50%, Time of Supply shall be 10th April 2017
 

2.1.0 Explanation for Date of Receipt of Payment

Date on which the payment is entered in the Books of Accounts of the Supplier Date on which the Payment is credited in the Bank Account of the Supplier
Whichever is earlier {Explanation (ii) to Section 13(2)(a) & (b)}

2.1.1. The supply shall be deemed to have been made to the extent it is covered by the invoice or as the case may be by the payment. {Explanation (i) to Section 13(2)(a) & (b)}

2.1.2 Newly inserted Clause:- Section 13(2)(c)

The GST Act has inserted a newly clause which prescribes that in case where Provisions of Section 13(2)(a) or Section 13(2)(b) do not apply, then time of supply shall be The date on which the recipient show the receipt of service in his books of account”.

By the Insertion of this clause, The Act has created a confusing situation to determine when the recipient, show the receipt of service. Further Act doesn’t explain the those situations where provisions of Section 13(2)(a) or Section 13(2)(b) would not be applicable.

2.1.3 Advance Payment upto Rupee One Thousand excess of Invoice Value

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

For Example MR. A has issued an invoice of Rs. 5000/- to Mr. B on 5th April 2017, in respect of which Mr. A receives Rs. 6000/- on 12th April 2017. Mr. A has issued an invoice of Rs. 1000 in respect of such excess amount on 20th May 2017.

Hence for this excess amount, Point of Taxation will be date of issuance of invoice i.e. 20th May 2017.  {First Proviso Section 13(2)}

2.2. How to Determine the Completion of Service

The GST Act doesn’t contain any provisions which specify the rules to determine the Completion of Service. To understand the rules or terms & conditions to determine the Completion of Service, we should focus on Circular No. 144/13/2011 issued by CBEC on 18th July 2011, which has been reproduced here:

Representations requesting clarification on “completion of service” as provided under the Point of Taxation Rules, 2011 and Service Tax Rules, 1994 have been received from certain sections of service providers that in many situations it is not possible to issue invoices within 14 days of the completion of the service since the exact date of completion of service is difficult to identify. Instances have been given where after the task of providing the service may be physically accomplished, but certain other formalities are required to be completed from the client’s end before an invoice can be issued.

These representations have been examined. The Service Tax Rules, 1994 require that invoice should be issued within a period of 14 days from the completion of the taxable service. The invoice needs to indicate interalia the value of service so completed. Thus it is important to identify the service so completed. This would include not only the physical part of providing the service but also the completion of all other auxiliary activities that enable the service provider to be in a position to issue the invoice. Such auxiliary activities could include activities like measurement, quality testing etc which may be essential pre-requisites for identification of completion of service. The test for the determination whether a service has been completed would be the completion of all the related activities that place the service provider in a situation to be able to issue an invoice. However such activities do not include flimsy or irrelevant grounds for delay in issuance of invoice.

The above interpretation also applies to determination of the date of completion of provision of service in case of “continuous supply of service”.

In simple terms in order tom determine, the completion of service, following conditions should be satisfied:

1. Completion of Physical Activities i.e. Direct activities relating to provisions of service.

2. Completion of pre-requisite incidental activities,  i.e. support activities.

For Example, in case of construction service, Service should be deemed to be completed when

1. Physical construction in all aspect has been completed. Suppose Builder completes the constructed on 23rd September 2017.

2. Completion of Pre- requisite incidental activities, Suppose Builder gets Completion Certificate from Appropriate Authority on 28thDecember 2017.

Hence the time period of completion of service of shall be 28th December 2017.

2.3 Point of Taxation in case of Reverse Charge

a) Meaning of Reverse Charge

The proposed GST Law has prescribed a mechanism of reverse charge for the goods on similar basis as contained in present system. Section 2 (98) prescribe the meaning of Reverse Charges as follows:

“Reverse Charge” means the liability to pay tax by the recipient of supply of goods or services or both instead of the supplier of such goods or services or both under sub-section (3) or sub-section (4) of section 9, or under sub-section (3) or subsection (4) of section 5 of the Integrated Goods and Services Tax Act.

b)The Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both. {Section 9(3)}.

c) The central tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis as the recipient and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both. {Section 9(4)}

d) Under the Present system of Reverse Charges as specified under Section 68(2), the Recipient of Service is liable to pay tax in the same manner as if he is service provider.  As per Rule 7 of Point of Taxation Rule 2011,  Point of Taxation in case of Reverse charge shall be

“Date on which payment is made”

e) Provided that, where the payment is not made within a period of three months of  the date of invoice, the point of taxation shall be determined the date immediately following the said period of three months :

f) Provided further that in case of “associated enterprises”, where the person providing the service is located outside India, the point of taxation shall be

(i) The date of debit in the books of account of the person receiving the service or

(ii) Date of making the payment——–whichever is earlier.

g) Under the GST Act, Point of Taxation shall be determined in accordance to provisions of Section 13(3) which provides that

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:––

(1) 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; {Section 13(3)(a)} or

(2) 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; {Section 13(3)(b)}

h) The GST Act further provides that in case of associated enterprises, where the supplier of service is outside India, time of supply shall be

(1) The date of entry in the books of account of the recipient of supply or
(2) The date of payment ———-whichever is earlier.

i) Associate Enterprises shall have the same meaning as assigned to it in Section 92A of the Income Tax Act 1961.

As per Section 92A of Income Tax Act; Associate Enterprises means “An Enterprise

(a) Which participates, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise; or {Section 92A(1)(a)}

(b) In respect of which one or more persons who participate, directly or indirectly, or through one or more intermediaries, in its management or control or capital, are the same persons who participate, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise.{Section 92A(1)(a)}

(2) For the purposes of sub-section (1), two enterprises shall be deemed to be Associated  Enterprises if, at any time during the previous year,—

a. One enterprise holds, directly or indirectly, shares carrying not less than twenty-six per cent of the voting power in the other enterprise; or

b. Any person or enterprise holds, directly or indirectly, shares carrying not less than twenty-six per cent of the voting power in each of such enterprises; or

c. A Loan advanced by one enterprise to the other enterprise constitutes not less than fifty-one per cent of the book value of the total assets of the other enterprise; or

d. One enterprise guarantees not less than ten per cent of the total borrowings of the other enterprise; or

e. More than half of the board of directors or members of the governing board, or one or more executive directors or executive members of the governing board of one enterprise, are appointed by the other enterprise; or

f. More than half of the directors or members of the governing board, or one or more of the executive directors or members of the governing board, of each of the two enterprises are appointed by the same person or persons; or

g. The manufacture or processing of goods or articles or business carried out by one enterprise is wholly dependent on the use of know-how, patents, copyrights, trade-marks, licences, franchises or any other business or commercial rights of similar nature, or any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process, of which the other enterprise is the owner or in respect of which the other enterprise has exclusive rights; or

h. Ninety per cent or more of the raw materials and consumables required for the manufacture or processing of goods or articles carried out by one enterprise, are supplied by the other enterprise, or by persons specified by the other enterprise, and the prices and other conditions relating to the supply are influenced by such other enterprise; or

i. The goods or articles manufactured or processed by one enterprise, are sold to the other enterprise or to persons specified by the other enterprise, and the prices and other conditions relating thereto are influenced by such other enterprise; or

j. Where one enterprise is controlled by an individual, the other enterprise is also controlled by such individual or his relative or jointly by such individual and relative of such individual; or

k. Where one enterprise is controlled by a Hindu undivided family, the other enterprise is controlled by a member of such Hindu undivided family or by a relative of a member of such Hindu undivided family or jointly by such member and his relative; or

l. Where one enterprise is a firm, association of persons or body of individuals, the other enterprise holds not less than ten per cent interest in such firm, association of persons or body of individuals; or

m. There exists between the two enterprises, any relationship of mutual interest, as may be prescribed.

2.3.1 The GST Act has inserted a proviso to Section 13(3) which provides 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.

However the GST Act has not specified those situation where Section 13(3)(a)or Section 13(3)(b) is inapplicable. This would let confusion about the applicability or non applicability or Section 13(3).  

2.3.2 With the help of following table, a comparative study of current provisions of Reverse charge and provisions in GST Act is made for the better understanding:

Situation Current Provisions GST Provisions Difference
When Payment is made within the Time Point of Taxation shall be Date of Payment (Rule 7 of Point of Taxation Rule 2011) Date of Payment {Section 13(3)(a)} No Difference
 
When Payment is not made within the Time If payment is not made within 3 months from the date of invoice; then the point of taxation shall be The Date immediately following the 3 months If payment is not made within 60 days from the date of invoice; then the point of taxation shall be The Date immediately following the 60 days The time limit has been reduced from 3 months to 60 days.
 
In Case of Associated Enterprises The date of debit in the books of account of the person receiving the service;  or

The date of payment——– whichever is earlier.

The date of entry in the books of account of the recipient of supply or

The date of payment ——whichever is earlier.

No Difference

With the help of following table , a detailed analysis is made to understand the provisions :

S.No. Particulars Date of Receipt of Service Date of Payment entered into Books of Recipient Date of Payment made through Bank Date immediately following 60 days from the date of issue of invoice Time of Supply.
1. Payment Made 10th April 2017 12th  April 2017 11th April 2017 Invoice Date 10th April 2017 +60 days i.e. 11th June 2017 11th April 2017
   
2. Payment Made 10th April 2017 12th  April 2017 14th April 2017 Invoice Date 10th April 2017 +60 days i.e. 11th June 2017 12th April 2017
 
3. Payment Made after 60 days 12th April 2017 15th June 2017 18th June 2017 Invoice Date 12th April 2017 +60 days i.e. 13th June 2017 13th June 2017

Transaction with Associated Enterprises

S.No. Particulars Date of Entry in the Books of Recipient Date of Payment Time of Supply
4. Transaction with Associated Enterprises 12th April 2017 15th April 2017 12th April 2017 (Date of Entry in the Books of Recipient or Date of Payment whichever is earlier)
   

 

5. Transaction with Associated Enterprises 12th April 2017 5th April 2017(Advance Payment) 5th April 2017 (Date of Entry in the Books of Recipient or Date of Payment whichever is earlier)

2.4.0 Time of Supply in case of Vouchers

a)  Taxability of Vouchers

As Per Section 2(118) of GST Act “Voucher” means an instrument where there is an obligation to accept it as consideration or part consideration for a supply of goods or services or both and where the goods or services or both to be supplied or the identities of their potential suppliers are either indicated on the instrument itself or in related documentation, including the terms and conditions of use of such instrument.

In Modern Era, trends of electronic vouchers like promo code or festival vouchers are increasing considerably. Under the Present System, the taxability of these vouchers is defeated because these vouchers are considered as Actionable Claims and under the Sales of Goods Act 1930, actionable claims have been excluded from the meaning of Goods.

Hence GST Act specifically provides the provisions for taxability of these vouchers in the following manners:

1. The date of issue of voucher, if the supply is identifiable at that point;

or;

2. The date of redemption of voucher, in all other cases {Section 13(4)}

b) Here supply means those services along with these vouchers are given. For example, if supplier of Repair Service gives offer that in case of availability of Repair Service amounting to Rs. 10000/-, buyer will get discount vouchers worth of Rs. 500/- to be redeem in next service of anything.  In this case supplier has to pay tax on the vouchers along with the refrigerator in following manner:

Particulars Amount (Rs)
Repair & Maintenance Service Charges 10000/-
Voucher 500/-
Total Sales Price 10500/-
Add:
CGST (Assume 5%) 525/-
SGST (Assume 5%) 525/-
Total Bill Value 11550/-

When buyer shall redeem this voucher in against the next service of any other item, sales price would be reduced and tax would be levied on the net purchase value. {Explanation to Point 1)

c) In case supplier give free discount vouchers like PAYTM offer discount voucher code called promo called to be redeem with any purchase on PAYTM. In this, tax on such promo code would be levied when redeem with service.

2.5.0. Residual  Provisions —

(i) Section 13(5): Where it is not possible to determine the time of supply under the provisions of  sub-section (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

(ii) Cessation of Service: In terms of Section 31(6) of GST Act, where the supply of services ceases under a contract before the completion of the supply, the invoice shall 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.

For Example Lalit JR Sharma & Associates has been appointed by A Limited on 28th April 2017 as its Internal Auditors, but due to certain issue Lalit JR Sharma & Associates gives its resignation on 30th June 2017 and cease to supply service under a contract before the completion of service.

In this case, time of supply shall be Date when supply cease i.e. 30th June 2017 and is liable to pay tax accordingly.

2.6.0. Time of Supply : Change in Rate of  Tax {Section 14}

Under the Present system of Indirect Tax, Rule 4 of Point of Taxation under Service Tax, prescribes procedures to determine the point of taxation and levy of tax, in case of change in effective rate. Similar provisions have been introduced in GST by covering the services.

2.6.1.  Situation I: Date of Supply of Service before the Change in Rate of Tax.

Where goods have been supplied before the change in rate of tax, the time of supply shall be determined in the following manner. For example, Service has been completed on 28th May 2017 where present rate of tax is 10% and from 31st May 2017, rate of tax would be 15%

S.No. Date of Supply of Service Date of Issuance of Invoice Date of Receipt of Payment Time of supply Applicable Rate
1. Before the change in Rate Issue of Invoice After the Change in Rate of Tax Receipt of Payment After the Change in Rate of Tax Time of Supply would be issuance of invoice or receipt of payment whichever is earlier New Rate
  28th May 2017 1st June 2017 2nd June 2017 1st June 2017 15%
 
2. Before the change in Rate Issuance of  invoice before the Change in rate of Tax Receipt of Payment after the change in rate of tax Time of Supply shall be issuance of Invoice. Old Rate
28th May 2017 28th May 2017 2nd June 2017 28th May 2017 10%
 
3 Before the change in rate Issuance of Invoice after the change in rate of Tax Receipt of Payment Before the change in rate of Tax Time of supply shall be Receipt of Payment Old Rate
28th May 2017 2nd June 2017 26th May 2017 26th May 2017 10%
 
4. Before the Change in Rate Issuance of Invoice after the change in rate of tax along with beyond the prescribed period Receipt of Payment after the change in Rate of Tax Time of Supply would be issuance of invoice or receipt of payment whichever is earlier New Rate
  28th May 2017 30th June 2017 5th June 2017 5th June 2017 15%
It is important to note that if there is change in rate of tax and invoice is issued beyond the prescribed period of time, even then following provisions would not be applicable

a) Receipt of Payment or

b) Completion of Service.

Situation II: Date of Supply of Service after the Change in Rate of Tax.

Where goods have been supplied after the change in rate of tax, the time of supply shall be determined in the following manner. For example, on 28th May 2017 present rate of tax is 10% and from 31st May 2017, rate of tax would be 15%

S.No. Date of Supply of Service Date of Issuance of Invoice Date of Receipt of Payment Time of supply Applicable Rate
1. After the change in Rate of Tax Issue of Invoice After the Change in Rate of Tax Receipt of Payment Before the Change in Rate of Tax Time of Supply would be issuance of invoice New Rate
  2nd June 2017 2nd June 2017 28th May 2017 2nd June 2017 15%
 
           
2. After the change in Rate of Tax Issuance of  invoice before the Change in rate of Tax Receipt of Payment after the change in rate of tax Time of Supply shall be issuance of Invoice. New Rate
2nd June 2017 28th May 2017 2nd June 2017 2nd June 2017 15%
 
 
3 After the change in Rate of Tax Issuance of Invoice Before the change in rate of Tax Receipt of Payment Before the change in rate of Tax Time of supply shall be Receipt of Payment or issuance of invoice whichever is earlier Old Rate
2nd June 2017 28thMay 2017 26th May 2017 26th May 2017 10%
 

For any Query Please contact to me on  +91-9013490513, 8920290261 or send a mail on LALITJRSHARMA@GMAIL.COM.

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6 responses to “Time of Supply –Point of Taxation of Goods or Service under GST”

  1. Ritesh says:

    In J&K service tax was not applicable. Now GST is applicable on services. What would happen in case of services struck mid way. Is there any provision for same or is it same as was in case of services tax for ‘service getting taxable for 1st time ‘

  2. Rakesh kumar says:

    If service recd. and invoice date in june-17, and payment made in july-17 what will pay tax under reverse charge, if will book in july-17 then

  3. sumeet garg says:

    sir,

    can we have doing maintenance of our building can be issue maintenance bill for 3 months in first month.

  4. PAVAN MAHULKAR (STO,NAGPUR) says:

    clause (a) and (b) of section 14,
    mentions thet
    “in case the goods or services or both have been supplied before/after change in rate of tax ”
    then why sub-clauses again finds the time of supply?

  5. Tarunkumar D Trivedi(Advocate) says:

    Lot of thanks for writing in-depth and in easily digestible form on time of supply

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