“Time of supply” determines when the tax payer has to discharge tax on  supply. Section 12-14 of CGST Act,2017 govern time of supply. As per section 12 of CGST, the time of supply is determined with reference to the time when the supplier receives payment. Generally time of supply is earliest of  issuance of invoice or receipt of payment. Time of supply is fixed at the point when “advance is received” , irrespective of the fact whether the supply is made or not. Hence GST should be paid at the time supplier receives advance payment.

 Recognizing the fact that small businessmen may be burdened with compliance issues with regard to GST on advances, the Government has come out with Notification no. 66/2017 dated 15.11.2017, whereby all suppliers of goods  who have not opted for composition scheme, have been exempted from the burden of paying GST on Advances received. For such categories of taxpayers, time of supply would arise only at the time of issue of invoice and they need to discharge GST liability accordingly. But the supplier of services are required to pay GST at the time of receipt of advances.

GST PAID AT HIGHER RATE ON ADVANCE

Many of the goods which were in the highest tax bracket of 28% have been brought down to the 5/12/18% bracket after the decision of the GST Council in its meeting held on 10.11.2017. Notification no. 41/2017-Central Tax (Rate) dated 14.11.2017 has also been issued giving effect to the revised rates. It may so happen that advances were given when the rate was 28% and the supplier has paid tax on it. Subsequently the rate has been reduced to say 18%. Now, assuming supply happened after the change in tax rate and the invoice for the same was also issued after the change in tax rate, the time of supply, according to section 14 of the CGST Act, is the date of issue of invoice. Therefore, 10% additional tax paid can either be adjusted against the balance payment of tax against that particular supply or claimed back as refund.

COMPLIANCE TO BE FOLLOWED:-

Compliance will be followed as per Sec 31(3)(d). As per the provision 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;

The format of Receipt Voucher has been provided by the CGST Rules, 2017:

  1. Name, address, and GSTIN of the supplier
  2. Serial number
  3. Date of its issue
  4. Name, address and GSTIN or Unique Identity Number, if registered, of the recipient
  5. Description of goods or services
  6. Amount of advance taken
  7. Rate of tax (central tax, State tax, integrated tax, Union territory tax or cess)
  8. Amount of tax charged in respect of taxable goods or services (central tax, State tax, integrated tax, Union territory tax or cess)
  9. Place of supply along with the name of State and its code, in case of a supply in the course of inter-State trade or commerce

As per Rule 56(3) of the Rules, every registered person shall keep and maintain a separate account of advances received, paid and adjustments made thereto.

PART PAYMENT IN ADVANCE

Generally it has been seen that only the part of total contract price is given as an advance in that  case  As per the explanation 1 to Section 12 of the CGST Act, 2017 a “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. For instance, an advance of Rs. 10 lacs is received for a supply worth Rs. 1 crore to be made in future. The time of supply to the extent of advance received i.e. Rs.10 lacs shall be at the time of receipt of advance and for the balance amount of Rs. 90 lacs, it shall be determined with reference to date of issue of invoice and other parameters

RATE OF TAX OR PLACE OF SUPPLY IS NOT DETERMINABLE AT THE TIME OF SUPPLY

The proviso to Rule 50 of the Rules  provides that where at the time of receipt of advance, if the rate of tax is not determinable, the tax shall be paid at the rate of 18% and if the nature of supply is not determinable, the same shall be treated as inter-State supply and GST should be paid accordingly.

SUPPLY NOT MADE SUBSEQUENTLY

Once an advance payment has been made and a receipt voucher has also been issued, there may be situations wherein the supply is subsequently not made and the amount of advance is to be refunded back. The following two situation may arise

  • No tax invoice has been issued till that date

In this case , the advance taken can be refunded and a refund voucher would be issued.

  • Tax invoice has already been issued

If tax invoice has been issued and subsequently supply has not been not made then in that case credit note has to be issued to square off the transaction. Credit note can be issued as per sec 34 of CGST Act.

As per Section 31 (3) (e) , where, on receipt of advance payment with respect to any supply of goods or services or both the registered person issues a receipt voucher, but subsequently no supply is made and no tax invoice is issued in pursuance thereof, the said registered person may issue to the person who had made the payment, a refund voucher against such payment;

As per rule 51 of CGST Rules 2017 refund voucher should contain following particulars:-

  1. Name, address and Goods and Services Tax Identification Number of the supplier;
  2. A consecutive serial number not exceeding sixteen characters, in one or multiple series, containing alphabets or numerals or special characters’ hyphen or dash and slash symbolised as “-” and “/” respectively, and any combination thereof, unique for a financial year;
  3.  Date of its issue;
  4.  Name, address and Goods and Services Tax Identification Number or Unique Identity Number, if registered, of the recipient;
  5.  Number and date of receipt voucher issued in accordance with the provisions of rule 50;
  6. Description of goods or services in respect of which refund is made; (g) amount of refund made;
  7. Date of tax (central tax, State tax, integrated tax, Union territory tax or cess);
  8. Amount of tax paid in respect of such goods or services (central tax, State tax, integrated tax, Union territory tax or cess);

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2 Comments

  1. Akahsda Tambat says:

    Sir,

    What about GST liability in case of advance received for supply of service and no supply is to be made subsequently due to cancellation. Also Invoice not issued and the advance payment is to refunded ? (Both transactions i.e. advance and refund in the same month itself)

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