Quick Summary
When Long-Term Contracts Qualify as Continuous Supply of Services In long-term service contracts, clients often give a mobilisation advance. This upfront payment helps the service provider arrange resources, deploy staff, and begin initial work. Such advances are common in operations and maintenanc
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FAQ :
A mobilisation advance is an upfront payment made by a client to a service provider before services begin. Its purpose is to help the supplier arrange resources, deploy staff, and cover initial preparation costs needed for the contract.
Under GST law, the liability for tax on services often arises at the 'time of supply'. For advances, this is typically the earliest of the date of invoice or the date of receipt of payment, meaning GST may be payable as soon as the advance is received, even if services are provided much later.
When a mobilisation advance is received for future services, the supplier must issue a receipt voucher or a similar document as evidence of receipt, as per Section 31(3)(d) of the CGST Act. A tax invoice should not be issued at this stage.
If the client pays only the advance amount without the GST component, the supplier may have to treat the received amount as inclusive of GST and calculate the tax liability using Rule 35 of the CGST Rules, effectively paying GST out of the advance itself.
Suppliers face risks such as premature tax invoicing, working capital strain due to upfront GST payments, and potential input tax credit issues for recipients if invoices are issued too early. Documentation duplication and misalignment between contracts and compliance are also concerns.
The compliant approach involves issuing a receipt voucher upon receiving the advance, discharging GST accordingly, and then issuing a tax invoice upon milestone achievement as per the continuous supply framework, adjusting the advance appropriately.
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