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The concept of "relevant time" is of great importance in tax law parlance. It is the time at which tax is assessed. Rate of duty, exemption notification, valuation provision, abatement etc. are to be examined for the purposes of assessment of tax at the relevant time.

Section 12(1) of the CGST Act says that the liability to pay tax on goods shall arise at the time of supply, as determined in accordance with the provisions of this section. Similarly, Section 13(1) of the CGST Act says that the liability to pay tax on services shall arise at the time of supply, as determined in accordance with the provisions of this section. Clause (iii) of the Section 20 of the IGST Act makes provision of time of supply applicable to the IGST provisions mutatis mutandis. Similar provision is there in Section 21(iii) of the UTGST Act. Thus, liability to pay tax arises at the time of supply.

Determination of time of supply of goods:

Section 12 of the CGST Act makes provision for determination of time of supply of goods. Sub-section (2) of Section 12 says that time of supply shall be date earlier of (a) date of issue of invoice or the last date of issuing invoice under Section 31 or (b) date on which supplier receives the payment with respect to the supply.

Section 31(1) of the CGST Act provides that a registered person supplying taxable goods shall, before or at the time of,-

(a) removal of goods for supply to the recipient, where the supply involves movement of goods; or  

(b) delivery of goods or making available thereof to the recipient, in any other case, issue a tax invoice showing the description, quantity and value of goods, the tax charged thereon and such other particulars as may be prescribed.

Removal in relation to goods means (a) dispatch of the goods for delivery by the supplier thereof 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 [Section 2(96) of the CGST Act].

Reading the provisions together following principles emerges -

(a) An invoice has to be created before removal of goods as defined in Clause (96) of Section 2 of the CGST Act. If invoice is not created time of removal shall be taken as last date of making invoice as mentioned in Section 12.

(b) If invoice is created earlier than time of removal, time of supply shall be treated as date of preparation of invoice.

(c) If payment is received with respect to supply of goods earlier than making of invoice, such payment shall be treated as time of supply.

Concept of time of supply of goods provided in GST law shows a departure from the earlier Central Excise provisions. In the Central Excise provisions invoice was required to be made at the time of removal only. These provisions give liberty to trade and industry to prepare invoice well in advance of removal of goods. Thus, a supplier of goods may issue an invoice to recipient but removes goods only after, say receipt of payment. If in the meantime say, payment is not received, he can cancel the invoice as per provisions of GST laws. Such cancellation of invoice shall not result in removal of goods, retaking or return of goods in the supplier premises etc.

Payment must be in respect of supply:

Clause (b) of the Section 12(2) refers to receipt of payment with respect to supply of goods. The term "with respect to supply" is a restricted term that mere connection to supply. Numerous types of payments are known in the trade parlance which is in connection to the supply, but not with respect to the supply. Many a time earnest money is paid at the time of making bids, or security amount is deposited or advance is paid. Such payments though connected with the supply, are not payments with respect to the supply. Payment with respect to supply can be made only after knowing the quantity, rate etc. of supply.

Thus, time of supply with respect to goods shall be earliest of (a) time of removal or (date of making of invoice or (3) receipt of payment with respect to supply.

Time of supply when tax is to be on RCM:

Section 12(3) 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 earliest of the following dates, namely:-

(a) the date of the receipt of goods; or

(b) 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

(c) the date immediately following thirty 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) or clause (c), the time of supply shall be the date of entry in the books of account of the recipient of supply.

Time of supply in case of Vouchers:

Section 12(4) provides that 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.

Vouchers has been defined under Section 2(118) as  "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.

Residual method:

Section 12(5) says that 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.

Time of supply relevant for rate of duty:

Though taxable event is supply, tax payable is applicable on the time of removal. In Wallace Flour Mills Company Limited v. CC [1989 (4) SCC 592], goods were manufactured when they were exempt. However, the exemption was withdrawn before clearance and becomes liable to duty at the time of removal. It was held that duty is payable as applicable on the date of removal. The case was followed in CCE v. Newman Press [1990 (48) ELT 626 SC] and in Union of India v. Indian Rayon Corporation [1997 (96) ELT 18 SC].

In Kuil Fire Works v. CCE [(1999) 114 ELT 450], the goods were detained and seized by tax authorities. The goods were later released. In the meanwhile, the exemption notification was withdrawn and goods become liable to duty. It was held that the assessee is not entitled for exemption as the exemption notification was not in force on the date of removal of goods, which is the relevant date for assessment of tax.

State/form of goods at the time of supply:

Goods are required to be classified and valued in a state in which they are supplied at the time of supply. Any further processing done after time of supply, or any change in value after time of supply is irrelevant for the purposes of assessment of tax.

Goods are required to be valued in the form they are being supplied at the time of supply. In Shakti Tubes v. CCE [(2002) 51 RLT 463], the assessee was making black pipes in one factory. Manufacture of black pipes attracted duty. The goods were sent to another factory of the same assessee for galvanization. At that time galvanization was not a process amounting to manufacture. It was held that goods were cleared from the excisable factory without galvanization and is required to be valued as such. Cost of galvanization cannot be added to the value of the goods.

Goods are required to classified in the form they are being supply, at the time of supply. Earlier judgments in case of Central Excise is applicable in the present GST regime also. Following case laws can be referred to on this point- CCE v. MM Rubber Co. [(1989) 41 ELT 343], Space Age Engg. v. CCE [(1995) 78 ELT 544], Sunil Ind. v. CCE [(1999) 113 ELT 931], Malwa Cotton v. CCE [(2000) 118 ELT 184].

Additional Consideration:

Time of supply in case of additional consideration:

Section 12(6) says that 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.

The Section appears incongruent. Interest as such is not taxable under GST laws. Interest, late fee or penalty for delayed payment are in the nature of finance cost or cost of money, and as such it cannot be included in the value of goods supplied.

In Ahram Spinning Mills v. CCE [(2006) 197 ELT 365], the Tribunal held that finance cost or interest or any cost subsequent to the time of removal of goods is not includible in the assessable value. Same view was taken in CCE v. Meridian Pharmaceuticals [(2008) 226 ELT 115] wherein it was held that interest on receivable is not includible in the assessable value.

Central Board of Excise & Customs clarified the issue many a times. It was clarified in Circular 643/34/2002-CX dated 01.07.2002 that a manufacturer may recover interest from the buyer if payment is not received on agreed terms. Such delayed payment charges will not be includible in the assessable value. Earlier in Circular 354/81/2000-TRU it was clarified that interest on delayed payment shall not regarded as part of assessable value. Same view was reiterated in para 2.5(iii) of Chapter 3 of the CBE&C’s Central Excise Manual.

There can be additional considerations after making of supply. It can be there due to price variation clauses, additional work to be done or due to numerous other reasons. But using the term interest, late fee and penalty for delayed payment as example of additional consideration is not good legislative drafting. Such provision is likely to create litigation in GST matters.  

The author is an Advocate and can also be reached at custom.excise@gmail.com   

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