First, let us understand the major difference between current system of tax and under GST Law.
Presently we pay,
Excise Duty on goods produced and removed from factory. So the liability arise at the time of removal
Service Tax is charged on rendering services at the time of Receipt of Payment, raising of Invoice / Completion of Services, whichever is earliest.
VAT & CST on sale of goods, transfer of property.
Under GST it will be paid on SUPPLY as defined under section 3 of draft SGST / CGST Act 2016 and section 2(f) of draft IGST Act 2016. The definition includes as follows:
- Goods and Services for consideration.
- Supplies as mentioned in Schedule 1 even without consideration.
- All Imports.
- Supplies between agents and principles etc.
- Branded Service provided by aggregators.
Now we know that GST will be applicable under Supply. To understand supply, we have two components which are very important, one is Time of Supply and other is Place of Supply.
Let us first understand Time of Supply. Section 12 deals with Supply of Goods and section 13 & 14 deals with Supply of Services.
Time of Supply of Goods can be divided under five broad heads.
1. Normal Goods section 12(2)
2. Continuous Supply of Goods section 12(3)
3. Goods under reverse Charge section 12(5)
4. Goods on Sale or Approval Basis section 12(6)
5. Residual Goods Section 12(7)
Tax becomes applicable under Normal Goods
If goods are required to be removed, then date of removal. Removal means dispatch of goods by the supplier or collection of goods by the receiver. This means on commencement of the journey.
If goods are not required to be removed, this can happen when goods are physically not capable of moving, supplied assembled / installed, supplied to his agent / principal.
- Under such case the
- Date of making goods available to the recipient.
- Date of Receipt of Payment of Goods. Earlier of the date of credit in bank or entry in books
- Date of Invoice.
- Record date by recipient in his books.
Earliest of any of the above.
Tax becomes applicable under Continuous Supply of Goods. (Govt. may notify goods are deemed to be continuous supply)
If successive statements are issued or successive payments are involved, then date of expiry of such statement period or date of expiry of such payment period.
If no such statement of account, then date of Invoice or date of Payment. Here payment is not related to receipt in bank.
Earliest of any of the above.
- Tax becomes applicable Goods under Reverse Charge.
- Receipt of Suppliers Invoice
- Receipt of goods.
- Entry in books of accounts.
- Date of Payment, earlier date of debit in bank or entry in accounts
Earliest of any of the above.
- Tax becomes applicable Goods on Sale or Approval basis ( Goods removed before it is known supply will take place or not)
- Earlier of the time
- When it becomes known that supply has taken place OR
- Six months from the date of removal (Removal with purpose of giving up control not ownership as transfer of property is not one of the precondition of supply)
Tax on Residual Supplies.
- Where it is impossible to determine the Time of Supply then
- Earlier of the
- Date on which Periodical Return is to be filed OR
- The date on which CGST / SGST is paid, will be deemed to be time of supply.
Time of Supply of Services can be divided under six broad heads.
- Normal Supply
- Continuous Supply
- Service under Reverse Charge
- Incomplete Supplies
- Residual Supplies
- Supplies due to change in rate of Tax.
Under Normal Supply of Services
- If Invoice is issued within prescribed period (to be prescribed by Rules) then date of Issue of Invoice.
- If Invoice is not issued, then date of completion of service.
- Date of receipt of payment or date of recording by recipient in his books.
- Whichever is earliest of above three.
Under Continuous Supply of Services. (Govt. may notify services which are deemed to be continuous supply)
Contract date if available if due date is ascertainable then due date of payment whether Invoice is issued or payment has been received.
If due date is not ascertainable then each time an Invoice is Issued or Payment is received (whichever is earlier for each supply).
On payment if it is linked to Completion of an Event. (payment not linked to receipt of payment in bank)
Services Under Reverse Charge
- Receipt of Invoice
- Receipt of Services.
- Debit in Books of Accounts.
- Payment in bank or books of account
- Earliest date of above.
Incomplete Supplies of Services
- Supply cease before completion of Supply
- Deemed to have been provided when supply ceases.
Residual Supplies of Services where it is impossible to determine the time of supply.
- Earlier of the date on which Periodical Return is to be filed OR
- The date on which CGST / SGST is paid, will be deemed to be time of supply.
Change in Rate of Tax
Service provided before change in rate of tax then if Invoice issued payment not received then date of Invoice, If Payment received Invoice not issued then date of payment received, if Invoice Not Issued and Payment Not Received then supplier is liable for new rate.
Service provided after change in effective rate of tax then date of payment. Earlier of date of credit or entry in books of accounts. Date or credit in bank if credited after four working days from change in tax rate then date of entry in books of accounts will not be considered at all. If both invoice has been issued and payment has been received before new rate, then Supplier is liable for Old Rate otherwise he is liable for New Rate.
From above we have understood the meaning of Time of Supply of Goods & Services. There could be problems faced on payment of GST on Advance payments. Books of Accounts have not been defined in the Act but provision of Books of Accounts has been used to defining the receipt of payment in various situations. Many clarifications may be required for deciding the Time of Supply.
The author can be reached on sjcabom@gmail.com
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