INTRODUCTION
1. It’s a trite law that for a tax
law to survive there needs to be a levy provision which determines when
the levy of tax would be triggered, i.e., when the taxable event takes place;
and a collection provision which determines when the levy of tax
triggered can be collected by the Department. The levy provision precedes the
collection provision and in the event the levy is not triggered, the collection
provision also does not get triggered. In other words, without levy getting
triggered, the collection mechanism fails. This distinction between the levy
and collection provisions has been dealt with by the Supreme Court on multiple
occasions.
2. In this article, we shall
discuss in detail the provisions relating to collection of tax dealt with in
Chapter IV of the CGST Act, 2017.
TIME OF SUPPLY – CASES UNDER FORWARD CHARGE
(OTHER THAN CONTINUOUS SUPPLY)
3. Section 9, which is the charging
section for the levy of GST, provides that the tax shall be collected in such
manner as may be prescribed. The manner has been prescribed u/s. 12 to 14 of
the CGST Act, 2017. Sections 12 and 13 thereof deal with time of supply of
goods and services, respectively, while section 14 deals with instances when
there is a change in the rate of goods / services supplied.
4. Sections 12 (1) and 13 (1)
thereof provide that the liability to pay tax on supply of goods and / or
services shall arise at the time of supply of the said goods and / or services
and then proceeds to list down events when the time of supply shall be
triggered in the context of goods and services, respectively. The provisions
relating to time of supply, in cases where the tax is liable under forward
charge, is tabulated alongside:
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Time of supply in
the case of supply of goods
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Time of supply in
the case of supply of services
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Section 12 (2):
The time of supply shall be earliest of:
- Date
of issue of invoice by supplier or the last date on which the invoice is
required to be issued u/s. 31 (1) with respect to the supply [Clause (a)]
- Date on which the supplier receives the payment for
such supply [Clause (b)]
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Section 13 (2):
The time of supply
shall be earliest of:
- If
the invoice is issued within the time prescribed u/s. 31 (2) – date of issue
of invoice OR the date of receipt of payment, whichever is earlier [Clause
(a)]
- If
the invoice is not issued within the time prescribed u/s. 31 (2) – the date
of provision of service OR the date of receipt of payment, whichever is
earlier [Clause (b)]
- If
the above does not apply – date on which the recipient shows the receipt of
service in his books of accounts [Clause (c)]
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5. As can be seen from the above,
sections 12 (2) and 13 (2) provide that in normal cases, the time of supply
shall be determined based on the issuance of invoice within the timeline
prescribed u/s. 31. The time limit for issuing invoice u/s. 31 is as under:
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In case of supply of
goods
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In case of supply of
services
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Section 31 (1):
Invoice shall be
required to be issued before or at the time of
- Removal
of goods for supply to recipient, where supply involves movement of goods
- Delivery
of goods or making available thereof to the recipient in any other case
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Section 31 (2):
Invoice shall be required to be issued before or after
the provision of service, but within prescribed time limit of issue of
the invoice, which has been prescribed as 30 days u/r. 47 of CGST Rules, 2017
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6. From the above, it is evident
that in case of goods, the time of supply is determined based on the nature of
goods. For tangible goods, there are two scenarios envisaged, namely:
- Where there is movement of goods involved –
this would cover both, ex-works as well as CIF contracts. Before the movement
of goods is initiated, the supplier will have to issue the invoice,
irrespective of whether the risk and rewards associated with the goods have
been transferred or not;
- Where there is no movement of goods – this
would cover situations where the supply of goods takes place only by way of
transfer of title. For instance, transactions in a commodity exchange, where
the sale has culminated and ownership changed hands, but the movement of goods
does not take place. Instead there is merely an endorsement on the warehouse
receipts. In such cases, the invoice will have to be issued before the
endorsement takes place. Further, there are transactions wherein a supplier is
required to keep a bare minimum stock of goods for a particular customer and
the said stock cannot be sold to a third party. In such cases also, when the
goods are appropriated for a particular customer, though the delivery is not
taken by the customer, the time of supply shall get triggered at the moment
when the appropriation towards a particular customer takes place.
7. However, in case of intangible
goods, since the question of movement does not arise, in such cases the time of
supply shall be the date when the transfer takes place. For instance, in a
transaction involving permanent transfer of copyrights, time of supply shall be
the date when the transfer is executed, i.e., when the ownership of the rights
is transferred as per the provisions of the Copyright Act.
PROVISION OF SERVICE – ISSUES
8. However,
the issue arises in the case of services since the triggering of time of supply
is predominantly based on completion of provision of service. However, what is
meant by completion of provision of service is a subjective issue and has its
own set of implications as discussed below:
- Method of accounting – it is possible that
the supplier of service would be required to recognise revenue on accrual
basis; however, the provision of service may not have been completed. It is
possible that the Department may treat that the accrual is on account of
completion of service, without appreciating the fact that the service provision
might not have been completed in toto and, therefore, the supplier is
not in a position to issue invoice for claiming the amount from the recipient,
though he may have been required to accrue the invoice as per the accounting
standards.
- Client
approval of work proof of completion of service – There are instances when the
actual execution of service might have been completed, but the confirmation of
the same by the client might be pending. For instance, in case of contractors
there is an industry practice of lodging a claim with their principal by
raising a Running Account Bill which contains the detail of work done by the
contractors, which would be then certified by the principal for its correctness
and based on the certification alone would payment be made to the contractor.
In such cases (assuming this is not classifiable as continuous supply of
services), the question that arises is whether the completion of service shall
be on raising the RA bill or when the same is approved by the client? The
answer to this question can be derived from the CBEC Circular 144 of 2011 dated
18.07.2011 which was issued in the context of Point of Taxation Rules, 2011
under the erstwhile service tax regime and clarified as under:
2. 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 inter alia 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 prerequisites 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.
CASES WHERE INVOICE HAS NOT BEEN ISSUED BUT
RECEIPT OF SERVICE ACCOUNTED BY RECIPIENT
9. A specific anomaly lies in
section 13 (2). Clauses (a) and (b) thereof provide for determination of time
of supply of service where the invoice has been issued within the prescribed
time limit or not issued within the prescribed time limit. In other words,
these two scenarios can be there in any supply. However, clause (c) further
introduces a new scenario where neither clause (a) nor (b) applies. Clause (c)
deals with a situation wherein the recipient has accounted for receipt of
service. The question that therefore arises is whether the recipient accounting
for receipt of service can be a basis to say that the provision of service has
been completed? There can be cases where the recipient has merely provided for
expenses on accrual basis, though the service provision may not be completed.
TIME OF SUPPLY – CONTINUOUS SUPPLY
10. However, the above general rule
for cases covered under forward charge mechanism will not be applicable in
cases where the supply is classifiable as continuous supply of goods / services
as defined u/s. 2. and reproduced below for ready reference:
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Continuous supply of goods
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Continuous supply of services
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(32) “continuous supply of goods” means a supply of
goods which is provided, or agreed to be provided, continuously or on
recurrent basis, under a contract, whether or not by means of a wire, cable,
pipeline or other conduit, and for which the supplier invoices the recipient
on a regular or periodic basis and includes supply of such goods as the
government may, subject to such conditions as it may deem fit, by
notification specify;
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(33) “continuous supply of services” means a supply of
services which is provided, or agreed to be provided, continuously or on
recurrent basis, under a contract, for a period exceeding three months with
periodic payment obligations and includes supply of such services as the
government may, subject to such conditions as it may deem fit, by
notification specify;
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11. The question that therefore
arises from the above, is what shall be covered within the purview of
continuous supply? In the view of the authors, what would classify as
continuous supply would be instances where the supply of goods / service is
continuous in the sense that whenever the recipient, say, starts his stove, the
goods are available. Similarly, renting of immovable property service would
also qualify as continuous supply since the service is continuous in nature.
12. On the other hand, recurrent
supply would mean a supply which is provided in the same form over and over
again, but not on a continuous basis. For instance, a GST consultant has agreed
to file the returns of his client on a monthly basis. This would classify as
recurrent service which the consultant keeps on providing over a period of time
and therefore classified as being in the nature of continuous supply.
Similarly, even in the context of goods, there can be examples of recurrent
supply. A mineral water supplier supplying two bottles of water on a daily
basis is an example of recurrent supply. All such supplies shall qualify as
continuous supply and accordingly the time limit for issuance of invoice shall
be as follows:
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In case of
continuous supply of goods
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In case of
continuous supply of services
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Section 31 (4):
Where successive statements of accounts or successive
payments are involved, the invoice shall be issued before or at the time when
such successive statements are issued or each such payment is received.
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Section 31 (5):
Invoice shall be
issued:
- Where
due date of payment is ascertainable from the contract – on or before the due
date of payment.
- Where
due date of payment is not ascertainable from the contract – before or at the
time when the supplier receives the payment.
- Where
payment is linked to completion of an event – on or before the date of
completion of event.
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TIME OF SUPPLY – REVERSE CHARGE CASES
13. Sections 12 (3) and 13 (3) deal
with the provisions relating to time of supply in cases where reverse charge
mechanism is applicable. The relevant provisions are tabulated below for ready
reference:
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Time of supply in
case of supply of goods
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Time of supply in
case of supply of services
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Section 12 (3):
The time of supply shall be earliest of:
- Date of receipt
of goods.
- Date of payment
as entered in the books of accounts of the recipient or the date on which the
payment is debited in the books of account.
- Date
immediately following 30 days from the date of issue of invoice or any other
document by the supplier.
If time of supply cannot be determined as per the above,
the same shall be the date of entry in the books of accounts of the recipient
of supply.
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Section 13 (3):
The time of supply shall be earliest of:
- Date of payment
as entered in the books of accounts of the recipient or the date on which the
payment is debited in the books of account.
- Date
immediately following 60 days from the date of issue of invoice or any other
document by the supplier.
If time of supply cannot be determined as per the above,
the same shall be the date of entry in the books of accounts of the recipient
of supply or date of payment, whichever is earlier.
Further in case of supply by associated enterprises
located outside India, the time of supply shall be the date of entry in the
books of accounts of recipient / date of payment, whichever is earlier.
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CASES WHERE THERE IS A DELAY IN ACCOUNTING
THE INVOICE
14. At times, it so happens that the
recipient receives the invoice after the lapse of the prescribed time limit,
thus resulting in delay in accounting such invoices as well as discharge of
liability. In such cases, the question that arises is whether there is a delay
in accounting the invoice on account of factors beyond the control of the
recipient; for instance, in non-receipt of invoice within the prescribed time
limit, can interest liability be triggered for late payment of tax? In this
regard it is important to note that the provisions of section 12 (3) as well as
section 13 (3) clearly provide for triggering of liability upon completion of
the event, without any scope of exception.
Therefore, on a literal reading of the provisions, it is evident that interest
would be payable in such instances.
15. However, a contrary view can be
taken that the provision imposes a condition on the recipient which cannot be
fulfilled. It can be argued that the principle of lex non cogitadimpossibilia’
is triggered, i.e., an agreement to do an impossible act is void and is not
enforceable by law. This principle has been accepted in the context of indirect
taxes as well1. Based on the same, it can be argued that since on
the date of expiry of 30 / 60 days period the invoice itself was not available
with the recipient, it was not possible for him to discharge the tax liability
and therefore it cannot be said that the recipient has failed to make payment
of tax and is therefore liable to pay interest.
TIME OF SUPPLY IN CASE OF VOUCHERS
16. The term voucher has been
defined u/s. 2 (118) to mean
“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”.
17. Vouchers are generally
classified as Prepaid Instruments and are governed by the Payment &
Settlement Systems Act, 2007 read with RBI Circular DPSS/2017-18/58 dated
11.10.2017 wherein it has been provided that there can be two type of vouchers,
namely:
- Closed System PPI – wherein the voucher is
issued directly by the supplier (for example, recharge coupons issued by
telecoms, DTHs, etc.) for facilitating the supply of their own goods /
services. In fact, closed system PPI can be used for specific purposes only.
For instance, hotel vouchers issued by various hotel brands can be used for
availing specific service that would be mentioned on the voucher only;
- Semi-closed System PPI – wherein the voucher
is issued by a system provider which can be used by the voucher holder to
purchase goods / services from suppliers who are registered as system
participant (for example, Sodexo, Ticket Restaurant® Meal Card, etc.). Such
semi-closed system PPI can be used for procuring any supplies that the system
participant would be making. For example, Sodexo voucher can be used for buying
food-grains as well as vegetables from the system participant.
18. In view of this distinct nature
of the vouchers, depending on the nature of voucher and the underlying
deliverable from the voucher, the time of supply provisions have been prescribed
as under:
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In case the voucher
is consumed / to be consumed towards procuring goods
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In case the voucher
is consumed / to be consumed towards procuring services
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The time of supply,
if voucher used / to be used for supply of goods shall be:
- If
underlying supply is identifiable at the time of supply of voucher, the date
of issue of voucher.
- In
other cases, the date of redemption of voucher.
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The time of supply,
if voucher used / to be used for supply of service shall be:
- If
underlying supply is identifiable at the time of supply of voucher, the date
of issue of voucher.
- In
other cases, the date of redemption of voucher.
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TIME OF SUPPLY – RESIDUARY PROVISIONS
19. Further,
sections 12 (5) and 13 (5) provide that in case the time of supply of goods /
services is not determinable under any of the above sections, the same shall be
determined as under:
- If periodical return is to be filed, the date
on which such return is to be filed.
- Else, the date on which tax is paid.
20. In addition, sections 12 (6) and
13 (6) provides that the time of supply in case of addition in value of supply
on account of interest, late fee or penalty for delayed payment of
consideration received from customer, shall be at the time of receipt of such
amount and not at the time of claiming the same from the customer.
TIME OF SUPPLY – TAX ON ADVANCES
21. Sections 12 (2) as well as 13
(2) provide that in case the earliest event is the date of receipt of payment,
in such a scenario tax shall be payable at the time of receipt of such advance
consideration. However, it has to be noted that such advance payment has to
pass the test of consideration, as per the definition provided u/s. 2 (31)
which is reproduced below for ready reference:
(31) “consideration” in relation to the supply of goods or services
or both includes —
(a) any payment made or to be made, whether in
money or otherwise, in respect of, in response to, or for the inducement of,
the supply of goods or services or both, whether by the recipient or by any
other person but shall not include any subsidy given by the Central government
or a State government;
(b) the monetary value of any act or forbearance,
in respect of, in response to, or for the inducement of, the supply of goods or
services or both, whether by the recipient or by any other person but shall not
include any subsidy given by the Central government or a State government:
Provided that a deposit given in respect of the
supply of goods or services or both shall not be considered as payment made for
such supply unless the supplier applies such deposit as consideration for the
said supply.
22. From the above, it is more than
evident that for any payment received to be considered as supply, it has to be
in relation to the supply of goods or service. If such relation cannot be
established, the payment would not partake the character of consideration and
therefore tax would not be payable on the same. In fact, in the context of
service tax, the Mumbai Bench of the Tribunal has in the case of Thermax
Instrumentation Limited vs. CCE [2017 (51) STR 263] held as under:
8. In the present case the advance is like earnest
money for which a bank guarantee is given by the appellant. It is a fact that
the customer can invoke the bank guarantee at any time and take back the
advance. Hence the appellant does not show the advance as an income, not
having complete dominion over the amount, and therefore, the same cannot be
treated as a consideration for any service provided. Therefore, the
findings lack appreciation of the complete facts and evidences (only relevant
extracts).
23. It is also pertinent to note
that proviso to sections 12 (2) as well as 13 (2) provide that if a supplier
receives an excess payment up to Rs. 1,000 in excess of the amount indicated in
the tax invoice, the time of supply of such excess payment shall be the date of
issue of invoice in respect of such excess payment, at the option of the
supplier.
24. However, it is important to note
that the tax payable on receipt of advance for supply of goods has been
exempted vide notification 40/2017 – CT dated 13.10.2017 for taxable person having
aggregate turnover not exceeding Rs. 1.5 crore. The same has been further
extended to all taxable persons vide notification 66/2017 – CT dated
15.11.2017.
TIME OF SUPPLY – IN CASE OF CHANGE IN RATE OF
TAX
25. Section 14 deals with the
provisions relating to determination of time of supply in cases where there is
a change in the rate of tax in respect of goods / services / both based on the
following:
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Provision of Service
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Issuance of Invoice
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Receipt of Payment
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Effective tax rate
as applicable on
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Before change in tax
rate
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After change in tax
rate
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After change in tax
rate
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The date of invoice
or payment, whichever is earlier
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Before change in tax
rate
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Before change in tax
rate
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After change in tax
rate
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The date of invoice
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Before change in tax
rate
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After change in tax
rate
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Before change in tax
rate
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The date of receipt
of payment
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After change in tax
rate
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Before change in tax
rate
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After change in tax
rate
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The date of receipt
of payment
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After change in tax
rate
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Before change in tax
rate
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Before change in tax
rate
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The date of invoice
or payment, whichever is earlier
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After change in tax
rate
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After change in tax
rate
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Before change in tax
rate
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The date of invoice
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26. However, it is important to note
that the above table will apply only in case where there is a change in rate of
tax or a supply which was earlier exempted becomes taxable and vice versa. This position has been
settled under the pre-GST regime in the case of Wallace Flour Mills Company
Limited vs. CCE [1989 (44) ELT 598 (SC)] wherein the Court held that if at
the time of manufacturing, goods were exempted but the same was withdrawn
during removal, they would be liable to duty on the date of their removal.
27. However, the above cannot be
applied in case an activity which was not classifiable as supply is made liable
to tax in view of the decision of the Supreme Court in the case of Collector
of Central Excise vs. Vazir Sultan Tobacco Company Limited [1996 (83) ELT 3
(SC)] wherein the Court held that once the levy is not there at the time
when the goods are manufactured or produced in India, it cannot be levied at
the stage of removal of the said goods.
CONCLUSION
28. Under the pre-GST regime, the
tax payers were saddled with multiple provisions relating to levy and
collection. The same situation continues even under the GST regime, with levy
being consolidated into a single event of supply and the collection provisions
continue to be complicated with distinct provisions prescribed for goods as
well as services.
29. Failure to comply with the collection
provisions may not only expose the taxable person to interest u/s. 51 in case
of self-determination of such non-compliance, but may also expose them to
recovery actions u/s. 73 if action is initiated by the tax authorities.
Therefore, all taxable persons will have to be careful while dealing with the
provisions relating to time of supply of goods and / or services to avoid such
consequences.
