Understanding Time of Supply of Goods & Services in GST

India implemented the Goods and Services Tax (GST) regime on July 1st, 2017. It has simplified the indirect taxation structure. One critical concept under GST is the "time of supply," which determines when the liability to pay tax arises. This article digs into the time of supply for goods and services, addressing relevant sections of the CGST Act, the reverse charge mechanism, invoicing rules, and change of rate conditions.

Time of Supply for Goods

Section 12 of the Central Goods and Services Tax (CGST) Act 2017 determines the time of supply for goods. This section clarifies when taxpayers are responsible for paying GST on goods transactions. It is the earliest of the following dates:

• Earliest Date of Issue of Invoice or Last Date the Invoice is to be Issued: As per Section 31 of the CGST Act, the invoice must be issued before or at the time of the removal of goods for supply or delivery.
• Date of Receipt of Payment: The date when the supplier receives the payment.

Note: Notification No. 66/2017 exempts tax payments on advances received for the supply of goods. This exemption is for goods only and not for services.

If none of the above rules determine the time of supply of goods, use these guidelines:

• Periodical Return: If the supplier needs to file a periodical return, the time of supply is the due date for that return.
• Payment of Tax: In other cases, the time of supply is the date when suppliers pay the tax.

Example: If goods are supplied on July 2nd, the invoice is issued on July 1st, and payment is received on July 10th, the time of supply is July 1st, being the earliest date of the invoice issued or the last date of issuing the invoice.

Time of Supply for Services

Section 13 of the CGST Act determines the time of supply for services. It is the earliest of the following dates:

• Earliest Date of Issue of Invoice or Last Date the Invoice is to be Issued: An invoice for services must be issued within 30 days from the date of supply of service (45 days for banks and financial institutions).
• Earliest Date of Provision of Service or Receipt of Payment: If the invoice is not issued within the time limit.
• Date of Receipt of Service in Recipient’s Books: When the recipient shows the receipt of service in their books of account if the first two points do not apply.

If none of the above rules determines the time of supply of services, use these guidelines:

• Periodical Return: If the supplier needs to file a periodical return, the time of supply is the due date for that return.
• Payment of Tax: In other cases, the time of supply is the date when suppliers pay the tax.

Example: For a consultancy service completed on July 1st, with an invoice issued on August 10th and payment received on August 15th, the time of supply is July 1st, the date of completion of the service.

Reverse Charge Mechanism (RCM)

Under RCM, the liability to pay tax shifts from the supplier to the recipient. Sections 9(3) and 9(4) of the CGST Act specify certain goods and services covered under RCM. The time of supply under RCM differs for goods and services.

Goods: The earliest of:

• Date of receipt of goods.
• Date of payment as per the books of account or date of debit in the bank account, whichever is earlier.
• 31st day from the date of issue of the invoice by the supplier.

Services: The earliest of:

• Date of payment as per the books of account or date of debit in the bank account, whichever is earlier.
• 61st day from the date of issue of the invoice by the supplier.

Special Cases

1. Continuous Supply of Goods: For a continuous supply, where successive statements of accounts or payments are involved, the time of issuing an invoice is the earliest of the dates on which these statements are issued or payment is received. Payment means payment under the terms of the contract.
2. Continuous Supply of Services: When the contract specifies a clear due date for payment, the supplier should issue the invoice by that due date. If the due date is not specified, issue the invoice when the supplier receives the payment. If payment is tied to completing an event, issue the invoice on the date the supplier completes the event.
3. Goods Sold on Approval for Sale or Return Basis: The time limit to issue the invoice is the earliest of:
   • When the buyer accepts the goods or approves.
   • Six months from the date of goods being removed from the supplier's place.
4. Supply on Job-work Basis: The job worker shall return the capital goods within three years and other goods within one year. After the expiration of such a period, the supplier shall issue the invoice.
5. Vouchers: The time of supply for vouchers depends on whether the supply is identifiable at the time of issue. If identifiable, it is the date of issue; otherwise, it is the date of redemption.

Section 14: Change in Rate of Tax

When the tax rate changes for goods or services, the time of supply is determined as follows:

1. If the supplier provides goods or services before the rate change:
   • If the supplier issues the invoice and receives payment after the rate change, use the earlier invoice date or payment receipt date.
   • If the supplier issues the invoice before but receives payment after the rate change, use the invoice date.
   • If the supplier receives payment before but issues the invoice after the rate change, use the payment receipt date.
2. If the supplier provides goods or services after the rate change:
   • If the supplier receives payment after the rate change but issues the invoice before, use the payment receipt date.
   • If the supplier issues the invoice and receives payment before the rate change, use the earlier invoice date or payment receipt date.
   • If the supplier issues the invoice after but receives payment before the rate change, use the invoice date.

Note: Consider the payment date as the date it is credited to the bank account if this happens within four working days after the tax rate change. Otherwise, use the earlier date entered in the supplier's books of account or the date credited to the bank.

Example: If the tax rate changes on June 1st, for goods supplied on May 25th with an invoice issued on June 5th and payment received on June 10th, the time of supply is June 5th (earlier of invoice or payment date).

Section 31: Invoicing Rules

Section 31 of the CGST Act mandates the timing for the issuance of invoices:

• Goods: The invoice must be issued before or at the time of the removal of goods for supply or delivery.
• Services: The invoice must be issued within 30 days from the date of service supply of service (45 days for banks and financial institutions).

Example: If services are rendered on April 1st, the invoice must be issued by April 30th. For banks, the deadline extends to May 15th.

Practical Implications

1. Timely Issuance of Invoices: Ensuring timely issuance of invoices is critical to avoid compliance issues.
2. Payment Tracking: Accurate tracking of payment dates is essential, especially under the reverse charge mechanism.
3. Contractual Clarity: Clearly define payment due dates in contracts to simplify compliance with continuous supply rules.
4. Adaptation to Rate Changes: Businesses must adapt quickly to changes in tax rates, ensuring compliance with Section 14 provisions.

Conclusion

The time of supply under GST is fundamental for determining tax liability accurately. By adhering to the provisions of Sections 12, 13, and 31 of the CGST Act and understanding the nuances of the reverse charge mechanism and rate change conditions under Section 14, businesses can ensure compliance and avoid penalties. Proper management of invoicing, payment tracking, and understanding contractual obligations are key to navigating the complexities of GST effectively.

Understanding and diligently applying these rules helps businesses achieve compliance with GST regulations, streamline their tax processes, and mitigate risks associated with incorrect tax liabilities.