Draft Model GST Law has been put on public domain on June 14, 2016, enabling the Trade and Industry to plan the transition from the existing indirect tax regime to GST regime.
GST is a destination based consumption tax levied at multiple stages of production and distribution of goods and services, with taxes on inputs credited against taxes on output. GST is going to be big game changer and under proposed GST regime, all the major taxes levied under the indirect taxation i.e. Central Excise, Service tax, VAT/CST etc., would be brought under the ambit of GST. Hence, the prevailing concepts of manufacturing of goods/ provision of services/ sale of goods would no longer be relevant as tax would be levied on ‘supply’ of goods & services and common base has to be arrived at for levy & collection of GST in all cases.
Taxable Event:
Meaning of the term ‘supply’ plays a crucial role, being the taxable event under GST. The broad contours of the term ‘supply’ as provided under Section 3 of the Draft Central GST (“CGST”)/State GST (“SGST”) Act, 2016 [also applicable for the Draft Integrated GST (“IGST”) Act, 2016 vide Section 2(f) thereof] has been defined in extensive manner to cover not only the goods & services as specified for consideration (like sale, transfer, barter, exchange etc.), but supplies as mentioned in Schedule I, even without consideration (like permanent transfer/disposal of business assets, supply of goods and/or services by a taxable person to another person taxable/ non-taxable person in the course of furtherance of business etc.).
Point of taxation (“POT”)
POT is referred to the point of time, when a transaction is to be taxed. Thus, we need to understand when liability to payCGST/SGST and IGST will arise. Let us first understand the POT under present regime of indirect taxation summarised hereunder:
| Manufacturing of Goods | Incidence of Excise duty arises on manufacture/production of goods in India but liability to pay Excise duty is on accrual basis and arises at the time of removal of excisable goods from factory |
| Rendering of Services | Payment of tax is, broadly, earliest of following i.e. receipt of payment or issue of invoice, if invoice raised within stipulated time period otherwise, completion of service |
| Sale of Goods | VAT/CST, as the case may be on Intra-State or Inter-State sale of goods arises on transfer of property in goods including deemed sale in terms of Article 366(29A) of the Constitution and to be paid on accrual basis |
Decoding provisions of ‘Time of supply’ under Draft Model GST Law
For determining time of supply for goods and services, separate provisions have been prescribed under Chapter-IV of Draft CGST/SGST Act, 2016, applicable to levy of IGST vide Clause 27 of Chapter-IX to Draft IGST Act, 2016.
I: Time of supply of goods
A.For normal supply: CGST/SGST and IGST on the goods shall be payable at the earliest of the following dates on which:​
- Goods are removed for supply to the recipient (for goods required to be removed);
- Goods are made available to the recipient (for goods not required to be removed);
- Invoice is issued by supplier;
- Payment is received by supplier;
- Recipient shows receipt of goods in his books of account (“BOA”).
- For continuous supply of goods:
| Situation | Time of supply | |
| Successive statements of accounts or successive payments are involved | Date of expiry of the period to which such successive statements of accounts or successive payments relate | |
| No successive statements of account | Date of issue of invoice (or any other document) or Date of receipt of payment |
Whichever is earlier |
- For supply of goods under reverse charge: Time of supply shall be the earliest of the following dates of:
- Receipt of goods,
- Payment,
- Receipt of invoice,
- Debit in BOA.
- Where goods (being sent or taken on approval or sale or return or similar terms) are removed before it is known whether a supply will take place: Time of supply shall be earliest of the following:
- Time when it becomes known that the supply has taken place, or
- Six months from date of removal.
- In cases other than above: The time of supply shall be:
- Where periodical return has to be filed, the date on which such return is to be filed, or
- In any other case, date on which CGST/SGST and IGST is paid.
Analysis
Manifestly, taxability and collection provisions in respect of goods have been drastically changed under GST regime as compared to present scenario, which requires proper understanding and transformation for the dealers to levy GST. Further, taxable event for supply of goods shall depend on number of factors like removal date, payment date, date of receipt of goods, etc. Therefore,
- Whenever supplier of goods receives advance, POT will arise;
- Goods in transit also shall be considered as time of supply if they are accounted in BOA;
- In case of goods are being sent or taken on approval or sale or return or similar terms before it is known whether a supply will take place, time limit for supply has been reduced from 12 to 6 months.
II: Time of supply of services
- CGST/SGST and IGST on the services shall be payable at the earliest of the following:
| Situation | Time of supply | ||
| 1. | Invoice issued within prescribed period | Date of issue of invoice or Receipt of payment |
Whichever is earlier |
| 2. | Invoice not issued within prescribed period | Date of completion of the provision of service or Receipt of payment |
Whichever is earlier |
| 3. | Not falling under (1) or (2) above | Date on which the recipient shows the receipt of services in his BOA | |
For the purpose of clarity, let us take an example where XYZ has provided taxable services on July 1, 2016 to ABC. A chart has been created with multiple combinations for easy understanding:
| Particulars | Date of completion of service | Date of Invoice | Date of receipt of payment | Date of entry in BOA of Recipient | Time of supply | |
| I | Invoice issued within the prescribed period |
July 1 | July 20 | August 10 | July 27 | July 20 |
| II | July 1 | July 28 | July 25 | July 27 | July 25 | |
| III | Invoice not issued within the prescribed period |
July 1 | August 5 | July 25 | July 27 | July 1 |
| IV | July 1 | August 5 | June 30 | July 27 | June 30 |
- For continuous supply of services:
| Situation | Time of supply | |
| Where due date of payment is ascertainable from the contract | Date on which the payment is liable to be made by recipient of service, whether or not any invoice has been issued or any payment has been received by the supplier | |
| Where due date of payment is not ascertainable from the contract | Each such time when the supplier of service- Receives the payment or Issues an invoice |
Whichever is earlier |
| Where the payment is linked to the completion of an event | Time of completion of that event | |
- Supply of services under reverse charge: Time of supply shall be determined in same manner as in case of goods discussed supra.
- Where supply of services ceases under a contract before the completion of supply: Such services shall be deemed to have been provided at the time when the supply ceases.
- In other cases: Time of supply shall be determined in same manner as in case of goods discussed supra.
Analysis
Most of the provisions in respect of supply of services have been kept similar to the provisions prevailing under the present indirect taxation regime which is governed by the Point of Taxation Rules, 2011 (“POTR”). It may be noted that, taxability of supply of services under reverse charge has been made in line with provisions applicable for associated enterprises under the present indirect taxation regime i.e. Rule 7 of POTR.
III: Change in rate of tax in respect of supply of services
Where there is a change in the effective rate of tax in respect of services, time of supply, shall be determined in the following manner:
- Where taxable service has been provided before the change in effective rate of tax:
| Incidence falling prior to change in effective rate of tax | Incidence falling after change in effective rate of tax | Time of supply | |||
| Completion of service | - | Invoice issued | Payment received | Date of receipt of payment or Date of issue of Invoice |
Whichever is earlier |
| Completion of service | Invoice issued | - | Payment received | Date of issue of Invoice | |
| Completion of service | Payment received | Invoice issued | - | Date of receipt of payment | |
- Where taxable service has been provided after the change in effective rate of tax:
| Incidence falling prior to change in effective rate of tax | Incidence falling after change in effective rate of tax | Time of supply | |||
| Invoice issued | - | Completion of service | Payment received | Date of receipt of payment |
|
| Invoice issued | Payment received | Completion of service | - | Date of receipt of payment or Date of issue of Invoice |
Whichever is earlier |
| - | Payment received | Completion of service | Invoice issued | Date of issue of Invoice | |
Analysis
Provisions so prescribed above in respect of change in rate of tax in respect of supply of services are similar to the provisions of existing Rule 4 of POTR. However, the stated provisions seem to be applicable only in case of change in rate of tax for supply of services. Hence, in respect of supply of goods, it appears that scenarios of rate change will be governed by the provisions for time of supply of goods as prescribed under Section 12 of the Draft CGST/SGST Act, 2016.
Further, it seems that there are numerous parameters given under the Draft Model GST Law, for determining ‘time of supply’ for goods & services, which may be a major challenge initially for successful transition.
We are hoping that in the coming monsoon session, the GST Bill will finally see the light of the day and the Government will soon come out with much awaited GST considering the suggestion that will be provided by the Trade & Industry for suitable modification in the final GST Model Law.
Disclaimer: The contents of this document are solely for informational purpose. It does not constitute professional advice or recommendation of firm. Neither the authors nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this document nor for any actions taken in reliance thereon.
Readers are advised to consult the professional for understanding applicability of this newsletter in the respective scenarios. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. No part of this document should be distributed or copied (except for personal, non-commercial use) without our written permission.
CAclubindia
