Meaning and Relevance:
Time of supply of goods determines time, when the tax (GST) will be levied. GST is levied on supply (i.e. for ex: when the goods are sold, transferred to branch, etc). Now, let us take example of sale of goods. In a sale transaction various events are involved i.e. invoice issuance, payment receipt, outflow of goods from stock, etc. Now when will be the tax levied on this sales transaction whether at time of invoice issuance, receipt of payment, outflow of goods? A question may arise that tax will be paid at any of the event of sale transaction, then why there is need for its understanding. The reason is it will lead to interest and penalty if paid at later event. Let us take an example:
A solds goods to B for Rs.1 lac. Now the various events of sale transactions are as under:
|
Particulars |
Date |
|
Invoice Issuance |
01.04 |
|
Goods received by B |
01.05 |
|
Payment received |
01.06 |
Now, as per model GST law tax needs to be paid within 20 days of closing of month of time of supply. As per model GST law time of supply is earlier of above 3 events. Therefore time of supply happens on 01.04(1st April) and for which tax needs to be paid by 20th of May. Now if A assumes that he needs to pay tax on 20th of July being 20 days after close of month in which payment was received, he is incorrect and GST law provides for payment of interest(say 2% per month) in this case. Therefore, he will be required to pay interest of 2% per month*2 months of delay* Sale amount i.e. 2%*2*1 lakh equal to Rs.4K (4 thousand). Therefore, the need for understanding this concert arises. Read on.
Legal Provisions:
Section 12
1. The liability to pay CGST / SGST on the goods shall arise at the time of supply as determined in terms of the provisions of this section.
2. The time of supply of goods shall be the earliest of the following dates, namely,-
- The date on which the goods are removed (*1) by the supplier for supply to the recipient, in a case where the goods are required to be removed (Example 1) or
- The date on which the goods are made available to the recipient (*2), in a case where the goods are not required to be removed (Example 1); or
- The date on which the supplier issues the invoice with respect to the supply; or
- The date on which the supplier receives the payment with respect to the supply; or
- The date on which the recipient shows the receipt of the goods in his books of account.
Explanation 1.- The provisions of sub-clause (ii) of clause (a) shall apply in cases where the goods
(a) are physically not capable of being moved; or
(b) are supplied in assembled or installed form; or
(c) are supplied by the supplier to his agent or his principal.
Explanation 2.- For the purposes of sub-clause (ii) of clause (a), the expression ‘made available to the recipient’ shall mean when the goods are placed at the disposal of the recipient.
Explanation 3.- For the purposes of clauses (b) and (c) of sub-section (2), the supply shall be deemed to have been made to the extent it is covered by the invoice or, as the case may be, the payment.
Explanation 4.- For the purpose of clause (c) of sub-section (2), “the date on which the supplier receives the payment” shall be the date on which the payment is entered in his books of accounts or the date on which the payment is credited to his bank account, whichever is earlier.
1. In case of continuous supply of goods, where successive statements of accounts or successive payments are involved, the time of supply shall be the date of expiry of the period to which such successive statements of accounts or successive payments relate. If there are no successive statements of account, the date of issue of the invoice (or any other document) or the date of receipt of payment, whichever is earlier, shall be the time of supply (Example 3).
2. For the purposes of sub section (3) above, the Central or a State Government may, on the recommendation of the Council, specify, by notification, the supply of goods that shall be treated as continuous supply of goods;
3. 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(Example 2):
- The date of the receipt of goods, or
- The date on which the payment is made, or
- The date of receipt of invoice, or
- The date of debit in the books of accounts.
Explanation.- For the purpose of clause (b) of sub-section (5), “the date on which the payment is made” shall be the date on which the payment is entered in the books of accounts of the recipient or the date on which the payment is debited in his bank account, whichever is earlier.
1. If the goods (being sent or taken on approval or sale or return or similar terms)(*3) are removed before it is known whether a supply will take place, the time of supply shall be at the time when it becomes known that the supply has taken place or six months from the date of removal, whichever is earlier.
2. In case it is not possible to determine the time of supply under the provisions of subsection (2), (3), (5) or (6), the time of supply shall
- In a case where a periodical return has to be filed, be the date on which such return is to be filed, or
- in any other case, be the date on which the CGST/SGST is paid.
Analysis:
(*1)
‘Removal’ of goods
Removal being defined in Section 2(83) to be limited only to physical transportation and excludes any other form of extinguishment or consumption of goods.
It is important to note that the removal is not when the goods are actually placed in the hands of the recipient, but the time when they are taken-up by the supplier with intention of transportation to the recipient. In other words, the time of supply is on commencement of the journey and not completion of the journey.
Also, every other innocent transportation of goods not specifically and purposefully to supply it to the recipient would not be removal under this section. In other words, any transportation of goods before they are in a ‘deliverable state’ even if it is ultimately in furtherance of the supply would not be removal.
To reiterate here, unless time of supply occurs, the incidence of tax is deferred. Unless goods are in a deliverable state, even if there is an attempt to supply or any transportation resembling supply, there would be no incidence of tax (yet).
(*2) ‘Made Available’
This expression is explained to mean ‘placed at disposal’ of recipient. In other words, without being required to remove the goods, if the supplier ‘gives up control’ over the goods, that would also be the time of its supply.
Notes:
- Extinguishment or consumption of the goods even if considered to be supply, does not attract the levy of tax until its ‘time’ of supply can be determined under this section.
- Goods consumed to fulfill a supply are not liable to tax but the goods (or services) that are supplied by its consumption are only liable to tax.
Examples:
1) Time of supply of goods:
|
S. NO. |
Date of Removal of goods |
Date of Invoice |
Date goods made available to recipient |
Date on which recipient records receipt of goods in his books of accounts |
Date of entry of receipt of payment in books of accounts of supplier |
Date of credit in bank account of supplier of goods |
Time of supply |
|
1(required to be removed) |
21.04 |
25.04 |
25.04 |
25.04 |
19.04 |
18.04 |
18.04 |
|
2(Made available to recipient) |
NA |
01.05 |
30.04 |
30.04 |
01.05 |
01.05 |
30.04 |
|
3(supplied to his agent/principal) |
22.04 |
01.06 |
25.04 |
30.04 |
30.04 |
30.04 |
25.04 |
|
4(supplied by agent of supplier, same treatment as 1) |
29.04 |
01.06 |
29.04 |
30.04 |
30.04 |
28.04 |
28.04 |
2) Reverse charge:
|
Date of receipt of goods |
Date of receipt of invoice |
Date of debit of payment in books of accounts of recipient of goods |
Date of debit in bank account of recipient of goods |
Date of debit in books of accounts |
Time of supply |
|
29.04 |
28.04 |
27.04 |
25.04 |
26.04 |
25.04 |
3) Continuous supply:
Supply of goods by ACC Ltd. to Brigade Ltd. When Brigade Limited issues a open purchase order on ACC Ltd.
Case 1: When successive statements of accounts/payments are involved
|
S.No. |
Particulars |
Date of invoice/removal |
Date of receipt of Invoice |
Date of statement by supplier |
Date of expiry of successive statement of accounts(1) |
Date of expiry of successive payments (2) |
Time of supply (1) or (2) |
|
1 |
Supply |
10.04 |
11.04 |
||||
|
2 |
Supply |
11.04 |
12.04 |
||||
|
3 |
Supply |
13.04 |
15.04 |
18.04 |
18.04 |
21.04 |
18.04 |
Case 2 : When no successive statements of accounts/payments are involved
|
S.No.(1) |
Particulars(2) |
Date of Invoice(3) |
Date of Receipt of Invoice(4) |
Date of expiry of successive payments(5) |
Time of Supply(3) or(5) |
|
1 |
Supply |
21.06 |
22.06 |
10.05 |
10.05 |
|
2 |
Supply |
22.06 |
22.06 |
28.06 |
22.06 |
|
3 |
Supply |
26.06 |
27.06 |
30.07 |
26.06 |
(*3) Where goods are sent on approval basis, time of supply will be when the goods are irretrievably retained by recipient or six (6) months, whichever is earlier. So, whenever removal is referred to in the Act, it must be used with reference to the purpose behind each removal. This interpretation supports the analysis in the above paras that tax incidence must wait until removal occurs with the purpose of the supplier irreversibly giving up control over the goods.
Example 4)
If a machine is sent to a recipient on approval basis.
|
S. No. |
Date of Removal |
Date of receipt by recipient |
Date of approval(1) |
Date of expiry of six months from the date of removal(2) |
Time of supply(1) or (2) |
|
1 |
11.04 |
15.04 |
22.04 |
10.10 |
22.04 |
|
2 |
11.04 |
15.04 |
Awaited |
10.10 |
10.10 |
Summary:
The provisions of section 12 specify the time of supply of goods to be date when:
- Goods are removed for purpose of supply (sub section 2(a)(i))
- Goods are made available or placed at disposal of recipient (sub section 2(a)(ii))
- Invoice is issued (sub section 2(b))
- Payment is received (sub section 2(c))
- Goods are accounted by recipient (sub section 2(d))
- Billing-milestone reached as notified; if not, earlier of invoice is issued or payment is received (sub section 3 & 4)
- In case of reverse charge – when goods are received or invoice is received or payment is made or accounted in books of recipient (sub section 5)
- In case of goods sent on approval basis – when goods are retained by recipient or six months, whichever is earlier (sub section 6)
- Lastly, on due date of periodical returns or payment of tax. (sub section 7)
Refer previous articles:
GST - A detailed explanation with examples!
Taxability of software under indirect tax law and GST
Guide to Foreign Contribution (Regulation) Act, 2010(FCRA)
Provisions of MAT & AMT
The author can also be reached at ca.shivashish@gmail.com
No part of this article shall be reproduced, copied in any material form (including e-medium) without written permission of CA. Shivashish Kumar.
The information provided is not a substitute for legal and other professional advice where the facts and circumstances warrant.
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