Demystifying Time of Supply of Goods under Model GST Law

The rollout of Goods and Service Tax in India is still a dream in the short run if not in the long-term. The last couple of weeks there was a lot buzz in the media on the same and placing of the Model GST law under public domain is a major step. Still we have the following steps to climb

  1. One Hundred and Twenty-Second Constitutional Amendment Bill has to be passed in the Rajya Sabha as the current ruling party still does not have the absolute majority here unlike in the Lok Sabha. The Only silver lining for the NDA government is it has the support of all the regional parties.
  2. Once the bill is approved in the upper house at least two-thirds of the states, have to adopt the same in their assemblies.
  3. Model ACT for CGST, SGST & IGST has to be passed in both the houses
  4. All the states have to adopt the above model laws in their state assemblies
  5. The most important point is strong IT infrastructure for the tax departments as the registration and reporting (transaction level) is dubbed to be fully IT driven as per the official documents. Any delay or issues in the IT infrastructure as we have seen recently for the MCA website can derail the whole process.

The draft law released contains 125 chapters, 162 sections, 4 Schedules and 1 Rule i.e Valuation Rules. Much simpler to follow and understand compared to the current laws under Central Excise, Service Tax.

Chapter IV of the Model Law clearly defines and explains about the time of supply of goods and services. The conditions for the time of supply of goods is clearly given in Section 12 and the same is applicable for goods under the CGST Act, SGST Act as well as for IGST Act.

(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,-

(a)      (i) the date on which the goods are removed by the supplier for supply to the

recipient, in a case where the goods are required to be removed or

(ii) the date on which the goods are made available to the recipient, in a case where the goods are not required to be removed; or

(b) the date on which the supplier issues the invoice with respect to the supply; or

(c) the date on which the supplier receives the payment with respect to the supply; or

(d) the date on which the recipient shows the receipt of the goods in his books of

account.

If we read the above lines, it talks about a paradigm shift from the existing tax provisions under Central Excise or Value Added Tax.

As per Section 12, the time of supply for goods is the earliest of the sub-sections which are similar to the existing Tax Deducted at Source provisions i.e tax has to be recovered debit or credit whichever is earlier. This process is entirely different from the VAT / GST implementations across the globe. India has its obvious reasons for the same.

Now let’s understand each of the above provision with examples

 

Sub Section2, (a) (i)

Sub Section2, (a) (i) the date on which the goods are removed by the supplier for supply to the recipient, in a case where the goods are required to be removed or

This will be the most followed rule for the time of supply, and it is applicable for the moveable goods.

Example 1

ABC Ltd ships goods from it factory located in Hyderabad to a customer, XYZ Ltd in Bangalore and loads it on  the truck on 14th of April 2017 and XYZ receives the goods on 17th of April 2017.

ABC Ltd subsequently issues an invoice for the said shipment on 16th of April 2017.

Based on the above example, the goods are removed on 14th of April, received by XYZ on 17th of April and invoice is issued on 16th of April. Of these three dates, the earliest date is the removal of goods date i.e.  14th of April 2017 and the tax point is 14th April 2017 and liability of CGST / IGST has to be accounted on this date.

Sub-Section 2 (a) (ii)

Sub-Section 2 (a) (ii) the date on which the goods are made available to the recipient, in a case where the goods are not required to be removed;

This is applicable for immovable goods, and the usage of this will not be a regular or day to day.

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.

Example 2

ABC Limited agrees to supply PQR Ltd, a pre-installed water treatment plant. ABC installs the same in its factory 15th April 2017, ships the same on 25th April 2017 and issues an invoice on 26th of April 2017.

In the above example, the installation date is 15th April, and shipment date is 25th April, and invoice date is 26th April, of all the dates, the earlier date is installation date i.e 15th April and for the time of supply this date should be considered.

Sub-Section 2 (b)

2 (b) the date on which the supplier issues the invoice with respect to the supply; or

Example 3

ABC Ltd ships goods from it factory located in Hyderabad to a customer, XYZ Ltd in Bangalore and loads it on the truck on 14th of April 2017 and XYZ receives the goods on 17th of April 2017. ABC Ltd issues an invoice on 12th of April 2017.

Based on the above example, the goods are removed on 14th of April, received by XYZ on 17th of April and invoice is issued on 12th of April. Of these three dates, the earliest date is the issue of invoice i.e. 12th of April 2017 and the time of supply is 12th April 2017 and liability of CGST / IGST has to be accounted on this date.

Sub-Section 2 (c)

2 (c) the date on which the supplier receives the payment with respect to the supply; or

Example 4

ABC Ltd, receives an advance from XYZ Ltd for the supply of goods on 10th of April 2017 (amount credited in ABC Ltd’s bank account). ABC Ltd ships goods from it factory located in Hyderabad to a customer, XYZ Ltd in Bangalore and loads it on the truck on 14th of April 2017 and XYZ receives the goods on 17th of April 2017 and invoice is issued by ABC Ltd on 15th April 2017.

Based on the above example, advance credited on 12th April, and the goods are removed on 14th of April, received by XYZ on 17th of April and invoice is issued on 15th of April. Of these four dates, 12th April 2017 is the earliest date i.e advance amount credited in A Ltd.’s account so, the liability of CGST / IGST has to be accounted on this date.

Sub-Section 2 (d)

2 (d) the date on which the recipient shows the receipt of the goods in his books of account.

Either in the Central Excise or the Value add tax we never had this provision, this is altogether a new regulation in India. The above statement means that the time of supply is the date on which the buyer shows the purchases in his books after he receives the goods and follows the quality inspection in most of the factories and he accepts the goods.

Example 5

ABC Ltd supplies highly expensive chemicals for water treatment to YXZ Ltd. ABC Ltd ships the chemicals on an annual basis, and XYZ consumes the material on the periodic basis based on its necessity. XYZ issues the consumptions statement as and when it consumes and based on this ABC Ltd issues the invoice. Chemicals are shipped on 14th April 2017, and XYZ receives them on 21st of April 2017. On 2nd May 2017, it consumes part of the material i.e 2kgs and informs the same to ABC Ltd. ABC Ltd issues an invoice for 2kgs on 3rd May 2017. It is similar to that of consignment sales where taxes are not be paid on the removal of goods.

Based on the above example, the goods are removed on 14th of April, received by XYZ on 21st of April, material consumed on 2nd May and invoice is issued on 3rd May 2017. The date on which the material is consumed should be taken into account for the time of supply i.e 2nd May 2017 when the goods are consumed on this day and accounted in the books of XYZ Ltd.

Sub-Section 3 – Continuous Supply of Goods 

In the case of continuous supply of goods, the date of time of supply will be 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 6

PQR Enters into a contract for the supply of HSD to ABC Ltd through a dedicated pipeline, this amounts to a continuous supply of goods,  PQR Issues an invoice to ABC Ltd based on its consumption of the HSD on 5th of every month based on the meter installed in ABC Ltd’s premises. Payment is made within 15th days from the date of issue of invoice typically by 20th of the same month.

In the above case, the time of supply will be 5th of the month if the invoice is issued by PQR Ltd or in case if ABC’s make ad-hoc payment without invoice on 20th of the month, the time of supply will be 20th.

 Reverse Charge

 In India under the current provisions, the reverse charge is applicable only services only but now under the proposed Goods and Service Tax the same has been extended to goods also as per the model law. Similar to the service tax provisions the time of supply will be the earlier of the dates as given below

Sub-Section 5

 (5) 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—

  • the date of the receipt of goods, or

(b) the date on which the payment is made, or

(c) the date of receipt of invoice, or

(d) the date of debit in the books of accounts.

Example 7

  • the date of the receipt of goods, or

ABC Ltd purchases goods from PQR Ltd and on the purchases reverse charge is applicable. ABC receive the goods on 17th of April and invoice issued by PQR is received on 20th of April, 2017.

The earliest date is 17th April, the time of supply to be accounted for the reverse charge treatment is 17th April 2017.

Example 8

(b) the date on which the payment is made, or

ABC Ltd places an order for goods from PQR Ltd and on the purchases reverse charge is applicable. Advance payment for the full order value is made on 15th of April, and the same got credited in PQR’s bank account on 16th April 2017.  ABC receive the goods on 17th of April and invoice issued by PQR is received on 20th of April, 2017.

Payment date in books of account of ABC Ltd is 15th April, bank account credit date in books of PQR is 16th April, receipt of goods by ABC Ltd is on 17th April and Invoice received date is 20th April, of the dates, the earliest date is the date on which the payment is made i.e debited in the books of ABC Ltd., as per the rule the time of supply is 15th April 2017.

Example 9

(c )the date of receipt of invoice, or

ABC Ltd purchases goods from PQR Ltd and on the purchases reverse charge is applicable. Invoice is received on 17th of April 2017 and goods are received subsequently on 20th of April 2017.

In the above case, the date of receipt of invoice is earlier than receipt of goods, the time of supply for taxation under GST is 17th April 2017.

Example 10

(d) the date of debit in the books of accounts.

ABC Ltd issues a standing order for regular supply of gaskets to PQR Ltd and on gaskets the reverse charge is applicable on the same. The gaskets were received by PQR Ltd on 14th April 2017 and accounted for the same on 14th April 2017.

In the above example, it is debited on 14th April 2017, the time of supply for reverse charge will be 14th of April 2017.

Sub-Section 6

(6) If the 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, 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.

Example 11

ABC Ltd is an electronic goods manufacturer and appoints XYZ Ltd as its dealer for selling its goods in the city of New Delhi. ABC Ltd places it goods in XYZ’s showroom, and XYZ is to pay for the goods when it sells the goods. ABC Ltd has shipped 10 Refrigerators to XYZ on 2nd April 2017, and XYZ sells 3 refrigerators on 5th May 2017, 4 on 15th May 2017 and 2 on 20th May 2017 as on 2nd September there is still 1 refrigerator in stock with XYZ Ltd in its showroom.

The time of supply for the sales of 3 refrigerators will be 5th May 2017, for 4 refrigerators on 15th May, 2 refrigerators on 20th May 2017 and based on that invoice will be issued by ABC Ltd and taxes will be accounted on that date. In the case of 1 refrigerator lying in stock, for taxation purpose, the time of supply for this would be 2nd September 2017 (6 calendar months from April, not 180 days should not be considered here as it is clearly stated as months).

Sub-Section 7

 (7) 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

(a) in a case where a periodical return has to be filed, be the date on which such return

is to be filed, or

(b) in any other case, be the date on which the CGST/SGST is paid.

There can be certain cases, where the time of supply cannot be determined based on conditions given in sub-sections 2, or 3 or 5 or 6 and in such cases, we have to follow sub section 7.

Example 12

 ABC Ltd is an electronic goods manufacturer and appoints XYZ Ltd as its dealer for selling its goods in the city of New Delhi. ABC Ltd places it goods in XYZ’s showroom, and XYZ is to pay for the goods when it sells the goods. ABC Ltd has shipped 10 Refrigerators to XYZ on 2nd February 2017, and XYZ sells 3 refrigerators on 5th February 2017, 4 on 15th February

2017 and 2 on 20th February 2017 as on 31st March there is still 1 refrigerator in stock with XYZ Ltd in its showroom. ABC Ltd opts for a  composite dealer under Section 8.

The time of supply for the sales of 3 refrigerators will be 5th February 2017, for 4 refrigerators on 15th February, 2 refrigerators on 20th February 2017 and based on that invoice will be issued by ABC Ltd and taxes will be accounted on that date. In the case of 1 refrigerator lying in stock, for the taxation purpose, the time of supply for this would be 18th April 2017. A compounding dealer has to file GST – 4 on a quarterly basis by 18th of the next month of the quarter ending. It is based on the sub section 7 (a) “in a case where a periodical return has to be filed, be the date on which such return is to be filed,”. For a compounding dealer, the return for the Q4 i.e from Jan to March has to be submitted by 18th of April.

 Any views or opinions represented above are personal and belong solely to the author and do not represent those of people, institutions or organizations that the owner may or may not be associated with in professional or personal capacity, unless explicitly stated. Any views or opinions are not intended to malign any religion, ethnic group, club, organization, company, or individual.

These examples are based on the model law and may change based on the actual law passed.

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