Demystifying Time of Supply of Services under Model GST Law – Part I

Section 13 of the Model GST Law states clearly the time of supply of services under the CGST / SGST. Now let’s see the explanation of each sub-section for the supply of services with examples.

Sub-Section 2

(2) The time of supply of services shall be:-

(a) the date of issue of invoice or the date of receipt of payment, whichever is earlier, if

the invoice is issued within the prescribed period; or

(b) the date of completion of the provision of service or the date of receipt of payment,

whichever is earlier, if the invoice is not issued within the prescribed period; or

(c) the date on which the recipient shows the receipt of services in his books of account,

in a case where the provisions of clause (a) or (b) do not apply.

The time of supply for services will be earliest of the above dates.

Sub-section 2(a)

(a) the date of issue of invoice or the date of receipt of payment, whichever is earlier, if

the invoice is issued within the prescribed period; or

The time of supply is the date of issue of invoice or date of receipt of payment if the invoice is issued within the prescribed period. The prescribed period will be notified at a later point of time.

Example 1

A Ltd agrees to provide security services to B Ltd. A Ltd renders the services for the month of April 2017 and issues an invoice on 5^th of May 2017 and B Ltd pays the invoice on 20^th of May 2017.

In the above example, of the invoice date and the date of payment, the earliest date is 5^th May 2017. The time of supply for security services is 5^th of May 2017.

Sub-section 2(b)

(b) the date of completion of the provision of service or the date of receipt of payment,

whichever is earlier, if the invoice is not issued within the prescribed period; or

The time of supply is the date of completion of the service or on the date of receipt of payment whichever is earlier.  In case, if the invoice is not issued for the completed service within stipulated time period.

Example 2

A Ltd agrees to install hot oil boiler in B Ltd’s factory. As per contractual agreement A Ltd installs the hot oil boiler on 25^th April 2017 and as per contract B Ltd pays on 29^th of April 2017 based on the contract. A Ltd Issues invoice on 28^th of June 2017.

In the above example, the date of completion of service is 25^th April and date of receipt of payment is 29^th April 2017 and invoice date is 28^th May 2017. The earliest date of completion of service and receipt of payment is 25^th of April 2017, i.e the time of supply of service.

Example 3

A Ltd agrees to install hot oil boiler in B Ltd’s factory. As per contractual agreement A Ltd receives full payment for installation of hot oil boiler on 14^th of May 2017 from B Ltd and A Ltd completes the installation of the same on 17^th June 2017 and issue an invoice on 20^th July 2017.

In the above example, the date of receipt of payment is 14th May 2017 and date of completion of service is 17^th June 2017 and invoice date is 20^th July 2017. The earliest date of completion of service and receipt of payment is 14^th of May 2017, i.e the time of supply of service.

Sub-section 2 ( c )

(c) the date on which the recipient shows the receipt of services in his books of account,

in a case where the provisions of clause (a) or (b) do not apply.

In case if the service receiver shows the completion of contract in his books before the actual completion of service or issue of the invoice by the service provider or date of making of the  payment.

Example 4

A Ltd agrees to install hot oil boiler in B Ltd’s factory. As per contractual agreement B Ltd in its books shows completion of the work on 14^th May 2017, A Ltd completes the execution of the work on 25^th of June, and issue the invoice on 17^th of Aug 2017. B Ltd issues payment on 25^th Nov 2017.

B Ltd in its books have shown the contract completion as 14^th May 2017, the time of completion of the contract, for the time of supply the same has to be considered.

 

Note : 1. If the invoice shows completion of work partially, for the time of supply the extent to which the service is provided will be considered.

2. The date of payment as per this is to be considered the earliest of the dates of entry of receipt of payment or date on which the payment got credited into the bank of the service provider.

Sub-section 3

Sub-section 3 of section 13 deals with the continuous supply of services similar to sub –section 3 of section 12 for the time of supply for continuous supply of goods.

The definition for the continuous supply of service is given very clearly in sub-section 31 of section 2 “(31) “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 service as the Central or a State Government may, whether or not subject to any

condition, by notification, specify;”

Any service which is being provided for more than a period of three months will be considered as a  continuous supply of services and also the list of services will be notified by the Central / State Governments accordingly.

Sub-section 3 (a)

 (a) where the due date of payment is ascertainable from the contract, the date on which

the payment is liable to be made by the recipient of service, whether or not any invoice

has been issued or any payment has been received by the supplier of service;

The time of supply is the date on which the payment is made by the service receiver.

Example  

R Ltd is an ISP and has agreed into a contract with I Ltd for providing uninterrupted internet supply for its office use. As per the contractual agreement, I Ltd has to pay 10^th of every for the data usage a fixed amount and the bill will be generated by R Ltd based on the actual data usage on 20^th of every month and the differential is adjusted in the bill.

As per the time of supply of services for continuous supply services, the time of supply if 10^th of the month on which the payment is being made.

Sub-section 3 (b)

where the 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;

In some of the contracts, the date of payment may not be mentioned and it only describes on when to raise the invoice for the continuous supply and on the invoice the payment terms are mentioned or in some critical business cases, the service provider may ask for some advance payment to manage his cash flows, in such cases the time of supply is date of issue of invoice or the date of receipt of payment by the service provider.

Example

ABC Ltd is an ISP and has agreed into a contract with PQR Ltd for providing uninterrupted internet supply for its office use. As per the contractual agreement, PQR Ltd has to issue an invoice on 10^th of every for the data consumed by PQR Ltd based on the slabs for data consumption. PQR makes an online payment to ABC Ltd based on the payment terms 30 days, i.e 10^th of June for the invoice issued on 10^th of May 2017 for the data services from 1^st April to 310^th April 2017.

The time of supply will be 10^th of May 2017 as it is earlier than the payment date i.e 10^th of June 2017.

Example

ABC Ltd is an ISP and  agrees into a contract with PQR Ltd for providing uninterrupted internet supply for its office use. As per the contractual agreement, PQR Ltd has to issue an invoice on 10^th of every for the data consumed by PQR Ltd based on the slabs for data consumption. During the month of Aug 2017, ABC requests for advance payment on an ad-hoc basis to meet it cash flows. PQR Ltd does online transfer for a sum of Rs 3 Lacs on 5^th of Aug 2017. ABC Ltd issues an invoice on 10^th Aug 2017 and adjusts the same in the invoice.

The time of supply will be 5^th of Aug 2017 as it is earlier than the invoice date 10^th Aug 2017.

Sub-section 3(c )

where the payment is linked to the completion of an event, the time of completion of

that event;

Mostly in cases of repairs and maintenance of machinery, the service provider is paid only on completing or fixing the reported issued and invoice is issued subsequently. In such cases, the time of completion of the service has to be considered for determining the time of supply for services under GST.

Sub-section 5

In order to bring the small service providers in the tax base and avoid revenue leakage, reverse charge has been increased under Service Tax in 2012 in India and the same is applicable, under the proposed Goods and Service Tax also. In the case of reverse charge, the tax burden for payment is shifted to service receiver just to keep away the small time service providers from the complex tax administration.

Sub-section 5 of section 13 of the Model GST Acts describes the conditions for ascertaining the time of supply under reverse charge. The time of supply under reverse charge is similar to other process and it determined based on the earliest date of the following dates related to the transaction.

(a) the date of receipt of services, 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

The time of supply for reverse charge under various conditions under the sub-section 5 are explained in a tabular format below

Sub-section 6

In a case where the supply of services ceases under a contract before the completion

of the supply, such services shall be deemed to have been provided at the time when the

supply ceases.

There can be cases where the service providers complete’s the execution of the work or maintenance of the machinery before the scheduled date, in such cases, the time of supply will be deemed to be the date of completion of the work.

Example

ABC Ltd enters into a contract to do the annual maintenance for the 3MW captive power plant in one of the steel plants of XYZ Ltd. According to contract, the maintenance work is supposed to start from 15^th April 2017 and complete by 25^th June 2017. ABC completes the contract by 20^th of June 2017 and issues an invoice for the same on 21^st of June 2017.

In the above case, the deemed time of supply is the completion of the work i.e 20thof June 2017.

Sub-section 7

Where it is not possible to determine the time of supply of services in the manner

specified in sub-sections (2), (3), (5) and (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 could be certain cases where the time of supply cannot be determined based on any of the conditions prescribed in any of the sub-sections of section 13. In such cases, the time of supply is the time of supply is to be taken as the  earliest date of the filing of returns or date of payment of GST / SGST.

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