Sec 12 – Time of supply of goods.

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Sec 12 – Time of supply of goods. 2017-04-14T11:42:23+00:00

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  • Ashish BadalaCA Ashish Badala
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    (1) The liability to pay tax on goods shall arise at the time of supply, as determined in accordance with the provisions of this section.
    (2) The time of supply of goods shall be the earlier of the following dates, namely:-
    (a) the date of issue of invoice by the supplier or the last date on which he is required, under sub-section (1) of section 31, to issue the invoice with respect to the supply; or
    (b) the date on which the supplier receives the payment with respect to the supply:
    Provided that where the supplier of taxable goods receives an amount up to one thousand rupees in excess of the amount indicated in the tax invoice, the time of supply to the extent of such excess amount shall, at the option of the said supplier, be the date of issue of invoice in respect of such excess amount.Explanation 1.–For the purposes of clauses (a) and (b), “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 2.–For the purposes of clause (b), “the date on which the supplier receives the payment” shall be the date on which the payment is entered in his books of account or the date on which the payment is credited to his bank account, whichever is earlier.
    (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:-
    (a) the date of the receipt of goods; or
    (b) the date of payment as entered in the books of account of the recipient or the date on which the payment is debited in his bank account, whichever is earlier; or
    (c) the date immediately following thirty days from the date of issue of invoice or any other document, by whatever name called, in lieu thereof by the supplier:
    Provided that where it is not possible to determine the time of supply under clause (a) or clause (b) or clause (c), the time of supply shall be the date of entry in the books of account of the recipient of supply.
    (4) In case of supply of vouchers by a supplier, the time of supply shall be-
    (a) the date of issue of voucher, if the supply is identifiable at that point; or
    (b) the date of redemption of voucher, in all other cases.
    (5) Where it is not possible to determine the time of supply under the provisions of sub-section (2) or sub-section (3) or sub-section (4), 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 tax is paid.
    (6) The time of supply to the extent it relates to an addition in the value of supply by way of interest, late fee or penalty for delayed payment of any consideration shall be the date on which the supplier receives such addition in value.

    Priya MadrechaPriya Madrecha
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    12.1 Analysis
    (a)      Introduction
    Supply has been understood to hold the key to the incidence of GST, but it is the ‘time of supply’ that dictates the occasion when this incidence will come to rest. Taxable supply has been defined to mean a supply of goods and/or services which is chargeable to tax under this Act. It is interesting to note the use of the expression ‘chargeable to tax’ as opposed to ‘leviable to tax’. It has been held that ‘chargeable to tax’ encompasses not only the incidence of tax but also its assessment.
    The opening words in section 12(1) are very interesting and forceful as it is here that the liability to pay GST arises. The subject matter of levy – goods or services – becomes encumbered with the tax upon occurrence of the taxable event – supply. But the tax levied in terms of section 9, comes to reside only at the time determined by section 12 and 13. Accordingly, these sections play a stellar role in the imposition of GST.
    The provisions state that the time of supply “shall be” and as such is a “must” to be examined closely. It signifies that “time of supply” is not a fact to be inquired by the taxable person but one that is to be admitted as the time of supply appointed by the will of legislature as declared in the section. In order to not allow any opportunity for a suggestion by the taxable person or even the tax administration as to any alternative to what could be the time of supply, the legislature retains for itself the exclusive authority to appoint the time of supply by employing the words “shall be”. Therefore, the time of supply is what is stated in the law to be the time of supply and nothing else.
    Invoice is commonly understood as ‘proof of sale’ but this common understanding is far from the truth. Invoice is a document recording the terms of an arrangement already entered – the underlying arrangement. Lease agreement, as an analogy, is a document in present evidencing the agreement reached between two parties is for the lease of property for certain duration in exchange for a certain consideration. A lease arrangement verbally entered into previously when documented by an indenture or deed does not bring into existence the lease when the document is prepared. In fact, the document merely is a record of an arrangement of lease entered previously, albeit verbally. Verbal arrangements are no less agreements in the eyes of law. Similarly, an invoice does not bring into existence a sale agreement but merely records the terms of whatever arrangement that may have been entered into by the parties, involving the subject matter. Tax laws require the preparation of an invoice not as if the absence of an invoice defeats the levy but prescribes an unambiguous occasion when the tax may become recoverable with a proper record of the terms of the underlying arrangement. Therefore, an invoice can evidence not only a sale but every other form of supply such as transfer, barter, exchange, license, rental, lease or disposal. If issuance of an invoice is uncommon for barter or a rental arrangement, then it is to do with our own unfamiliarity and nothing to do with its impermissibility.
    (b)      Time of Supply – Forward Charge
    Time of supply is prescribed (legislative will) to be the earlier of (a) date of issue of invoice and (b) date of receipt of payment. Date of issue of invoice requires us to examine section 31 which deals with the requirement to issue a “tax invoice”. Here two kinds of situations are contemplated, namely:
    (i)    A case where the supply involves movement
    (ii)    Any other case
    2(96) “removal’’, in relation to goods, means –
    (a)    despatch of the goods for delivery by the supplier thereof or by any other person acting on
    behalf of such supplier, or
    (b)    collection of the goods by the recipient thereof or by any other person acting on behalf of such recipient
    Before proceeding, it is necessary to admit the concept of ‘person and taxable person’. Person is defined in the most familiar manner in section 2(84) but taxable person is explained in detail in section 25 (please refer to the relevant chapter for a detailed discussion). A proper reading of section 25 helps us understand – a State is the smallest registrable unit in GST – except where multiple business verticals are registered separately under section 24. A taxable person is therefore the presence of the person in a State where taxable supplies are made from in the name of such person. When a person becomes liable to be registered in a State at any place from where taxable supplies are made therein, every place in that State such person shall be a taxable person.
    Now, we may return to our discussion regarding the two kinds of cases that are discussed on time of supply. It is noticeable that section 31 uses two expressions – ‘removal of goods’ and ‘movement of goods’ – which are not merely expressions of distinction without a difference. There is deliberate purpose for legislating in this manner. ‘Removal of goods’ is defined in section 2(85) and identifies the steps that may follow once the decision to supply is made. But, ‘movement of goods’ is not defined and is therefore an attribute of the goods at the time of supply. For example, machine tools on display at an exhibition in Mumbai agreed to be purchased by executives of an engineering company from Indore attending the exhibition, is a case of ‘supply involving movement’ even though the transportation is undertaken by representatives of the purchaser on their own. In the same example if the executives from Indore were to place an order at the same exhibition with instructions for delivery to be ensured by the exhibitor (supplier) assured within six weeks, this would also be a case of ‘supply involving movement’ and the transportation being organised by the supplier through an independent transport agency from the factory or exhibitor site to the customer location.
    It is for this reason that the language employed of seemingly similar or synonymous expressions – ‘removal of goods’ and ‘movement of goods’ – but demands to be supplied their separate and individual meanings and not be misled by their apparent similarity. To reiterate, ‘removal of goods’ is a question of fact to be examined from the steps that would ensue once the supply is decided whereas ‘involves movement’ is a question of the state-of-affairs of the goods being supplied.
    Therefore, it is important even before the arrival of time of supply, that the goods to be supplied be classified into one of these two cases, that is, whether it is a case of supply that involves movement or one that does not involve movement of the goods. Only when this classification of the goods has been clearly made does section 31 come into operation. Where the supply involves movement of goods then an invoice must be issued at the exact time when the goods are about to be removed. And where the supply does not involve movement of goods then an invoice must be issued at whatever is the time when the goods are delivered or made available to the recipient. It is in this case – where supply does not involve movement – that the complexity remains even after making a proper classification. That is, determining the time when the goods are delivered or made available to the recipient. Delivery – the mode and the time – is the unilateral choice of the recipient and the supplier has no authority to decide ‘how’ and ‘when’ he will deliver the goods to the recipient. It only becomes easy in a contract for supply if it clearly records this ‘choice’ of the recipient regarding the mode and time of delivery. The supplier is always duty-bound to deliver in exactly the same way – manner and timing – which the recipient dictates. In fact, the supplier continues to be obligated until delivery is completed in the way it is stated by the recipient. In other words, delivery is not complete if there is any deviation in either the manner or the timing compared to that dictated by the recipient. When the delivery is to the satisfaction of the recipient, then the supplier is released from his obligation. Therefore, in all those cases (where supply does not involve movement) the additional question of fact to be determined is the mode and time of delivery dictated by the recipient and whether the same has been complied with, to the satisfaction of the recipient. It is now that section 31 comes into operation.
    Unlike the case of VAT law where an invoice is required to be issued when ‘transfer of property’ takes place and invoice does not have to be kept pending until they are physically removed, GST requires issuance of an invoice at the time of their ‘removal’ or ‘delivery’, as the case may be, notwithstanding any delay in transfer of property. As explained earlier, an invoice does not by itself prove anything except that it is a record of the terms of understanding of the underlying transaction. Accordingly, referring back to our brief mention about ‘person and taxable person’, the tests requiring examination under section 31 must be administered not only in a transaction between two persons but even on all the transactions between two taxable persons even if they belong to the same person.
    It is only upon undertaking a detailed enquiry into the questions of fact determined under section 31 in the respective cases, will we be able to determine one of the two elements prescribed to be the ‘time of supply’ under section 12. Time of supply therefore is earlier of date of invoice as per section 31 or date of receipt of payment with respect to the supply.
    Exceptions:
    (i)    when amount in excess of Rs. 1000 is received, the time of supply in respect of such excess at the option of the supplier shall be the date of such invoice
    (ii)    supply shall be deemed to have been made to the extent the value of supply indicated in the invoice or the value of payment received by the supplier
    (iii)    date of receipt of payment shall be the date on which the payment is accounted in the books of the supplier or the date reflected in the bank account of the supplier, whichever is earlier
    (c)     Time of Supply – Reverse Charge
    Where tax is payable on reverse charge basis, the time of supply is appointed to be the earliest of (a) date of receipt of goods, (b) date of payment or (c) 30 days from the date of issue of invoice by the supplier. If for any reason, one or these three dates cannot be determined then the time of supply will be the date of recording the supply in the books of the recipient.
    Keeping in mind the definition of reverse charge in section 2(98), the above provision does not apply to payment of tax by an electronic commerce operator but only to those cases of supply which fall under sub-section 5 to section 9 of the Act.
    Exceptions:
    date of receipt of payment shall be the date on which the payment is accounted in the books of the supplier or the date reflected in the bank account of the supplier, whichever is earlier
    (d)     Time of Supply – Vouchers
    The Act introduces time of supply in respect of ‘vouchers’ as a separate category such that the provisions relating to time of supply of goods is made inapplicable when the supply is of such vouchers. Referring to chapter III where in the context of supply, definition of goods has been discussed at length, we find specific inclusion of ‘actionable claims’.
    In relation to actionable claims, Courts have held as follows:
    (i)    actionable claims come within the definition of goods as generally understood
    (ii)    VAT laws have deliberately excluded actionable claims from the definition of goods
    (iii)    actionable claims represent debt and accordingly carry a demand that can lawfully be made by one person against another
    (iv)    actionable claims represent property in non-physical (incorporeal) form
    But in GST, unlike VAT laws, we find that by including actionable claims within the definition of goods, they are made liable to tax. In relation to actionable claims under GST, please note the following key aspects:
    (i)    Actionable claims are included specifically in the definition of goods, but this inclusion is by creating an exception from an exclusion. In other words, while excluding money and securities from the definition of goods, actionable claims have been singled out. This means such forms of actionable claims that represent property in the form of money or securities are also excluded from the definition of goods. Therefore, from a large population of actionable claims, tax is applicable only on the subset of actionable claims which do not represent property in the form of money or securities and all other forms of actionable claims representing any other property is includable in the definition of goods. A receipt for having made payment is not actionable claim because that receipt represents money and not the result of a transaction resulting in debt or demand. Similarly, promissory notes, IOU slips and all other derivatives of such instruments are also not actionable claims for the purposes of GST because of the exclusion of money from the definition.
    2(75) “money” means the Indian legal tender or any foreign currency, cheque, promissory note, bill of exchange, letter of credit, draft, pay order, traveller cheque, money order, postal or electronic remittance or any other instrument recognised by the Reserve Bank of India when used as a consideration to settle an obligation or exchange with Indian legal tender of another denomination but shall not include any currency that is held for its numismatic value;
    (ii)    Actionable claims which are included within the definition of goods do not become includable in the definition of services due to the accommodative and expansive language used to define services. For this reason, the property that actionable claims represent even if they are in non-physical form will continue to remain goods and not become services. Actionable claims so understood may or may not be itself in any physical form. In other words, actionable claim is not the piece of paper carrying the detailed description of the actionable claim in question but the real property, though in nonphysical form, that is referred to in that piece of paper. In this digital age, piece of paper carrying the description of the actionable claim can even be present in electronic form and still retain the chart of actionable claim within the definition of goods. So, actionable claims can be in physical or electronic form as long as they represent real property.
    About ‘actionable claims’ discussion in chapter III would have highlighted that the incidence is limited to ‘lottery, betting and gambling’. Further, it is important to note that vouchers are not always referring only to actionable claims. Vouchers being treated as a separate category for the purposes of determining time of supply will need to be first identified in relation to supply before applying the relevant provision regarding its time of supply. Vouchers are not defined in the Act but its general definition is “a small printed piece of paper that entitles the holder to a discount or that may be exchanged for goods or services” and examples of voucher are coupon, token, ticket, license, permit, pass. Given the broad nature of this general definition and examples, it is important to await the exact scope intended in GST for vouchers.
    Now, the time of supply in the case of vouchers is stated to be:
    (i)    the date of issue of voucher if the supply is identifiable at that point or
    (ii)    and in all other instances, the date of redemption of the voucher
    Please refer to the chapter regarding time of supply of services for detailed discussion on the overall aspect of vouchers. It is important to understand that a similar provision as specified in relation to time of supply of goods also exists in time of supply of services. It is reasonable to therefore infer that the Government in its wisdom, in all probability, will treat ‘vouchers relating to goods’ and ‘vouchers relating to services’ as distinct and separate class of transactions. What does one understand by ‘vouchers relatable to goods’ and ‘vouchers relatable to services? A layman would comprehend that vouchers relatable to goods would be those class of transactions which can be exchanged for goods whereas vouchers relating to services being distinct and separate can be exchanged only for services. There can be a third class of transactions relating to vouchers, namely, a gift voucher issued by a bank which can be exchanged only for cash. But a plain reading of definition of goods and services indicates that they both exclude money. Therefore, such of those vouchers relatable to cash / money can be safely assumed to be outside the ambit of GST laws.
    It is possible for one to construe that a voucher relating to goods can be embedded for the provision of services also. Such class of transactions must be read with schedule II to understand whether they are to be treated as goods or as services and thereafter apply the principles laid down to the transaction as if they were goods or services. And in such situations, await until time of redemption to determine the rate of tax and class of supply.
    Interesting situations arise in respect of such transactions. For instance, the points accumulated in a credit card could be used to exchange for goods or issue of an air ticket. Difficulty arises in taxing such transactions in the hands of the person issuing such points. However, the taxability or otherwise of such accumulated points would need detailed deliberations based on facts and surrounding circumstances of each case.
    (e)     Time of Supply – Residuary
    Where none of the above provisions are able to satisfactorily answer the time of supply, it is to be determined based on the residuary provision which states that the time of supply is: (i)     where a periodical return has to be filed, the due date prescribed for such return or
    (ii)     in any other case, the date of payment of the tax
    Time of supply under this residuary provision is applicable only when the other provisions are found to be inapplicable and not merely when there is some difficulty in determining the facts that are sought for by the relevant provision.
    (f)     Time of Supply – Special Charges
    Special charges imposed for delay in payment of consideration will enjoy the facility of time of supply being date of receipt of the charges imposed, that is, cash-basis of payment of GST. The various issues involved in these special charges are discussed in detail under time of supply of services which may kindly be referred.
    Concept
    illustrations Section 12(2)     Invoice date     Invoice due date     Payment entry in
    supplier’s books     Credit in bank account     Time of supply
    1     Invoice raised before removal     10-Oct-17     20-Oct-17     26-Oct-17     30-Oct-17     10-Oct-17
    2     Advance received     30-Oct-17     20-Oct-17     10-Oct-17     30-Oct-17     10-Oct-17

    Supply involves movement of goods
    Section 12(2) r/w
    Section 31(1)(a)     Invoice/ document date     Removal of goods     Delivery of goods     Receipt of payment     Time of supply
    3     Delayed issue of invoice     26-Oct-17     20-Oct-17     26-Oct-17     26-Oct-17     20-Oct-17
    4     Inter-State stock transfer     10-Oct-17     20-Oct-17     26-Oct-17     –     10-Oct-17
    5
    Advance received, invoice for full
    amount issued on same day (40% advance, 60% post supply payment)     30-Oct-17     10-Nov-17     14-Nov-17     30-Oct-17     30-Oct-17
    20-Nov-17     30-Oct-17

    Supply otherwise than by involving movement of goods
    Section 12(2) r/w Section 31(1)(b)     Invoice date     Receipt of invoice by recipient     Delivery of goods     Receipt of payment     Time of supply
    6     Delayed issue of invoice     30-Oct-17     05-Nov-17     26-Oct-17     10-Nov-17     26-Oct-17
    7     Invoice issued prior to delivery     20-Oct-17     10-Nov-17     26-Oct-17     10-Nov-17     20-Oct-17

    Continuous supply of goods
    Section 12(2) r/w
    Section 31(4)     Invoice date     Removal of goods     SoA/ payments due date     Receipt of payment     Time of supply
    8
    Contract provides for
    successive statements of account/ successive payments     01-Nov-17     15-Oct-17     05-Nov-17     01-Nov-17     01-Nov-17
    25-Oct-17
    9
    11-Dec-17     08-Nov-17     05-Dec-17     11-Dec-17     05-Dec-17
    30-Nov-17
    10
    08-Jan-18     14-Dec-17     05-Jan-18     01-Jan-18     01-Jan-18
    23-Dec-17

    Reverse charge Section 12(3)     Date of invoice
    issued by supplier     Removal of goods     Receipt of goods     Payment by recipient     Time of supply
    11     General     31-Oct-17     31-Oct-17     20-Nov-17     30-Nov-17     20-Nov-17
    12     Advance paid     31-Oct-17     31-Oct-17     20-Nov-17     05-Nov-17     05-Nov-17
    13     No payment made for the supply     31-Oct-17     30-Dec-17     05-Jan-18     –     30-Nov-17

    Sale on approval basis
    Section 12(2) r/w
    Section 31(7)     Removal of goods     Issue of invoice     Accepted by recipient     Receipt of payment     Time of supply
    1
    4     Acceptance communicated within 6 months of removal     01-Nov-17     25-Nov-17     15-Nov-17     25-Nov-17     15-Nov-17
    1
    5     Amount paid to supplier before informing acceptance     01-Nov-17     25-Nov-17     15-Nov-17     12-Nov-17     12-Nov-17
    1
    6     Acceptance not communicated within 6 months of removal     01-Oct-17     15-May-18     15-May-18     02-May-18     01-Apr-18

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