Sec 13 – Time of supply of services

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  • Ashish BadalaCA Ashish Badala
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    (1) The liability to pay tax on services shall arise at the time of supply, as determined in accordance with the provisions of this section.
    (2) The time of supply of services shall be the earliest of the following dates, namely:-
    (a) the date of issue of invoice by the supplier, if the invoice is issued within the period prescribed under sub-section (2) of section 31 or the date of receipt of payment, whichever is earlier; or
    (b) the date of provision of service, if the invoice is not issued within the period prescribed under sub-section (2) of section 31 or the date of receipt of payment, whichever is earlier; 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 clause (b) do not apply:
    Provided that where the supplier of taxable service 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 relating to such excess amount.

    Explanation.–For the purposes of clauses (a) and (b)–

    (i) 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;
    (ii) “the date of receipt of payment” shall be the date on which the payment is entered in the books of account of the supplier 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 earlier of the following dates, namely:–
    (a) 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
    (b) the date immediately following sixty 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), the time of supply shall be the date of entry in the books of account of the recipient of supply:
    Provided further that in case of supply by associated enterprises, where the supplier of service is located outside India, the time of supply shall be the date of entry in the books of account of the recipient of supply or the date of payment, whichever is earlier.
    (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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    13.1 Analysis
    (a)     Time of Supply – Forward Charge
    Similar to goods, time of supply of services is prescribed to be the earlier of date of issue of invoice and 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”. In relation to services, section 31 requires that a tax invoice be issued whether before or after provision of service. Further, there is a time limit beyond which tax invoice to be issued in arrears cannot be delayed after completion of the provision of service.
    Please recollect the discussion in chapter III where it has been explained that in accordance with schedule II, supplies involving goods may be treated as supply of services. In all such cases, as in the case of services ordinarily understood, this provision alone applies for determination of time of supply. One may also refer to chapter VII regarding issuance of tax invoice in all other circumstances and determine from there the fact of issuance of tax invoice.
    Then when the tax invoice has been issued accordingly, the time of supply can be determined to be earlier of date of issuance of such tax invoice or date of receipt of payment.
    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
    (b)     Time of Supply – Reverse Charge
    Where tax is payable on reverse charge basis, the time of supply is appointed to be the earlier of date of payment or 60 days from the date of issue of invoice by the supplier. If for any reason, one or all of these two dates cannot be determined then the time of supply will be the date of recording the supply in the books of the recipient. In case of transactions between ‘associated enterprises’ and the supplier is located outside India, the date of recording the supply in the books of the recipient alone will be relevant.
    Again, please note that in view of the definition of reverse charge in section 2(98), the above provision does not apply to payment of tax by an electronic commerce operator under subsection 5 to section 9 of the Act.
    Exceptions:
    (i) 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 – Vouchers
    Please refer to discussion regarding time of supply of goods for some background discussion about actionable claims. For purposes of this discussion on time of supply of services, please note the following comments:
    (i)    the discussion on actionable claims being includible as vouchers is relevant vis-à-vis services for the only reason that certain transactions involving goods are deliberately treated as supply of services by schedule II and to this extent actionable claims which are a sub-set of goods need to be referred in this chapter
    (ii)    vouchers are not entirely comprised only of actionable claims and services can also be included but the exact scope of vouchers is eagerly awaited when the Rules are published
    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
    From the provision, it can be seen that at the time of issue of voucher, it is possible that the supply is not identifiable. So, the following key statements can be considered in this regard:
    (i)    Vouchers maybe issued with specific or non-specific end-use
    (ii)    Vouchers are issued on payment of money
    2(118) “voucher” means an instrument where there is an obligation to accept it as consideration or part consideration for a supply of goods or services or both and where the goods or services or both to be supplied or the identities of their potential suppliers are either indicated on the instrument itself or in related documentation, including the terms and conditions of use of such instrument;
    (iii)    Vouchers themselves are not legal tender
    (iv)    Vouchers represent some carried value in money terms
    (v)    Vouchers are accepted as substitute for
    payment for a supply due to their carried value
    (vi)    Vouchers are not merely receipts for prepayment received
    (vii)    Vouchers must be non-cancellable such that they cannot be reconverted back into money
    (viii)    Vouchers may be in physical or digital form but comprise the above characteristics

    When vouchers are issued for specific end-use, then they are taxable as supply Provided they otherwise satisfy the requirements of section 7 of the Act. Since, a specific provision exists in respect of time of supply of vouchers, they are not goods or services in themselves, but are singled out for the limited purposes of prescribing the time of their supply. And the rate of tax will be that applicable to goods or services they are issued in respect of or that applicable at the time of redemption. Vouchers are not merely receipts for pre-payment received because prescribing a specific time of supply would be redundant when time of supply already considers advance payments.
    Please also note that the Government has issued the Payment and Settlement Systems Act, 2007 (‘PSS Act’) and accordingly, not everyone is permitted to issue instruments that may be used as a Payment System. RBI is expected to make major changes to the circulars issued in terms of the PSS Act by June 2017 but the framework or principles borrowed from the current circulars for the purposes of GST is expected to remain unaltered all though changes may come in areas of governance, ease of doing business and inclusive growth in e-payment offerings through these Pre-Paid Instruments or PPIs.

    Please refer to some interesting discussions on vouchers in section 12 above on time of supply.
    (d)     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
    (e)     Time of Supply – Special Charges
    Sometimes there may be charges imposed by the supplier on account of some deviation or special circumstance from the expected terms of contract on the part of the recipient. These special charges may be enabled by the contract though not necessarily attracted at the time of supply of the underlying goods or service (other than these special charges) or may be agreed later – when the special circumstance occurs. These special charges are listed as interest, late fee or penalty on account of delay in payment of consideration. In these cases, the time of supply is appointed to be the date of receipt by the supplier.
    Please note that even though a debit note may be issued after reaching agreement with the recipient about the special charges imposed, the time of supply continues to remain ‘date of receipt’ of payment towards such special charges. This is a departure from the provisions on accrual principle in section 31. As this is a special provision, the same will prevail over all other general provisions.
    It is important to understand that due to time of supply being prescribed, whether the imposition of these special charges is itself a supply or not? Please see the following comparative discussion:
    Special Charges ‘are’ Supply     Special Charges ‘are not’ Supply
    Special charges are also supply being agreeing to an act or forbear an act or to tolerate an act (entry 5(e) of sch II) read with sec 2(31)     There is no ‘supply’ in the case of interest, late fee or penalty as these special charges are a consequence of a departure from the agreed terms of contract and not in fulfilment thereof
    Interest, late fee or penalty are illustrations only and such special charges by any other name would also be liable to GST but on receipt-basis     By accepting such an expansive interpretation, damages awarded by a Court, LD imposed in a contract, forfeiture of a EMD, etc. can become liable to GST as these are all in some way ‘in the course or furtherance of business’
    Special charges paid is liable to GST whether agreed before or agreed subsequently as satisfaction of the limited non-performance     Other than the three special charges listed, any other charges arising from a transaction is not liable to GST as it is not contemplated in the arrangement of supply all though not imposed in all cases
    Delay in payment is a primary deviation that gives rise to special charges but even     Only ‘delay in payment’ gives rise to GST incidence on the special charges. Any other
    deviation in time or quantity of supply can entail some other form of special charges, GST on those cannot be avoided as the
    these listed are only illustrative     deviation would be a variation of contract to be independently examined if it satisfies definition of ‘supply’
    Special charges are ‘linked’ to an underlying supply (original supply) and therefore all forms of special charges would also be liable to GST     Special charges are ‘linked’ to an original supply as such GST cannot be imposed on special charges without an original supply
    From the above discussion, several necessary conclusions need to be reached, namely:
    (i)    whether the three listed charges are exhaustive or only illustrative?
    (ii)    whether delay in payment is the only occasion when this provision is attracted or special charges imposed for any other default linked to the original supply will also attract this provision?
    (iii)    whether special charges imposed for any other default (not delay in payment) is liable to GST but not on receipt basis but accrual basis or are special charges for these cases not at all liable to GST?
    It appears that the three listed cases are exhaustive not by the three cases listed but the circumstance for their imposition – delay in payment of consideration. So, any form of special charges imposed is liable to GST on receipt basis but only if it is due to delay in payment of consideration. Special charges imposed due to any other default by the recipient is then to be examined if it is linked to an ‘original supply’ or is it by itself a supply? If linked to an original supply, it is also liable to tax but not during enjoying flexibility to pay tax on receipt basis and tax being payable based on the date of debit note. If not linked to an original supply, GST would not be applicable if it does not satisfy the requirements of levy.
    The issues raised in respect of special charges may be considered as matter of discussion and does not carry a procurement of an opinion on view. Readers are free to connect or these discussions and evaluate each such situation after giving it adequate consideration or thought.
    S.
    No.
    Concept
    illustrations Section 13(2)     Invoice date     Invoice due date     Payment entry in
    supplier’s books     Credit in bank account     Time of supply
    1     Invoice raised before completion of service     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
    Based on due date for invoicing Section 13(2) r/w
    Section 31(2) r/w
    Invoice Rule – 2     Invoice date     Commenc ement of service     Completio n of service     Receipt of payment     Time of supply
    3     Delayed issue of invoice     26-Dec-17     20-Oct-17     16-Nov-17     28-Jan-18     16-Dec-17
    4
    Advance received, invoice for full
    amount issued on same day (40% advance, 60% post supply payment)     30-Oct-17     30-Oct-17     30-Dec-17     30-Oct-17     30-Oct-17
    04-Dec-17     30-Oct-17

    Continuous supply of services Section 13(2) r/w
    Section 31(5)     Invoice date     Date as per contract     Receipt of payment     Entry of provision of
    services in books     Time of supply
    5

    Section 31(5)(a)
    Contract provides for
    payments monthly on the 10th of succeeding month     02-Nov-17     10-Nov-17     15-Nov-17     31-Oct-17     02-Nov-17
    17-Dec-17     10-Dec-17     15-Dec-17     30-Nov-17     10-Dec-17
    10-Jan-18     10-Jan-18     06-Jan-18     31-Dec-17     06-Jan-18
    6

    Section 31(5)(c)
    Contract provides for payments on completion of event. Recipient to pay within 1 month from date of completion     12-Nov-17     10-Nov-17     25-Nov-17     12-Nov-17     10-Nov-17
    24-Apr-18     24-Apr-18     20-Apr-18     24-Apr-18     20-Apr-18

    Reverse charge Section 13(3)     Date of invoice
    issued by supplier     Date of completio n of service     Payment by recipient     Entry of receipt of
    services
    in
    recipient’ s books     Time of supply
    7     General     31-Oct-17     31-Oct-17     20-Nov-17     30-Nov-17     20-Nov-17
    8     Advance paid     31-Oct-17     31-Oct-17     05-Nov-17     31-Oct-17     05-Nov-17
    9     Delay in payment (Max. 60 days from date of invoice)     31-Oct-17     31-Oct-17     10-Jan-18     31-Oct-17     31-Dec-17
    10     Service received from associated enterprise located     31-Oct-17     30-Nov-17     05-Apr-18     31-Mar-18     31-Mar-18
    outside India (No time extension allowed)
    11     Service by unregistered person, no payment made     –     30-Nov-17     –     05-Dec-17     05-Dec-17

    Issue of vouchers
    Section 13(4) [or
    Section 12(4)]     First service/ delivery of goods     Issue of voucher     Redempti on of voucher     Last date for
    acceptan ce of voucher     Time of supply
    12     Voucher issued to a recipient after supply of a service [or specific goods], for the same service – valid for 1 year     01-Nov-17     01-Nov-17     14-Dec-17     30-Oct-18     01-Nov-17
    13     Voucher issued to a recipient of machinery along at the time of delivery, for availing repair services [or specific goods] worth Rs. 5,000 – valid for 1 year     01-Nov-17     01-Nov-17     14-Dec-17     30-Oct-18     01-Nov-17
    14     Voucher issued to a recipient after supply of a service, for any other services or goods across India, – valid for 1 year     01-Nov-17     01-Nov-17     14-Dec-17     30-Oct-18     14-Dec-17
    15     Gift voucher for Rs. 1,500 for services [or
    goods]- valid for 6
    months     –     01-Nov-17     25-Dec-17     31-Mar-18     01-Nov-17

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