How is The Time of Supply Determined For a Continuous Supply of Goods?

The Goods and Services Tax (GST) has revolutionized the Indian taxation system, introducing several new concepts, including the time of supply for continuous goods. This concept is pivotal in determining when the liability to charge GST arises and when a supply is deemed to have been made. The focus of this blog is to elucidate how the time of supply is determined for a continuous supply of goods, integrating crucial aspects such as the earliest of invoice issue date, due date for issue of invoice, or receipt of advance payment, specific dates or milestones, and fulfillment of contractual obligations.

What Constitutes the Time of Supply?

Under the CGST/SGST Act, the time of supply for goods is crucial in identifying when the liability to charge GST arises. This time is determined by the earlier of two events: the date of issue of the invoice by the supplier or the last date on which the invoice must be issued as per Section 31; or the date on which the supplier receives the payment.

The Role of Invoices and Payments

For a continuous supply of goods, where successive statements of accounts or payments are involved, the invoice must be issued before or at the time each such statement is issued, or each payment is received. This plays a critical role in defining the time of supply for GST purposes.

Continuous Supply of Goods

Understanding the time of supply for continuous supply of goods is crucial for businesses to ensure accurate tax compliance. This concept is especially pertinent in scenarios involving ongoing or phased supply contracts, where goods are delivered over an extended period rather than at a single point in time.

Here’s a table with calculations to illustrate how the time of supply is determined for a continuous supply of goods:

Example Scenario:

• • Before Rate Change: The invoice is issued on the 15th June, payment is received on 20th June, a contractual milestone is reached on 25th June, and goods are delivered on 30th June. The time of supply is determined as 15th June, the date of the first event (invoice issuance).
    

• • After Rate Change: The invoice is issued on 15th July, payment is received on 20th July, a contractual milestone is reached on 25th July, and goods are delivered on 30th July. The time of supply is determined as 15th July, again the date of the first event (invoice issuance).

This table exemplifies that in continuous supply scenarios, the time of supply is determined by the earliest occurrence among various events such as invoice issuance, payment receipt, reaching contractual milestones, or delivery of goods.

Also Read: What is a Continuous Supply of Goods?

A Detailed View

The determination of the time of supply in such cases involves considering various factors, from invoice issuance to the completion of delivery milestones.

• Earliest of Invoice Issue Date, Due Date for Issue of Invoice, or Receipt of Advance Payment: The time of supply is pegged at the earliest occurrence of these events. It implies that the GST liability arises at the earliest point of these occurrences, ensuring timely compliance. It offers clarity and predictability, which are vital for both the supplier and the customer in managing their respective tax obligations.

• Specific Dates or Milestones for Different Phases of Supply: In contracts involving multi-phased supply, the time of supply is determined based on the completion of specific phases or milestones. This helps in breaking down the tax liability into manageable segments. This phased approach is particularly useful in long-term projects where supplies are delivered over several stages. It enables businesses to align their tax payments with their cash flow, especially when payments are tied to project milestones.

• Finalization of Supply Upon Completion of All Phases: The overall supply is considered complete once all the contractual phases or milestones are met. This finalization is essential in determining the overall time of supply for the entire contract. It allows businesses to plan and budget for their GST payments over the duration of the contract effectively.

• Fulfillment of Contractual Obligations: The time of supply also hinges on the fulfillment of contractual obligations. This ensures that the GST liability aligns with the contractual terms agreed upon by the parties. It provides a clear framework for both parties to understand and adhere to their GST obligations throughout the contract duration.

• Delivery of Goods to the Customer: In many cases, the delivery of goods to the customer signifies the completion of a supply phase. This event is crucial in determining the time of supply, especially in contracts where delivery marks the fulfillment of a phase. In scenarios where delivery is staggered, each delivery can potentially represent a separate time of supply. This aspect is crucial for businesses to correctly identify and record the time of supply for each delivery, ensuring accurate GST reporting and compliance.

Complexities in Determining the Time of Supply

Determining the time of supply under GST, particularly for continuous supplies, can be a challenging task for businesses. This determination is crucial as it directly influences the tax liability and compliance requirements. Different scenarios, such as the supply of vouchers or ambiguous situations, pose unique challenges in ascertaining the correct time of supply. Understanding these factors is essential for accurate GST filing and avoiding potential discrepancies:

• Supply of Vouchers in Respect of Goods and Services: The time of supply for vouchers is either the date of issue (if the supply is identifiable at that point) or the date of redemption in other cases. This distinction is vital for businesses dealing with vouchers. For businesses issuing vouchers, this requires an efficient tracking system to ensure GST compliance and accurate tax accounting.

• Determining Time of Supply in Ambiguous Situations: When it’s not possible to determine the time of supply as per standard provisions, the due date of filing the periodical return or the actual date of GST payment becomes the time of supply. Businesses must stay vigilant and proactive in these situations to avoid misinterpretation and ensure compliance with GST regulations.

• Date of Receipt of Payment Interpretation: The earliest date of payment entry in the books of accounts or its credit to the bank account of the supplier is considered the date of receipt of payment. The synchronization of accounting entries with bank transactions becomes crucial for businesses to establish the correct time of supply.

• Part Payments and Partial Invoicing: For part payments or partial invoicing, the supply is deemed to have been made only to the extent covered by the invoice or the part payment. This partial recognition of supply complicates the calculation of tax liability, especially in scenarios where payments are staggered over time. It necessitates a detailed and segmented approach to invoicing and payment tracking, ensuring each segment of the supply is accurately reflected in GST filings.

Tax Liability under Reverse Charge

For Goods

The time of supply in case of tax payable under reverse charge for goods is the earliest of the receipt of goods, payment date, or 30 days from the invoice issue date.

For Services

For services, it is the earlier of the payment date or 60 days from the invoice issue date.

Changes in Tax Rate

In the GST regime, changes in tax rates can significantly impact the time of supply for continuous goods. This impact varies depending on whether the supply is completed before or after the tax rate change. Here’s how it works:

• Supply Completed Before Change in Rate: If both the invoice issuance and payment receipt occur before the tax rate change, the old rate applies. This situation requires businesses to be proactive in their billing and collection processes to avoid higher tax liabilities when an increase in the tax rate is anticipated.

• Supply Completed After Change in Rate: When the supply is completed after the tax rate change, the applicable rate depends on the timing of the invoice issuance and payment receipt. If either of these occurs after the rate change, the new rate applies. This necessitates careful planning around the anticipated tax rate changes to ensure compliance and optimal tax liability.

In both situations, understanding the timing of these actions is critical for businesses, especially in the context of continuous supply contracts. It’s essential for businesses to stay informed about impending rate changes and adjust their supply, invoicing, and payment strategies accordingly.

Also Read: Reverse Charge Mechanism

Continuous Supply in Special Cases

• Goods Sent on Approval: For goods sent or taken on approval for sale, the invoice must be issued before or at the time of supply, or six months from the date of approval.

• Continuous Supply of Services: The invoicing must be done based on the payment due date as per the contract, or upon completion of an event linked to the payment.

In Conclusion

Understanding the time of supply for a continuous supply of goods under GST is essential for businesses to ensure compliance and accurate tax liability calculation. By adhering to the stipulated guidelines and considering specific contractual terms and delivery milestones, businesses can fulfill GST compliances with greater ease and accuracy.

Also Read: Understanding GST Time Of Supply For Goods And Services

Also Listen: Tax implications of the new GST regime

Frequently Asked Questions (FAQs)

• How is the time of supply determined for continuous goods?

The time of supply for continuous goods is determined by the earliest of the invoice issue date, the due date for the issue of the invoice, or the receipt of advance payment. This ensures that GST liability is accounted for at the earliest possible point in the supply process.

• What if the supply of goods happens in phases?

For phased supplies, the time of supply is often linked to specific dates or milestones defined for different phases. Each phase’s completion might mark a separate time of supply, reflecting the progress of the overall contract.

• How does GST consider the finalization of supply?

In GST, the finalization of supply upon completion of all phases is crucial. The final phase’s completion marks the conclusive time of supply, especially in contracts segmented into multiple delivery milestones.

• What role do contractual obligations play in determining the time of supply?

Fulfillment of contractual obligations is key in determining the time of supply. GST liability aligns with the contractual terms, ensuring that tax obligations correspond with the agreed-upon supply terms.

• Does the delivery of goods affect the time of supply?

Yes, the delivery of goods to the customer can significantly affect the time of supply. In many contracts, especially in continuous supply, the delivery date often marks the time of supply for that segment of goods.

• How does advance payment impact the time of supply?

Receipt of advance payment can trigger the time of supply, as it’s one of the criteria considered. If advance payment is the earliest event, it becomes the point when GST liability arises.

• What happens when the invoice is issued after receiving payment?

If the payment is received before the invoice is issued, the time of supply is the date of payment. The rule prioritizes the earliest occurrence among payment, invoice issuance, or due date of invoice.

• How are milestones used to determine the time of supply in continuous supply contracts?

Specific milestones outlined in continuous supply contracts are used to segment the time of supply. Each milestone acts as a trigger point for GST liability, aligning tax obligations with the progression of supply.

• Is the completion of all phases necessary for the time of supply in a multi-phased contract?

Yes, in a multi-phased contract, the completion of all phases is often necessary to determine the overall time of supply. However, each phase may also have its own time of supply, depending on the contract terms.

• In continuous supply, is the delivery date always the time of supply?

While the delivery date is crucial, the time of supply in continuous contracts could be the earliest of the delivery date, invoice issuance, or payment receipt. This ensures a fair and accurate accounting of GST obligations.

Deepti Goel

Deepti is an MBA Post- Graduate who transitioned into content writing last 5+years ago. She has a penchant for breaking down complex financial subjects into digestible content. Besides writing, Deepti consults clients on marketing strategies and brand growth strategies, through her Content, knack for explaining intricate financial matters in a straightforward manner makes her writings accessible for readers. In her downtime, Deepti enjoys exploring the outdoors and is an avid traveler.

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