AUGUST 19, 2017

By C Mallikarjun Reddy, Superintendent, CBEC

ISSUE: It appears there is anomaly in the time of supply provisions when it requires to apply the provisions to the advances received for supply of goods and also for services which were not leviable to service tax prior to GST but have become taxable supplies post GST.

Example:

(1) 'A' gives Rs. 10 Lakhs as advance on 01.06.2017 to "B" for supply of machinery valued Rs. 15 Lakhs. 'B' supplied the Machinery on 30.07.2017. At the time of receipt of advance no VAT was paid as VAT was not payable on the advances. Whether GST is payable on the entire value of Rs. 15 lakhs?.

(2) X gave advance of Rs 5 Lakhs to 'Y' (print media) on 15.06.2017 out of total consideration of Rs 8 Lakhs, for advertisement in print media. Y published advt on 15.07.2017. No Service Tax was paid on the advance since 'sale of space for advertisement in print media' was not leviable to Service Tax as the same was covered under Section 66D (Negative List). Whether GST is payable on the entire value of Rs. 8 lakhs?

Analysis: Before taking up the issues for analysis, I extract relevant provisions for ready reference:

Relevant Provisions of CGST Act, 2017:-

"Section 9 (1) there shall be levied a tax called the central goods and services tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person."

Section 12 of CGST Act:

"12. (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."

Section 13

" 13. (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"

Section 142(11)(a):

"Section 142(11) (a) notwithstanding anything contained in section 12, no tax shall be payable on goods under this Act to the extent the tax was leviable on the said goods under the Value Added Tax Act of the State"

Section 142(11)(b):

"Section 142(11)(b) notwithstanding anything contained in section 13, no tax shall be payable on services under this Act to the extent the tax was leviable on the said services under Chapter V of the Finance Act, 1994"

In respect of Example 1, vat was not leviable on the advance amount received prior to 01.07.2017. Hence, the provisions of Section 142(11) (a) do not attract. Hence, the time of supply of provisions of Section 12 of CGST act need to be applied to the subject supply. As per Section 12(2) readwith explanation 1 to Section 12, the time of supply in respect of subject supply to the extent of advance amount of Rs. 10 lakhs is the date of receipt of payment which is on 01.06.2017. In such a scenario, GST can't be levied on subject advance amount of Rs. 10 lakhs as time of supply falls prior to the appointed day. Hence, in the instant case subject advance amount is not leviable to tax under existing law as well as under GST law.

In case of example 2 also, the service tax was not leviable on the advance amount received prior to 01.07.2017since the subject service (sale of space for advertisement in print media) was not leviable to tax under service tax law. Hence, the provisions of Section 142(11) (b) do not attract. As per Section 13(2) read with clause (i) of explanation to Section 13, the time of supply in respect of subject supply to the extent of advance amount of Rs. 5 lakhs is the date of receipt of payment which is on 15.06.2017. In such a scenario, GST can't be levied on subject advance amount of Rs. 5 lakhs as time of supply falls prior to the appointed day. Hence, in the instant case also the advance amount can't be subjected to tax under GST law.

Further, the provisions of Section 15 of CGST Act also does not allow to consider the advance amount as part of transaction value and be subjected to GST. Hence, it appears that suitable amendments warranted in the time of supply provisions (Sections 12 and 13) stating that 'where the payments are received prior to 1.7.2017, such payments shall be deemed to have been received on 1.7.2017 for the purpose of this section'. If the same is intended one, a clarification also will be useful to remove the ambiguity. This is very much relevant for goods as there would be good number of such instances.

(Views expressed by the author are purely personal.)