Article on Decoding Time of Supply under GST: When Does Tax Liability Arise?

Decoding Time of Supply under GST: When Does Tax Liability Arise?

GST is a destination-based tax levied on the supply of goods or services. But the mere act of supply isn’t enough- what matters is when the liability to pay tax arises. This is where the concept of “Time of Supply” steps in. It determines the exact point at which a transaction becomes taxable, regardless of when the invoice is issued or payment is made.

Understanding time of supply is crucial for every taxpayer, as any mistake here can lead to interest, penalties, or mismatches in returns. In this article, we break down the statutory framework, special situations, and practical nuances of time of supply under GST.

What is Time of Supply?

To determine when a taxpayer becomes liable to pay GST, it is essential to identify the exact point in time when the taxable event takes place. This point is referred to as the time of supply under GST law. The concept plays a crucial role in ascertaining the due date for payment of tax.

Simply put, time of supply refers to the point in time when goods or services are deemed to have been supplied, thereby triggering the liability to pay GST.

The GST framework sets out distinct rules for determining the time of supply under:

Section 12 of the CGST Act – Time of supply of goods
Section 13 of the CGST Act – Time of supply of services
Section 14 of the CGST Act – Time of supply in case of change in rate of tax

These sections lay out different rules for forward charge, reverse charge, vouchers, and special scenarios.

Time of Supply of Goods [Section 12]

(A) Forward Charge

For regular supplies, the time of supply of goods is the earlier of the following:

(a) The date of issue of invoice by supplier or the last date by which the invoice is required to be issued u/s 31; OR

(b) The date on which supplier receives the payment.

❖Note: If a supplier receives up to Rs.1,000 in excess of the amount stated in the invoice, he may choose the date of invoice (for that excess) as the time of supply.

❖Explanation: "The date on which the supplier receives the payment" Clarification: The earlier of:

(a) The date the payment is recorded in the books; OR

(b) The date credited to the bank account.

➲ Is GST payable on advance received for supply of goods taxable under forward charge?

No, GST is not required to be paid on advance payments received for the supply of goods liable under the forward charge mechanism. Pursuant to Notification No. 66/2017-Central Tax dated 15.11.2017, registered persons (excluding those under the composition scheme and certain suppliers of actionable claims) are liable to pay GST on the supply of goods at the time specified in Section 12(2)(a)- that is, the date of issue of the invoice or the last date on which the invoice is required to be issued, whichever is earlier. Therefore, receipt of advance for goods does not trigger tax liability under GST.

(B) Reverse Charge

When tax is paid or liable to be paid under reverse charge, the time of supply is the earliest of:

(a) The date of receipt of goods; OR

(b) The date of payment (recorded in recipient’s book or debited in his bank account, whichever earlier); OR

(c) The date immediately following 30 days from the date of the supplier’s invoice or any other document.

☛ If none of the above can be determined, it will be the date of entry in the recipient’s book.

(C) Vouchers

(a) If supply is identifiable at issuance → date of issue of voucher.

(b) Otherwise → date of redemption.

(D) Residual Rule

If time of supply cannot be determined under the above rules:

(a) If periodical return is to be filed → date of return filing.

(b) Otherwise → date of tax payment.

(E) Interest, Late Fee, Penalty for delayed payment of consideration

In such cases, the time of supply is the date of receipt of such additional amount by supplier.

Time of Supply of Services [Section 13]

The rules for services differ slightly, mainly due to the intangible nature of services.

(A) Forward Charge

Time of supply is the earlier of:

(a) The date of invoice by supplier, if issued within prescribed time u/s 31, or date of payment received; whichever is earlier, OR

(b) The date of provision of service, if invoice is not issued within time, or date of payment received; whichever is earlier, OR

(c) If neither applies, then the date of entry in the recipient’s book is used.

❖ Note: Like goods, Rs. 1,000 excess receipts can be linked to invoice date at supplier’s option.

❖ Note: Unlike goods, advances received for services continue to attract GST liability at the time of receipt.

❖ Explanation: "The date on which the supplier receives the payment" Clarification: Same as goods — books or bank, whichever is earlier.

(B) Reverse Charge

Time of supply is the earlier of:

(a) The date of payment (recorded in recipient’s book or debited in his bank account, whichever earlier); OR

(b) The date immediately following 60 days from the date of invoice, or any other document, in cases where invoice is required to be issued by the supplier; OR

(c) If invoice is to be issued by the recipient, then the date of such invoice is considered.

☛ If none of these apply, then date of entry in recipient’s book.

☛ Special case for associated enterprises (supplier outside India): time of supply is date of payment or date of entry in the recipient’s book, whichever is earlier.

(C) Vouchers

Same as goods:

(a) Identifiable supply → issue date.

(b) Otherwise → redemption date.

(D) Residual Rule

If time of supply is indeterminable:

(a) If return is to be filed → return filing date.

(b) Otherwise → tax payment date.

(E) Interest, Late Fee, Penalty for delayed payment of consideration

Again, the receipt date of such additional value is the time of supply.

Change in Rate of Tax [Section 14]

When there is a change in the GST rate, special rules override Sections 12 and 13. There are two broad scenarios:

(A) Supply before Rate Change

Issuance of Invoice	Payment received date	Time of Supply	Applicable rate of tax
After rate change	After rate change	Earlier of invoice issued or payment received	New rate
Before rate change	After rate change	Date of issue of invoice	Old rate
After rate change	Before rate change	Date of receipt of payment	Old rate

(B) Supply after Rate Change

Issuance of Invoice	Payment received date	Time of Supply	Applicable rate of tax
Before rate change	After rate change	Date of receipt of payment	New rate
Before rate change	Before rate change	Earlier of invoice issued or payment received	New rate
After rate change	Before rate change	Date of issue of invoice	New rate

❖ Note: If payment is credited after four working days from the rate change date, the bank credit date is considered as date of receipt of payment.

❖ Explanation: “The date of receipt of payment” Clarification: The earlier of:

(a) The date the payment is recorded in the books of supplier; or

(b) The date it is credited to the bank account.

Conclusion

Understanding the time of supply is vital for every registered taxpayer under GST, as it directly determines when tax must be paid. A mistake in determining this can lead to interest and penalties. Whether dealing with goods, services, or vouchers or when rates change -- clarity on timing helps ensure accurate compliance.

Disclaimer: The information given in this article is solely for purpose of understanding the law. It is completely based on the interpretation of the author and cannot be constituted as a legal advise, the author of this article and Lawcrux team is not responsible for any legal issues if arises on the basis of the interpretation given above.