As we know that GST is applicable on supply of goods or services. The supply is defined under section 7 of CGST Act 2017, the important element for a transaction to be considered as supply is that there must be a flow of consideration. However, schedule I of CGST Act 2017 contains the list of the activities which are to be treated as supply even if without consideration. Sometimes the supplier of the goods or services receives the advance payment in respect of the supply which is to take place in future. In this respect the common doubt that usually arises is whether the GST would be applicable on such advance amount or the GST would be applicable when the supply is actually made by the supplier on a future date. In this article we are going to address the same issue in detail and will also discuss how to report such advances in GST returns.

The advance can be received in respect of supply of goods on a future date or it can be received in respect of services to be provided in future. Hence we will discuss both the scenarios one by one. However, before going into detailed discussion it is important to know that under GST law there is the concept of time of supply through which we can determine the time/event when the GST becomes payable. Hence to know whether GST would be applicable at the time of receipt of advance or not it is necessary to understand the provisions of time of supply.

Advances Received in respect of the Supply of Goods:
The provisions relating to time of supply of goods are given under section 12 of CGST Act 2017. As per section 12(2) of CGST Act 2017 the time of supply of shall be the earlier of the following dates;
(a) the date of issue of invoice or the last date to issue the invoice;
(b) the date on which the supplier receives the payment with respect to the supply:

For instance, an advance of Rs. 1,00,000/- was received for a supply worth Rs. 10 lakhs to be made in future. Hence as per section 12(2) of CGST Act 2017 The time of supply to the extent of advance received i.e., Rs.1,00,000/- shall be at the time of receipt of advance and for the balance amount of Rs. 9,00,000/-, it shall be determined with reference to earlier of date of issue of invoice or date of payment received.

However, in this respect it is important to know that the CBIC had initially issued a Notification No. 40/2017- Central Tax dated 13th October, 2017 wherein it was stated that the registered person shall pay the tax on the outward supply of goods at the time of supply as specified in Section 12(2)(a) i.e. date of issues of Invoice. If following conditions are satisfied:

(i) The registered person whose Aggregate turnover in the preceding financial year did not exceed 1.5 crore rupees or aggregate turnover in the year in which taxpayer has obtained registration is likely to be less than 1.5 crore rupees, and

(ii) Taxpayer did not opt for the composition levy under section 10 of the CGST Act.

Subsequently, a Notification No. 66/2017- CT dated 15th November 2017 has been issued which has superseded the Notification No. 40/2017-Central Tax and an exemption has been provided to all suppliers of goods who have not opted for composition scheme, from the burden of paying GST on Advances received in respect of goods and it was also stated in the said notification that for such categories of taxpayers, time of supply would arise only at the time of issue of invoice and they need to discharge GST liability accordingly.

Hence from the above discussion it is now clear that no GST would be applicable on the supplier of goods (other than the suppliers who opted for composition scheme) in respect of the advance received by them.

Advances Received in respect of the Supply of Services:
The provisions relating to time of supply of services are given under section 13 of CGST Act 2017. As per section 13(2) of CGST Act 2017 if the invoice is issued within time limit given u/s 31 (within 30 days of from the date of provision of service) then the time of supply of service would be the earlier of:
(a) date of issue of invoice or
(b) the date of receipt of payment

However, if the invoice is not issued within the time limit given u/s 31(within 30 days of from the date of provision of service) then in such case the time of supply of service would be the earlier of:
(a) the date of provision of service or
(b) the date of receipt of payment 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

Thus from the above provisions it can be concluded that in case of supply of service the GST would be payable at time of receipt of advance.
Concept of issuance of the Receipt Voucher & Refund Voucher :

(A) Receipt Voucher:
As per section 31(3)(d) the registered person shall, on receipt of advance payment with respect to any supply of goods or services, issue a receipt voucher containing the particulars as prescribed under Rule 50 of CGST Rules 2017.

In this respect it is also important to know that if at the time of receipt of advance against the supply of service the rate of GST is not determinable, it shall be taken as 18% and if the nature of supply is not determinable, the same shall be treated as inter-state supply of service.

(B) Refund Voucher:
where any advance is received in respect of the supply of goods or services but subsequently no supply is made and no tax invoice is issued, in such situation the said registered person shall issue a refund voucher containing the particulars as prescribed under Rule 51 of CGST Rules 2017.

Calculation of GST on Advance Received:
Till now we have discussed that no GST is payable on the advance received in respect of supply of goods. However, the GST is payable on the advance received in respect of supply of services. Now, the question arises here is how to calculate GST on advance received i.e., whether the amount of such advance would be considered as inclusive of GST or exclusive of GST? In this respect it is important to know that the amount which is received in advance should be considered as inclusive of GST hence a reverse calculation should be made to derive the GST amount. Let us discuss the same with the help of an example; an advance of Rs. 1,00,000/- was received for a supply of service worth Rs. 10 lakhs to be made in future and suppose the applicable rate of GST on said service is 18%. In such situation the advance amount of Rs. 1,00,000 would be considered as inclusive of GST, hence the GST liability would be calculated as follows;

1,00,000 *18/118 = 15,254/-

Reporting of Advances Received in the GSTR-1
In GSTR-1 there is a separate table i.e., table 11 for reporting of the advances & adjustment of advances received by the taxpayer. Accordingly, while filing GSTR-1 the advances received by the taxpayers for which invoices have not been issued should be reported in Table 11A of the GSTR-1. While Table 11B of GSTR-1, should be used to adjust advances reported in the previous tax periods against invoices issued in the current tax period.

GST Paid on the advance received but the contract for service got cancelled:
Sometime a situation arises where the GST is paid on the basis of advance received for the services to be provided in future but the contract of service got cancelled due to any reason, in such situation since the GST is already paid at time of receipt of advance hence the common question arises whether refund would be received of such tax paid or not.

In this respect it is important to know that if at the time of receipt of advance the tax invoice was issued by the supplier then in such situation the supplier can issue a credit note as per section 34 and adjust their liability in GSTR-3B, accordingly there is no need to claim the refund of such tax paid at the time of receipt of advance. On other hand, if at the time of receipt of advance a receipt voucher was issued by the supplier then in such situation the supplier should issue a refund voucher in terms of section 31 (3) (e) of the CGST Act read with rule 51 of the CGST Rules and should apply for refund of GST paid on such advances by filing FORM GST RFD-01 under the category "Refund of excess payment of tax".

The same was also clarified by CBIC in serial number 1 & 2 of Para 2 of Circular No.137/07/2020 that in case invoice is issued before supply of service at the time of receipt of advance, the supplier is required to issue a credit note and tax liability shall be adjusted and there is no need to file a separate refund claim. However, in case no invoice has been issued at the time of receipt of advance, the taxpayer can apply for refund of GST paid on such advances.

Conclusion: 1. If the advance is received in respect of the supply of goods to be made in future: GST would not be applicable on the supplier of goods (other than the suppliers who opted for composition scheme).

2. If the advance is received in respect of the supply of services to be made in future: GST would be payable at time of receipt of advance.

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.