GST on Advance Payments
Here is the complete Analysis of GST on Advance Payments of goods and services
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GST on Advance Payments
GST has to be paid on advance payments because as per Section 2(83) of CGST Act 2017, Outward Supply means Supply made or Agreed to be made by person in the Course of furtherance of business.
As per Section 2 (83) of CGST Act 2017
“outward supply” in relation to a taxable person, means supply of goods or services or both, whether by sale, transfer, barter, exchange, licence, rental, lease or disposal or any other mode, made or agreed to be made by such person in the course or furtherance of business;
Further as per Section 7(a) of CGST Act 2017 ” Scope of Supply ” :-
The expression “supply” includes :-
all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;
Analysis of GST on Advance Payments of Goods and Services as per CGST Act 2017 and IGST Act 2017 of India
1. GST on Advance Payments of Goods
In terms of Section 12 (Time of Supply of Goods) of the CGST Act 2017 Notified by Govt of India , time of supply of goods shall be earliest of
(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 (Tax Invoice) , 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:
However where the supplier of taxable goods receives an amount upto Rs 1000 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 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.
[ Govt has issued notifications when you are not required to pay GST on Advance received for goods. You can refer GST on Advance Payments : Free Study Material ]
NO GST on Advance Payments of Goods
For the Period from 01.07.2017 to 12.10.2017 :
GST on Advance received for Goods is required to be paid as per Section 12(1) of CGST Act 2017
For the Period from 13.10.2017 to 14.11.2017
No GST on Advance received for Goods if aggregate turnover less than Rs 1.5 crores because as per Notification No 40/2017 Central Tax Dated 13th October, 2017 made payment of tax on issuance of invoice by registered persons having
- aggregate turnover less than Rs 1.5 crores and
- who did not opt for the composition levy under section 10 of the said Act
For the Period from 15.11.2017 onwards
Notification No 66/2017 Central Tax Dated 15th November, 2017 : No GST on Advance Payment for Goods if the person did not opt for the composition levy under section 10 of CGST Act 2017
2. GST on Advance Payments of Goods ( in Reverse Charge Case )
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 earliest of the following dates, namely:—
(a) the date of the receipt of goods; or
(b) 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
(c) the date immediately following thirty days from the date of issue of invoice or any other document, by whatever name called, in lieu thereof by the supplier:
However where it is not possible to determine the time of supply under clause (a) or clause (b) or clause (c), the time of supply shall be the date of entry in the books of account of the recipient of supply.
Thus, in situations where the recipient of goods makes an advance payment as per payment terms to the supplier, the tax is liable to be paid on such advance payment.
[Govt has issued notifications when you are not required to pay GST on Advance received for goods. You can refer GST on Advance Payments : Free Study Material ]
3. GST on Advance Payments of Services
In terms of Section 13 (Time of Supply of Services) of the CGST Act 2017 Notified by Govt of India , time of supply of services shall be earliest of
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 (Tax Invoice) 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 (Tax Invoice) 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:
However where the supplier of taxable service receives an amount upto Rs 1000 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) – “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
4 GST on Advance Payments of Services ( in Reverse Charge Case )
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:
However 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:
It is also provided 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.
5. GST Input Tax Credit not Available on Advance Payments
As per Section 16 (2) – Eligibility and conditions for taking input tax credit – of CGST Act 2017 person will not be able to claim Input Tax Credit until receipt of the Invoice and Goods (a part from other conditions mentioned in this Section 16(2) mentioned below) :-
No registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless,—
(a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed;
(b) he has received the goods or services or both.
Explanation.—For the purposes of this clause, it shall be deemed that the registered person has received the goods where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise;
(c) subject to the provisions of section 41, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply; and
(d) he has furnished the return under section 39:
As per Section 16 (2) – Eligibility and conditions for taking input tax credit – of CGST Act 2017 person
But where the goods against an invoice are received in lots or instalments, the registered person shall be entitled to take credit upon receipt of the last lot or instalment:
6. Issues relating to GST on Advance Payments of Goods and Services
Charging GST on Advances Contradicts with charging section 9 of CGST Act 2017 and Section 5 of IGST Act 2017 , where levy is on supply. Suppose after Advance Payment supply does not happen for any reason like dispute , natural calamity etc , than what will happen to the GST already Paid on advance payments ?
Charging GST on Advance payment is also diametrically opposite to the law laid down by the Hon’ble Supreme Court in the case of Collector of Central Excise, Hyderabad v. Vazir Sultan Tobacco Company Ltd., Hyderabad CIVIL APPEAL NO. 3199 OF 1986
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