Time of Supply – Forward Charge
Similar to goods, time of supply of services is prescribed to be the earlier of date of issue of invoice and date of receipt of payment. Date of issue of invoice requires us to examine section 31 which deals with the requirement to issue a “tax invoice”. In relation to services, section 31 requires that a tax invoice be issued whether before or after provision of service. Further, there is a time limit beyond which tax invoice to be issued in arrears cannot be delayed after completion of the provision of service.
Rule 47 of the CGST Rules, 2017 prescribes the time period within which such invoice should be issued. It states that in case of the taxable supply of services, invoice should be issued within thirty days from the date of supply of services. In case of banking company/financial institution/non-banking financial company, the time period becomes forty five days from the date of supply of services. When these banking/financial institution/non-banking financial institution /telecom operator companies make taxable supplies of services between distinct persons invoice may be issued before or at the time such supplier records the same in his books of account or before expiry of the quarter during which the supply was made.
If the invoice is issued within the prescribed time period, the time of supply will be the earlier of the date of issue of invoice or the date of payment. If the invoice is issued after the prescribed time period, the time of supply will be the earlier of the date of completion of service or the date of payment. If none of these two cases are applicable, then the time of supply will be the date when the recipient shows the receipt of services in his books of accounts.
Please recollect the discussion in Chapter III where it has been explained that in accordance with Schedule II, supplies involving goods may be treated as supply of services. In all such cases, as in the case of services ordinarily understood, this provision alone applies for determination of time of supply. One may also refer to Chapter VII regarding issuance of tax invoice in all other circumstances and determine from there the fact of issuance of tax invoice.
Therefore, where the tax invoice has been issued accordingly, the time of supply can be determined to be earlier of date of issuance of such tax invoice or date of receipt of payment.
Illustration 1: Mr. X provides consultancy services to Mr. Y worth ` 50,000.
08.04.2018 – An advance of ` 10,000 is received from Mr. Y
10.04.2018 – The consultancy services are provided
16.05.2018 – Mr X receives balance payment of ` 40,000 and records it in his books.
What will be the time of supply assuming Mr. X issues the invoice on:
Situation 1 – 15.04.2018
Situation 2 – 15.05.2018
Situation 1: If invoice is issued within the prescribed time period, time of supply will be the date of receipt of payment or date of issue of invoice whichever is earlier. In the given case, the invoice is issued on 15.04.2018 which is within 30 days of the supply of services which is within the prescribed period. So, for ` 10,000, the time of supply will be 08.04.2018 which is the date of receipt of advance payment. For the balance amount, time of supply will be 15.04.2018 which is earlier of 15.04.2018 (date of invoice) and 16.05.2018 (date of receipt of payment).
Situation 2: If invoice is not issued within the prescribed time period, time of supply will be the earlier of the date of completion of service and the date of receipt of payment. Here, invoice is issued on 15.05.2018 which is after the prescribed time period. So, for ` 10,000, the time of supply will be 08.04.2018 which is the date of receipt of advance payment. For the balance amount, time of supply will be 10.04.2018 which is earlier of 10.04.2018 (date of completion of service) and 16.05.2018 (date of receipt of payment).
Illustration 2: During investigation, it was found that Mr. X had provided catering services of ` 1,00,000 to Mr. Y during his business convention. The payment for these services was made in cash. Mr. X had neither issued any invoice nor recognised the payment in his books of accounts. Mr. Y recorded the payment of ` 1,00,000 in cash in his books on 28th April 2018. What will be the time of supply in this case?
Answer: Since, the date of receipt of payment or the date of invoice is not available in case of Mr. X, the date when the payment is recorded in the books of the recipient becomes relevant. Since, Mr. Y recorded this on 28th April, the time of supply for such supply will also be considered as 28th April 2018.
(i) When an amount in excess of tax invoice is received up to ` 1,000/-, the time of supply in respect of such excess at the option of the supplier shall be the date of such invoice.
Illustration 3: A telephone company receives ` 4,000 on 27th July 2018 against an invoice of ` 3,700 on 23rd July 2018 in respect of the services provided. The excess amount of ` 300 can be adjusted against the invoice to be issued in the next month. Time of supply will arise only for ` 3700 on 23rd July 2018. For the balance amount of ` 300, the time of supply may not arise on 27th July 2018 at the option of the supplier and may be adjusted against the next month’s invoice.
(ii) Supply shall be deemed to have been made to the extent the value of supply indicated in the invoice or the value of payment received by the supplier.
Illustration 4: In Illustration 3, assume that the payment received was ` 5000 instead of ` 4000. Since, the amount exceeds ` 1000 in terms of the excess payment received, there is no option with the supplier. Here, the supply will be deemed to have been made to the extent of the invoice of ` 3700 on 23rd July 2018 and the balance amount of ` 1300 will be liable to tax on 27th July 2018.
(iii) Date of receipt of payment shall be the date on which the payment is accounted in the books of the supplier or the date reflected in the bank account of the supplier, whichever is earlier.
Illustration 5: Assume that payment is recorded in the books of the supplier on 25 th July 2018 and the date as per the bank statement is 27th July 2018. In this situation, the date of receipt of payment will be taken as 25th July 2018 as it will be earlier of the two events.