TaxTMI 
TaxTMI 
TaxTMI 
When Long-Term Contracts Qualify as Continuous Supply of Services
In long-term service contracts, clients often give a mobilisation advance. This upfront payment helps the service provider arrange resources, deploy staff, and begin initial work. Such advances are common in operations and maintenance contracts and in other infrastructure projects that span several years.
In simple business terms, a mobilisation advance is an upfront payment made by the client before the services begin. Its purpose is not to pay for finished work but to give the supplier funds to buy equipment, deploy staff, set up systems, and complete other initial preparations needed to perform the contract efficiently. Usually, this advance is later applied to future service bills, so it is not treated as a separate supply.
In one case, Harpreet Ltd., a registered supplier, signed a long-term contract with Aayra Ltd. to provide integrated operation and maintenance services for certain public infrastructure assets in India. The agreement, finalised in FY 2024–25, provided for an upfront mobilisation advance, which would be adjusted against future service payments.
At this stage, it becomes important to examine whether such a contract qualifies as a continuous supply of services under GST law. Section 2(33) of the CGST Act, 2017 defines the expression as follows:
(33) “Continuous supply of services” means a supply of services which is provided, or agreed to be provided, continuously or on a recurrent basis, under a contract, for a period exceeding three months with periodic payment obligations and includes such services as the Government may, subject to such conditions, as it may, by notification, specify.
A careful reading of the above definition shows that three key elements must exist:
- The service must be provided continuously or on a recurrent basis;
- It must be under a contract for a period exceeding three months; and
- The contract must involve periodic payment obligations.
In the present case, the agreement between Harpreet Ltd. and Aayra Ltd. clearly satisfies these conditions. The services are operational and maintenance in nature, intended to be delivered on an ongoing basis. The contract spans multiple years — far beyond the statutory threshold of three months — and the consideration structure provides for periodic service payments against which the mobilisation advance is adjustable.
Accordingly, the arrangement squarely falls within the ambit of continuous supply of services under Section 2(33) of the CGST Act. Although the commercial arrangement appeared routine, the GST treatment of the mobilisation advance soon became complex. It exposed the gap between contractual expectations and statutory requirements, thereby offering a useful opportunity to examine how GST law governs documentation and tax liability at the stage of receiving advances in long-term service contracts.
Tax Invoice versus Receipt Voucher — Understanding the Statutory Sequencing
Section 31(2) of the CGST Act, 2017 states that a registered person must issue a tax invoice for taxable services either before or after providing them. If the invoice is issued after the services are completed, the deadline is set by Rule 47 of the CGST Rules, 2017. When no taxable services have been rendered yet, Rule 47 does not directly apply and can be excluded from this discussion.
Although the statutory language permits issuing a tax invoice before services are actually provided, such flexibility is typically exercised in commercial contexts where the interval between invoicing and service delivery is minimal. Professional engagements, such as legal or consultancy services, often follow this pattern, in which an invoice may be issued before the commencement of the actual consultation, after a brief period. Nevertheless, this permissive provision cannot be indiscriminately extended to long-term arrangements involving the continuous supply of services, in which performance spans several years.
In contracts of this nature, Section 31(5), which specifically governs the continuous supply of services, assumes a position of primary significance. It is a well-established principle of statutory interpretation, consistently reaffirmed by the Hon’ble Supreme Court, that a specific provision takes precedence over a general provision. In accordance with this principle, arrangements classified as continuous supply should predominantly be analysed under the scope of Section 31(5), rather than the more expansive language of Section 31(2).
The analysis does not end there. A close examination of the statutory framework shows that Section 31(5) is subject to the higher authority of Section 31(3)(d), which directly addresses the documentation needed when receiving advances. When an advance is made for future supply, the law explicitly requires the issuance of a receipt voucher. This scheme indicates a deliberate sequence—first acknowledging the advance, then issuing a tax invoice at the appropriate stage of the supply.
This view is further supported by Section 31(3)(e) read with Rule 51, which considers issuing a refund voucher if a receipt voucher has been issued but the supply does not occur. The Central Board of Indirect Taxes and Customs (CBIC), in its guidance on receipt and refund vouchers, has clarified that a registered person must issue a receipt voucher or similar document when receiving an advance payment for any supply. The clarification also states that GST is payable on advances for services.
The authority of this position is clearer when examining Section 31(3)(d), which starts with the non-obstante clause “notwithstanding anything contained in sub-sections (1) and (2)”. This overriding clause is important because it shows that the legislature deliberately prioritised the advance documentation requirement over the general invoicing rules found elsewhere in Section 31.
The provision pertains to a particular commercial transaction — the receipt of an advance payment regarding any supply of goods or services — and mandates the issuance of a “receipt voucher or any other document” as evidence of such receipt. The interpretive nuance resides in understanding the scope of the phrase “any other document. This expression cannot be interpreted in isolation. Utilising the well-established principle of noscitur a sociis, the meaning of general terms must be inferred from the context in which they are used. When general terms follow specific terms of a similar nature, the general expression derives its meaning from the specific terms.
This principle has been affirmed by the judiciary, especially inCommissioner of Trade Tax, U.P. v. Kartos International [2011 (4) TMI 528 - Supreme Court]. In this case, the Hon’ble Supreme Court noted that words with similar meanings should be interpreted in a related sense, and general words that come after specific terms get their meaning from those earlier terms.
Applying this interpretational discipline in the present context, the specific expression is “receipt voucher”, followed by the broader phrase “any other document”. The latter must therefore be understood as referring to documents of a similar character evidencing receipt of advance. It cannot reasonably be stretched to include a tax invoice for several reasons. The concept of tax invoice is separately and specifically governed under Sections 31(1), 31(2), and 31(5). Further, the contents and particulars of a tax invoice are prescribed under Rule 46, whereas receipt vouchers are governed by Rule 50. These two documentary frameworks operate in distinct statutory fields and are not interchangeable.
When provisions are read together, the legislative intent is clarified: upon receiving an advance for future services, the correct statutory procedure is to issue a receipt voucher, with the tax invoice incorporated into the compliance process according to the continuous supply framework.
Time of Supply — Where the Real GST Exposure Begins
While the statutory sequencing of documents provides clarity on what ought to be issued at the advance stage, the compliance landscape cannot be fully appreciated without examining the time-of-supply provisions under Section 13 of the CGST Act. This is because, under the GST framework, the trigger for tax liability does not necessarily occur at the stage when a tax invoice becomes due under Section 31. Instead, the law creates an independent charge mechanism linked to the receipt of consideration for services. Consequently, even where the documentary discipline points to the issuance of a receipt voucher at the advance stage, the supplier may still face an immediate tax outflow upon receipt of the advance. Understanding this statutory interplay is essential to appreciating the financial and compliance implications of such long-term service arrangements.
Time of Supply in Case of Receipt of Advances
If the documentation framework under Section 31 answers the question of what should be issued, the time-of-supply provisions under Section 13 determine when the tax obligation actually arises. It is at this intersection that many otherwise well-structured contracts encounter unintended financial exposure.
To understand the GST impact of mobilisation advances, it is necessary to examine Section 13(2) of the CGST Act, 2017, which determines the time of supply of services. The relevant extract of the provision reads as under
(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 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 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:
Explanation.—For the purposes of clauses (a) and (b)—
(i) the 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;
(ii) “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.
In the present case, Harpreet Ltd. received a mobilisation advance at the beginning of a long-term continuous supply contract. Even though the actual operation and maintenance services will be performed over several years, the receipt of the advance itself becomes the decisive event under Section 13(2). This position flows directly from the Explanation, which holds that the supply has been made to the extent covered by the payment received. Accordingly, once the advance is credited in the supplier’s books or bank account — whichever is earlier — the time of supply stands triggered.
In simple terms, under GST, cash in hand can result in an immediate tax outflow. Thus, in mobilisation advance situations, the supplier may have to pay GST upfront even though the services will be delivered gradually over the contract period.
This feature of the law often comes as a surprise in long-term service arrangements. From a commercial perspective, parties may view the mobilisation advance as preparatory funding to be absorbed against future performance. Statutorily, however, the GST framework treats the receipt of an advance in the case of services as a taxable moment in itself. The supplier is therefore required to discharge the tax in the relevant return period, notwithstanding the stage of actual service delivery or the timing of reimbursement by the recipient.
When GST Is Not Paid Separately — The Rule 35 Impact
The practical consequence becomes even more pronounced when Rule 35 of the CGST Rules, 2017, is considered. The Rule provides as follows:
Rule 35 — Value of supply inclusive of integrated tax, central tax, State tax, Union territory tax-
Where the value of supply is inclusive of integrated tax or, as the case may be, central tax, State tax, Union territory tax, the tax amount shall be determined as:
Tax amount = Value inclusive of tax × tax rate ÷ (100 + tax rate)
This rule becomes particularly relevant where the recipient does not pay GST separately at the time of releasing the mobilisation advance. In the present case, if Aayra Ltd. remits only the agreed advance amount to Harpreet Ltd. without adding GST, the amount received may be treated as tax-inclusive.
In such a situation, Harpreet Ltd. cannot defer its tax liability. Instead, it may be required to back-calculate the GST from the advance received using Rule 35. In effect, the supplier must discharge GST out of the very funds intended for mobilisation. To put simply if GST is not paid over and above the advance, the tax may have to be carved out of the advance itself.
The financial impact can be significant. Where contracts are structured on a price exclusive of GST but the recipient delays releasing the tax component, the supplier may face a real — though temporary — working capital strain. This risk becomes more acute in long-term service arrangements involving large upfront mobilisation advances.
Illustration — Rule 35 Back-Calculation Risk
Agreed mobilisation advance (contract price exclusive of GST): Rs. 10,00,000
Applicable GST rate: 18%
Aayra Ltd. releases an advance without paying GST separately
Step 1 — Apply Rule 35
Since GST is not paid over and above the advance, the amount received is treated as tax-inclusive.
GST = Rs. 10,00,000 × 18 ÷ 118 = Rs. 1,52,542 (approx.)
Taxable value = Rs. 8,47,458 (approx.)
Step 2 — Practical Outcome
Harpreet Ltd. must pay about Rs. 1.53 lakh in GST. But it has received only ?10 lakh total
Thus, the effective funds available for mobilisation are reduced immediately
Accordingly, a clear understanding of Section 13 read with Rule 35 is essential for properly aligning contract drafting, advance clauses, invoicing discipline, and cash-flow planning in long-duration service engagements.
Practical Risk Matrix — Mobilisation Advance under GST
In long-term service contracts involving mobilisation advances, compliance risk does not arise from just one provision. It results from the combined effects of documentation requirements, time-of-supply provision, and the parties commercial behaviour. The following matrix highlights the key areas where mismatches can lead to avoidable complications.
Premature Tax Invoicing Risk:
If a tax invoice is issued at the advance stage rather than a receipt voucher, the documentation may not comply with Section 31(3)(d). During departmental scrutiny, this can raise questions about whether the correct sequence of documents has been followed, especially in cases that qualify as a continuous supply of services.
Input Tax Credit Sensitivity at the Recipient End:
If a tax invoice is issued at an early stage of the contract, the recipient may be tempted to claim input tax credit even though the services have not yet been provided under the continuous supply framework. Such availment may also violate Section 16(2)(b), which requires that the registered person must have actually received the goods or services before claiming credit. This can later lead to reversals, reconciliations, or audit queries.
Working Capital Exposure for the Supplier:
Since Section 13 makes GST payable on receipt of an advance for services, the supplier may have to pay tax even if the recipient holds back the GST amount until milestone invoicing. In GST-exclusive contracts, this can create a temporary cash flow gap that requires careful management.
Documentation Duplication and Reconciliation Pressure:
If both a receipt voucher and an early tax invoice are issued for the same advance, the compliance trail can become unnecessarily complex. Over the life of a long-term contract, this duplication can make it harder to reconcile financial records, GST returns, and e-invoice data.
Contract–Compliance Misalignment:
Perhaps the most subtle risk arises when commercial practices evolve independently of statutory design. Where contractual payment behaviour informally pushes suppliers toward premature invoicing, the resulting compliance posture may gradually drift away from the discipline embedded in Sections 31 and 13.
Practical Closing Insight
A clear understanding of these risk areas helps taxpayers properly plan their documentation and contract terms, while also reducing cash-flow pressure. In long-term service contracts, careful planning at the advance stage can prevent unnecessary compliance issues later in the contract
The Compliant and Commercially Prudent Pathway
A balanced approach requires aligning contractual conduct with the GST framework. On receipt of a mobilisation advance, the supplier should issue a receipt voucher in terms of Section 31(3)(d) read with Rule 50 and discharge GST in accordance with Section 13(2).
Equally important is early commercial clarity with the recipient in GST-exclusive contracts so that the tax component is released in time, thereby reducing avoidable working capital pressure.
The tax invoice or e-invoice, where applicable, should be issued under Section 31(5) upon achievement of the agreed milestones in the continuous supply framework, with the advance properly adjusted. Such disciplined sequencing helps maintain statutory compliance while protecting the supplier’s cash flow throughout the contract.
The Legislative Architecture of GST — Where Commercial Flexibility Meets Documentary Discipline
A closer reading of the GST framework shows that the law is neither mechanically rigid nor commercially indifferent. It recognises business realities, such as advances in mobilisation, while simultaneously insisting on documentary discipline to maintain the integrity of tax reporting. In long-duration service arrangements, advance funding may be commercially necessary, but the statute deliberately structures the compliance chain so that each stage of supply is properly reflected. This explains the conscious distinction between a receipt voucher for acknowledging advances and a tax invoice for recognising supply — each serving a distinct and foundational role.
Professionals who internalise this statutory design are better positioned to align contracts, documentation, and internal controls with the GST framework. In multi-year service arrangements, such foresight often prevents avoidable disputes.
The Final Word — Align Early, Comply Smoothly
In the evolving GST landscape, true professional maturity lies not just in reading the law but in understanding how its provisions are meant to work together. Mobilisation advances, though commercially routine, sit at a sensitive intersection of documentation, time-of-supply provision, and cash-flow management. When these elements remain aligned, compliance flows smoothly; when they do not, friction ensues.
Sections 31 and 13 do not restrict genuine business practices. They simply require that commercial convenience operate within the law. Suppliers who anticipate this and structure their contracts and invoicing accordingly are better equipped to manage long-term service arrangements without avoidable strain. Ultimately, GST compliance in such cases is less about reacting to individual transactions and more about respecting the statutory sequence that connects them.
The path of law is straight — one only needs to walk in step;
The business that understands the sequence finds the journey far smoother.
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