Works Contract

[Jasbir Uppal]

Dear Professionals,

Works Contract executed in June 2017 , all the materials was consumed but payment will be received in July 2017. The question is whether the tax laws of VAT applicable or the provisions of GST will be applied.

Regards

J S Uppal

Tax Consultant

[Rajagopalan Ranganathan]

Sir,

According to Section 13 (2) of CGST Act, 2017 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 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 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:

Provided that where the supplier of taxable service receives an amount up to one thousand rupees 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)––

(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.

Therefore if the payment is received in July 2017 then you have to apply (a), (b) and (c) and accordingly determine whether GST is applicable or VAT.

AI Summary

Time of supply rules determine whether GST applies when payment for a works contract is received after performance. Under the time of supply rules the time of supply of services is the earliest of: the invoice date (if issued within the prescribed period) or the date of receipt of payment; or the date of provision of service (if invoice not issued) or the date of receipt of payment; or the date the recipient records receipt in its books where the prior clauses do not apply. A proviso allows the supplier to opt for the invoice date for small excess amounts, and the date of receipt of payment is the earlier of entry in books or bank credit.