Composite dealer - GST on advances

[kantipudi satyanarayana]

Sir,

Whether GST is payable on advances received by a composite service provider who is liable to GST @6% (w.e.f.01.04.2019) and at what rate if he is liable?

[KASTURI SETHI]

Answer is 'YES'.Tax is payable on advance received against supply of service. How ? It is explained as under:-

Advance is linked to the definition of 'Consideration' and 'Time of supply of services'. We should read both definitions conjointly.' Advance' falls in the definition of consideration and at the same time, it is subject to final adjustment. Advance is always received against supply of goods or services or both. Here we are concerned with 'Advance against supply of services'. Both terms, 'advance and supply' are correlated. These cannot be read in isolation. Advance takes the form of 'consideration' only at the time of supply of services. Advance has no independent existence.

Concept will become clearer if we go through the definition of 'consideration' as provided under Section 2(31) of CGST Act and also see definition of 'Time of supply of services' as provided under Section 13 of CGST Act which are as follows:-

(31) “consideration” in relation to the supply of goods or services or both includes -

(a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government;

(b) the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government :

Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply;

SECTION 13. Time of supply of services. - (1) The liability to pay tax on services shall arise at the time of supply, as determined in accordance with the provisions of this section.

(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.

You will not find clear-cut reply anywhere. Both the phrases 'Advance' and 'time of supply of services' have to be understood, interpreted and analyzed for arriving at concrete conclusion depending upon the facts and circumstances of each case. Terms and conditions of an agreement/contract play vital role.

AI Summary

GST on advance payments arises where advances constitute consideration, taxed at the time of supply under time of supply rules. Advances for future services constitute consideration when linked to the supply and are taxable; a deposit is excluded unless applied as consideration. Tax liability on such advances arises under the time of supply of services rules, which determine the earliest triggering event (invoice issuance/payment/provision/recording). Contract terms and facts determine treatment.