Tax on Advancein the case of contractor

[VENU K]

An audit is happening in the case of a contractor. In audit the only issue is that they have not paid GST on advance received. They have properly paid taxes and reported the bills as and when  they were raised in their monthly returns. Basically they were not aware of the need to pay tax on advances received in case of services.

The department is now saying that for each advance received, they have to pay full tax along with interest. They are not willing to consider the tax paid at the time of raising bills.

Our submission is that only interest needs to be paid for delay and no tax can be demanded.

To take an example

Advance 1,00,000/- received in April

Invoice given in March and tax paid on 1,00,000 in June.

The departments stand is Tax of Rs. 18,000/- plus interest till the date of payment after audit plus penalty should be paid. No credit will be given for Tax paid in June. We can claim it as refund if available.

is this stand justified?

[Sadanand Bulbule]

In terms of Section 13 of the CGST Act, tax is to be paid immediately on advances received by the taxpayer engaged in the supply of services. In the present case, admittedly there is delay of such payment of tax, which attracts only interest under Section 50[1] of the Act.

There is no provision under the CGST Act to demand tax on tax already paid belatedly.

[VENU K]

There is a typographical error in the question.... Invoice given in June and reported properly in GSTR 1 and 3B and tax was also paid apropriately. 

[KASTURI SETHI]

 This is all verbal. The departments view is totally incorrect.  Let the Audit Team issue Audit Memo indicating the basis of demanding tax again. 

Advance itself is not a consideration without supply of service. Even demanding interest can be challenged. 

[VENU K]

Thank you Sadanand Sir,Kasturi Sir for your valuable opinion.

 

[Amit Agrawal]

Section 2(31) of the CGST Act, 2017 is worth noting, in the context of query raised and same reads as under:

(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;

These are ex facie views of mine and the same should not be construed as professional advice / suggestion or recommendation.

[Shilpi Jain]

Only interest should be applicable. Though also chk if you have any ITC balances available at the time you received advances. This could lessen any interest burden.

Bring out on record clearly the fact that tax was paid though belatedly.

[VENU K]

Thank you Silpi Mam and Amit ji . Thank you experts for giving me the much needed clarity.

 

AI Summary

GST on Advances Must Be Paid Immediately Under Section 13; Only Interest, Not Twice Tax, Applies for Delays A contractor undergoing audit was found to have not paid Goods and Services Tax (GST) on advances received prior to invoicing, though GST was later paid when invoices were raised and reported in returns. The tax department demanded GST on the advances plus interest and penalty, refusing credit for the subsequently paid tax. Legal opinions cite Section 13 of the CGST Act requiring immediate tax payment on advances and Section 50(1) providing for interest on delayed payments. It was noted that tax already paid belatedly cannot be demanded again, only interest applies. The department's stance lacks provision for charging tax twice. Consideration under Section 2(31) includes advances unless treated as deposits not applied as consideration. Interest may apply, but penalty and re-demand of tax are questionable. Input tax credit availability could mitigate interest burden. The key consensus is that only interest on delayed payment should be applicable, not additional tax.