Government Works Contract Time of Supply

[Dora Babu]

We have a client engaged in doing Government works contracts which is continuous supply of service and Invoice as per section 31(5) applicable and RA bills are raised for each stage of completion.

As per the work order agreement between Government and client, Government shall pay the RA Bill amount within 28 days of Executive engineer approval but the amount was received after 2 years of EE approval which we observe in common in Government contracts.

The client pays the output GST at the time of receipt of payment. Now, post GST Audit, Central GST department issued notice demanding interest on delayed payment of GST output. They mentioned as per the RA Bill work completion date is 2 years before payment receipt and invoice need to be issued as per 31(5)(c). As client haven't issued invoice, as per section 13, date of invoice will be the date of supply of service and GST Department is demanding Interest amount of 40lakhs for the 2 years period.

How can we pay GST Output when the receipt of payment from the government department is uncertain? How to defend my client position?

Need guidance!

AI Summary

Time of supply in government works contracts turns on invoice timing, delayed payment, and GST interest exposure. Government works contract involving continuous supply of service and running account bills raises a timing issue for invoice issuance and time of supply under GST. The taxpayer pays output GST on receipt of payment because government payment is uncertain in practice, while the department contends that the work completion or RA bill approval date is the relevant supply date and that the invoice should have been issued earlier under section 31(5)(c) and section 13. A notice seeks interest on delayed GST on the footing that tax became payable before actual receipt of money.