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

GST time of supply in government works contracts depends on RA bill certification, contract terms, and contingent payment conditions.
Government works contracts raising RA bills may create a dispute on the time of supply of GST and interest where payment is received long after Engineer approval. One view is that if tax is disclosed and paid through the return, no interest arises under section 50 read with the return-filing provisions. Another view focuses on section 31(5)(c) and section 13, and whether the amount became contractually due on certification. The contract terms, payment clauses, certification process, and any contingencies or post-certification deductions are crucial.