CONCEPT OF TAX ON ADVANCE RECEIPT INTRODUCED FOR SUPPLY OF GOODS IN GST

GST Update 10.09.2016

GST DAILY DOSE OF UPDATION:-

CONCEPT OF TAX ON ADVANCE RECEIPT INTRODUCED FOR SUPPLY OF GOODS IN GST:-

The time of supply of goods under section 12 of Model GST prescribes 4 parameters for determining the time of supply of goods under GST being date of removal of goods, date of issuance of invoice by supplier, date of receipt of payment by supplier and date on which recipient shows receipt of goods in his books of accounts. The time of supply shall be earliest of the above 4 parameters thereby meaning that if a supplier receives advance payment for supply of goods, then, time of supply shall be the date of receipt of payment and the GST will be payable on the said date. It is pertinent to note that under the present Central Excise Laws and VAT Laws, there is no such mechanism whereby tax is payable on the advance received for clearance of goods and the concept of payment of tax on advance receipt is only there in Service Tax Laws. However, it appears that the concept of tax on advance receipts has been imported in the GST regime for supply of goods as well.

The introduction of concept of tax on advance receipts on supply of goods under GST will give rise to many problems. This is for the reason that under section 23 of GST Act, registered taxable person supplying taxable goods shall issue at the time of supply, a tax invoice, showing description, quantity, value of goods and tax charged thereon. Furthermore, as per section 16(11) under GST regime, no registered taxable person shall be entitled to credit of any input tax in respect of any supply of goods/services unless he is in possession of tax invoice, debit note, supplementary invoice or such taxpaying document as may be prescribed, he has received goods/services, tax has been paid to the government and he has furnished return. The availment of cenvat credit requires fulfillment of 4 parameters whereas GST is payable even on advance received for supply of goods to be made at future. Moreover, at the time of receipt of advance, it is not possible to issue invoice as the tax invoice will accompany goods. Not only this, even if the supplier issues invoice at the time of advance, the receiver will not be able to avail cenvat credit until receipt of goods. As such, the provision regarding tax to be paid on advance receipt while credit admissibility on fulfillment of 4 parameters being tax invoice, receipt of goods, payment of tax and filing of return is very stringent. This will lead to payment of tax to the government but deferment of credit availment until actual receipt of goods. Therefore, the provision regarding time of supply in case of goods needs to be re-looked so that such an unjust treatment is avoided.

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GST Update 10.09.2016

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