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Determining Time of Supply for Goods on Forward Charge

With the onset of GST India, tax is leviable upon occurrence of the taxable event, which is ‘Supply.’ However, the tax rates, exchange rates, exemptions and even abatement keep changing from time to time, which makes it necessary to lay down a time when tax is to be paid. Point of Taxation (POT) is a mechanism which is used to determine the point in time when the tax liability will arise.

Under the CGST Act, 2017, the “Time of Supply” provisions are laid down separately for Goods and Services. In this post, we have attempted to explain the time of supply for goods. Let us split the time of supply for goods as – Forward Charge on supply of goods and Reverse Charge on supply of goods.

What is Forward Charge on Supply of Goods?

Forward charge, is the mechanism where the supplier of goods is liable to pay tax. For example, if a car manufacturing company sold some auto parts to a trader and collected tax from the trader, the manufacturing company remits the tax.

In case of Time of Supply for Goods on Forward Charge will be determined based on the earliest of the following:-

  • The date on which the supplier issues the invoice.
  • The last date on which the supplier is required to issue the invoice with respect to the supply of goods. For supply of goods involving the movement goods, the invoice needs to be issued at the time of removal. In other cases, at the time of delivery of goods to the recipient.
  • The date on which payment is received. The point of taxation, in this case, will be the earliest of the date on which payment is accounted for in the books of accounts of the recipient, or the date on which payment is credited to his bank account.

Let us understand this better with five scenarios listed below:-

Scenario 1
Date of Invoice:20th August, 2017
Date of Receipt of Payment: 10th September, 2017

The Time of Supply will be determined based on earliest of date of invoice and receipt of payment. In the above scenario the date of invoice is earlier than the date of receipt, hence 20th August, 2017
 will be the time of supply.

Scenario 2

Date of Invoice: 5th October, 2017

Date of Receipt of Payment: 25th September, 2017

The Time of Supply will be determined based on earliest of date of invoice and receipt of payment. In the above scenario the date of recipient of payment is earlier than the date of invoice, hence 25th September, 2017 will be the time of supply.

Scenario 3

Date of Invoice: 10th Aug, 2017

Date on which the payment is entered in the books of account: 29th July, 2017

Date on which the payment is credited to the bank account: 3rd Aug, 2017

The Time of Supply will be determined based on earliest of date of invoice and receipt of payment. Furthermore, the date of receipt of payment will be determined based on, the earliest of the date on which the payment is entered in the books of account, and the date on which the payment is credited to the bank account. In the above scenario, the date on which the payment is entered in the books of account is earlier than the date on which the payment is credited to the bank account. Hence, 29th July, 2017 will be the Time of Supply.

Scenario 4

Date of Invoice: 10th Aug, 2017

Date on which the payment is entered in the books of account: 5th Aug, 2017

Date on which the payment is credited to the bank account: 31st July, 2017

The Time of Supply will be determined based on earliest of date of invoice and receipt of payment. Furthermore, the date of receipt of payment will be determined based on, the earliest of the date on which the payment is entered in the books of account, and the date on which the payment is credited to the bank account. In the above scenario, the date on which the payment is credited to the bank account is earlier than the date on which the payment is entered in the books of account. Hence, 31st July, 2017will be the Time of Supply.

Scenario 5

Goods Removed for Supply: 25th July, 2017

Date of Receipt of Payment: 5th August, 2017

Since the date of invoice is not available in the above mentioned scenario, the time of supply will be determined based on the earliest of the due date to issue invoice and receipt of payment. The due date to issue the invoice (in case of supply involving movement of goods), will be at the time of removal of goods. Hence, the time of supply will be 25th July, 2017. This is because the date of removal of goods is earlier than date of receipt of payment.

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