Time of Supply of Goods – Addition in value - GST Ready Reckoner - GST

Time of Supply of Goods Addition in value Time of Supply Section 12 of CGST Act 2017 provides for the determination of time of supply in the situations of Addition to value of supply of goods by way of interest or late fee or penalty for delayed payment. Before starting the analysis of about time of supply of goods, we should read time limit of issue of invoice as per section 31 of CGST Act 2017 . Time limit for issuance of invoice for supply of goods under section 31 of CGST Act 2017 A registered person supplying taxable goods shall, before or at the time of, - Removal of goods for supply to the recipient, where the supply involves movement of goods ; or Delivery of goods or making available thereof to the recipient, in any other case (in other words movement of goods not involve ) , [section 31(1)] Example ABC placed order to supply of mobile phone to ZYX, who agrees to supply within 10 days from the date of order. It is a case of supply involving movement of goods. VPL a manufacturer asks hi supporting manufacturer Goodluck to develop a mould for PQR for separate consideration. The said mould will kept and used by ABC for manufacture of components for 5 year. In this case, there is no movement of mould. In case of continuous supply of goods , where successive statements of accounts or successive payments are involved - The invoice should be issued before or at the time of issuance of periodical statement or receipt of periodical payment [Section 31(4)]. In case of goods sent or taken on approval for sale or return , are removed before the supply takes place Invoice should be issued before or at the time of supply or 6 months from the date of removal, whichever is earlier [Section 31(7)]. We consider below how the time of supply is determined in each of these situations Time of supply of goods related to an addition in the value of supply by way of interest, late fees or penalty Section 12(6) of CGST Act 2017 Time of supply related to an addition in the value of supply by way of interest, late fee or penalty for delayed payment of any consideration shall be the date on which suppliers receives such addition in value. In the section 12(6), it appears that interest late fee and penalty would be taxable at the HSN and rate applicable to the primary supply. For example, a supplier receives consideration in the month of September instead of due date of July and for such delay he is eligible to receive an interest amount of ₹ 1000/- and said amount is received on 15.12.2017. The time of supply of such amount ( ₹ 1000/- ) will be the 15.12.2017 i.e., the date on which it is received by the supplier and tax liability on this is to be discharged by 20.01.2018. Circular No. 102/21/2019-GST dated 28 th June 2019 - Penal / Additional interest on delayed payment where the EMI is not paid at the scheduled time, there is a levy of additional / penal interest on account of delay in payment of EMI. such delayed payment charges in case of late payment of Equated Monthly Instalments (EMI) is liable for GST supply in respect of agreeing to obligation to refrain from an act, to tolerant an act or situation, or to do an act has been treated as supply of services vide clause 5(e) of schedule II of CGST Act. These activities have been classified under code 99979- other miscellaneous services in the list of classification of services and are taxable @18%. Examples Example 1:- X sells a mobile phone to Y. The cost of mobile phone is ₹ 40,000/-. However, X gives Y an option to pay in installments, ₹ 11,000/- every month before 10th day of the following month, over next four months (₹ 11,000/- * 4 = ₹ 44,000/-). Further, as per the contract, if there is any delay in payment by Y beyond the scheduled date, Y would be liable to pay additional / penal interest amounting to ₹ 500/- per month for the delay. In some instances, X is charging Y ₹ 40,000/- for the mobile and is separately issuing another invoice for providing the services of extending loans to Y, the consideration for which is the interest of 2.5% per month and an additional / penal interest amounting to ₹ 500/- per month for each delay in payment. As per the provisions of sub-clause (d) of section 15(2) of the CGST Act. the amount of penal interest is to be included in the value of supply. The transaction between X and Y is for supply of taxable goods i.e. mobile phone. Accordingly, the penal interest would be taxable as it would be included in the value of the mobile, irrespective of the manner of invoicing. Example 2:- X sells a mobile phone to Y. The cost of mobile phone is ₹ 40,000/-. Y has the option to avail a loan at interest of 2.5% per month for purchasing the mobile from M/s ABC Ltd. The terms of the loan from M/s ABC Ltd. allows Y a period of four months to repay the loan and an additional / penal interest @ 1.25% per month for any delay in payment. The additional / penal interest is charged for a transaction between Y and M/s ABC Ltd., and the same is getting covered under Sl. No. 27 of notification No. 12/2017-Central Tax (Rate) dated 28.06.2017. Accordingly, in this case the 'penal interest' charged thereon on a transaction between Y and M/s ABC Ltd. would not be subject to GST, as the same would be covered under notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 . The value of supply of mobile by X to Y would be ₹ 40,000/- for the purpose of levy of GST.