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

Time of Supply of Services Addition in value Section 13 of CGST Act 2017 provides for the determination of the time of supply of service in addition to value of supply of services 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 services under section 31 of CGST Act 2017 The criteria to determine the time of supply of services depend upon whether the invoice is issued within the time prescribed under section 31 of CGST Act 2017. The tax invoice needs to be issued either before the provision of service or within 30 days (45 days in case of insurance companies/ banking companies/ financial institutions including NBFCs) from the date of supply of service. [section 31(2) read with rule 47 of CGST Rules ]. In case of insurance companies/ banking companies/ financial institutions including NBFCs/ telecom companies/ notified supplier of services making taxable supplies between distinct persons as specified in section 25, invoice may be issued before or at the time of recording such supply in the books of account or before the expiry of the quarter during which the supply was made [ Second proviso to rule 47 ]. In case of continuous supply of services , the invoice should be issued either (i) on/ before the due date of payment or (ii) before/ at the time when the supplier of service receives the payment, if the due date of payment is not known (iii) on/ before the date of completion of the milestone event when the payment is linked to completion of an event [Section 31(5)]. Continuous supply of services are provided, or agreed to be provided, continuously or on recurrent basis, under a contract, for a period exceeding 3 months with periodic payment obligations and includes supply of such services as the Government may notify. In case of cessation of supply of services before completion of supply, the invoice (to the extent of the supply made before such cessation) should be issued at the time when the supply ceases [Section 31(6)]. Time of supply of goods related to an addition in the value of supply by way of interest, late fees or penalty, Section 13(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 13(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 ₹ 1,000/- and said amount is received on 15.12.2017. The time of supply of such amount (₹ 1,000/-) 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.