GST Liability In Case Of Intermediary Services To Foreign Company for which payment received in foreign currency?, Goods and Services Tax - GST

[Shyam Agarwal]

Sir, Mr.A providing Intermediary services to foreign company received an Advance on 02.09.18 for (50% advance) 500$ at ₹ 71/- & paid GST on ₹ 35,500/- Now Mr.A completed a provision on 31.10.18 & also raised invoice on 31.10.18 for 1000$ (for full value) & Rate of $ on 31.10.18 were ₹ 74/-.Now as on 31.10.18,whether Mr.A is liable for GST on ₹ 37,000/-(i.e on 500$ x ₹ 74/-) or on ₹ 38,500 (i.e.on difference between 1000$xRs.74/- Less: ₹ 35,500/-value taken at the time of Advance?

Posts / Replies

[KASTURI SETHI]

On ₹ 37500/- tax is to be paid and not on ₹ 38,500/- as per Section 12 (2) of CGST Act.

[Ganeshan Kalyani]

12(2) The time of supply of goods shall be the earlier of the following dates, namely:-

(a) the date of issue of invoice by the supplier or the last date on which he is required, under ¹[****] section 31, to issue the invoice with respect to the supply; or

(b) the date on which the supplier receives the payment with respect to the supply:

Provided that where th....

[Shyam Agarwal]

Thanks to Kasturi Sir and Kalyani Sir for suggestion but I want to confirm from both of honours that in such a case where as per Rule 34 of CGST rules and section 13 of CGST Act, time of supply is triggered once on 500 $- at the time of receipt of Advance and secondly on 500$ when provision of service is completed and invoice issued, then in such case GST at the time of invoicing should be paid on 500$ x ₹ 74/- (as Kasturi Sir suggested). Both of Experts, kindly confirm Am I correct on this stand?

[KASTURI SETHI]

Dear Agarwal Ji,

Re-examined the whole issue. You should follow Section 13(2)(a) i.e. the date of issue of the invoice read with Rule 34(2) of CGST Rules, 2017. Rate of exchange for determination of taxable value will be the time of supply of services. (Date that is 31.10.2018) Receipt of advance is subject to supply of services. Service has been supplied on 31.10.18. Here you cannot adopt hybrid procedure. So correct rate exchange for payment of tax is ₹ 74/- for whole amount and not part amount (50%). Moreover, what is crucial is the invoice has been issued within 30 days of the supply/completion of service.Rule 34(2) of CGST Rules clears the doubt to the effect that hybrid procedure cannot be adopted. Lacunae or doubt, if any, is also dispelled by way of Rule 34(2) of CGST Rules.

In a nutshell, you are absolutely right. Tax is to be paid on 38500/- as sought for.

[Shyam Agarwal]

Thanks Kasturi Sir, you are really always source of inspiration for all of us. Please clear one thing in Rule 34 of CGST rules which states that the rate of exchange for determination of value of taxable services shall be the applicable rate of exchange determined as per the generally accepted accounting principles for the date of time of supply of such services in terms of section 13 of CGST Act. As per my analysis on Rule 34 of CGST rule if we corelate between Rule 34 of CGST rules and Section 13 of CGST Act then once advance is received then GST liability to that extent is immediately triggered and rest of liability on immediately on completion of services and issue of Invoice then in my view your earlier reply that GST shall be paid on ₹ 37000/-(500$xRs.74/-) seems to be correct. Please suggest sir whether my interpretation of rule 34 of CGST rules and section 13 of CGST Act is correct or suggest me where I am wrong?

[KASTURI SETHI]

Date of time of supply is determinant factor. GST is to be paid on supply of service.What is the meaning of advance ? What is purpose of advance ? Advance is itself not a service it is for supply of service. Advance is provisional until service supplied. Section prevails over rule. Here Rule as well as Section emphasize on the time of supply i.e. date of invoice if issued with in prescribed period. Rule and Section are not contradictory. You cannot take benefit of the wordings, " whichever is earlier". When I posted my first reply I did not go through Rule 34. Rules are framed to clarify Act. When Rule says the date of supply is determinant factor for taxable value, the date 31.10.18 is decisive factor. Rest you may seek opinion of other experts.

[Shyam Agarwal]

Sir, thanks for clarify my doubt in interpretation of Rule 34 read with Section 13. Please consider one more situation, suppose in above case, if supplier does not issue invoice within the time limit prescribed under section 31(2) of CGST act i.e. If Invoice is issued after completion of 30 days from the date of completion of service. Then still the answer will be same i.e.for entire service rate of exchange will be the date 31.10.18 (which is date of completion of service) or for part of service the date will be the date of receipt of advance (i. e. 02.09.18) and for rest of service, the rate of exchange on the date of completion (i. e. 31.10.18). Kasturi Sir, please share your views.

[KASTURI SETHI]

Sh.Shyam Agarwal Ji,

Read Explanation (i) to Section 13 (2) (a) of CGST Act, 2017 which clearly states that "the supply shall be deemed to have been made to the extent it is covered by the invoice or, as the case may be, the payment;"

In this explanation, it is clear that the date of invoice is to be preferred. In case, by any reason, invoice is not issued, then we are to opt for the date of payment. The word, "Advance" is neither found in Section 13 nor in Rule 34. Advance is not payment, it is security. It is subject to the completion of the supply(work/service) to be done. See the legal definition of 'Payment" also. The whole sequence of events are finalized on the date of issue of invoice. You may call it "Advance" or Security but not 'payment'. Advance or security is to be adjusted or refunded subject to the terms and conditions executed between service provider and service receiver.Amount received on 2.9.18 does not conform to the legal definition of '"PAYMENT". Since the invoice has been issued on 31.10.18, there is no room for 'but' and 'if'. Now past cannot be undone.

Hypothetical situation

Had you received full payment in advance on 2.9.18, you would have to go by the date of invoice for determination of rate of exchange for correct payment GST. Sometime supply is continuous for a number of years e.g. construction service, there the issue of 'whichever earlier' in connection with the date of receipt of payment arises.

Hence I stick to my second reply posted after going through Rule 34 (2) in your specific query.

[Shyam Agarwal]

Kasturi Sir thanks for elaborate your detailed analysis which shows really a great experience and hold on law. I agree with your views but please clear one thing where entire payment has been received in advance and Invoice is issued after expiry of 30 days from the date of completion of service then Rate of exchange should be taken as on the date of completion of service or the date on which invoice has been issued (which is after expiry of 30 days)? Please suggest sir.

[KASTURI SETHI]

 

Dear Sh.Agarwal Ji,

As already explained above, Rule 34 (2) talks of "the date of time of supply of services" in terms of Section 13 of the Act and Section 13 (2)(a),(b) & (c) explains as under:-

(a) the date of issue of invoice, if issued within prescribed period;

(b) the date of provision of service, if invoice is not issued within prescribed period;

(c) the date of receipt of service in books of accounts where (a) and (b) do not apply.

Rule 34 emphasizes on "date of supply" of service. Supposing that invoice has not been issued within prescribed period we are to resort to Section 13(2)(b). What (b) emphasizes that is the date of provision of service. "provision' does not always stand for 'clause' . Here provision means to provide service i.e. the date of providing service. It is relevant to mention that there is no no difference between "Supply of service " and "Providing of Service". You are talking of completion of service and I am emphasizing on "Supply". Service can be supplied/provided in piecemeal also in case of continuous supply of service e.g. Construction Service. This situation is not applicable to your case because " intermediary services" do not conform to the term,"Continuous supply" . The date of provision of service does not mean the date of completion of service. The word, "Completion" is neither present in Section nor in Rule. . In the absence of date of invoice, one is to resort to the date of providing/supplying service or receipt of payment, whichever is earlier. Receipt of payment is last resort. The phrase "date of receipt of payment" stands for the date of receipt of consideration on account of services supplied/provided.

What type of evidence you have for the date of providing service/supplying service in the absence of 13(2)(a) i.e. the date of invoice. So the date of supply is the determinant factor whether in the form of date of invoice or in some other form i.e. Contract, books of account. You are to stick to the date of supply of service. If you cannot ascertain as per (a), go to (b); if you cannot ascertain as per (b), go to (c).

If I agree with you that the date of completion of service is the date of provision, what documentary evidence you have to prove ?

The date of supply is relevant for determination of rate of exchange. You are to see whether you fall under Section 13(2)(a) or (b). If not ascertainable in both, then (c) will be determinant factor.

[Shyam Agarwal]

Thanks Kasturi Sir for clarification over my interpretation and more detailed elaborating the section and rules. Really you are always being a source of inspiration.

[Ganeshan Kalyani]

In case of works contact the Chartered Engineer certifies the quantum of work completed. This paper could a proof of completion of service even though invoice is not being raised.