Taxation of Advance Payments received for goods/ services under GST Regime
Provisions in GST relating to Taxation of Advance Payments for Goods or Services
[ Read GST on Advance Payments of Goods & Services – Analysis after CGST Act 2017 and IGST Act 2017)
In terms of section 12 (Time of Supply of Goods) & Section 13 (Time of Supply of Services) of the Revised Model GST Law, , time of supply of goods or services shall be earliest of
- date of issue of invoice or
- receipt of payment.
Thus, in situations where the recipient of goods/ services makes an advance payment as per payment terms to the supplier, the tax is liable to be paid on such advance payment.
As per Section 16 (3) (Eligibility and conditions for taking input tax credit ) of Revised Model GST Law, person will not be able to claim Input Tax Credit until receipt of the Invoice and Goods :-
No registered taxable person shall be entitled to the credit of any input tax in respect of any supply of goods and/or services to him unless,-
(a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other taxpaying document(s) as may be prescribed;
(b) he has received the goods and/or services;
(c) the tax charged in respect of such supply has been actually paid to the account of the appropriate Government, either in cash or through utilization of input tax credit admissible in respect of the said supply; and
(d) he has furnished the return under section 34:
Issue relating to Taxation of Advance Payments for Goods or Services under GST
This contradicts with charging section 8 where levy is on supply. Suppose after Advance Payment supply does not happen for any reason like dispute , natural calamity etc , than what will happen to the GST already Paid on advance payment ?
Charging GST on Advance payment is also diametrically opposite to the law laid down by the Hon’ble Supreme Court in the case of Collector of Central Excise, Hyderabad v. Vazir Sultan Tobacco Company Ltd., Hyderabad CIVIL APPEAL NO. 3199 OF 1986
Further, Levy of GST on advance payments will disproportionately increase the cost of compliance without any substantial benefit to revenue as tax on total payment has to be made once it is received. The GST would be levied on the
supply and to keep track of advance received or invoices issued will create administrative / accounting hassles to the tax payers. Government will not earn any extra revenue by this measure except receiving some small part of revenue in advance; but it entails lot of extra documentation on the part of supplier. Even today the taxability of excise or VAT/CST is on either removal of goods or Invoicing to customer.
Suggestions relating to Taxation of Advance Payments for Goods or Services under GST
- Only the date of receipt of payment (final consideration) would be taken into account and not the date of receipt of advance payment for GST, or
- Input tax credit of tax paid on such advances received by the supplier should be available to the recipient without being the condition of Receipt of Goods/Services.
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