Critical study of provisions of CENTRAL GOODS AND SERVICES TAX ACT, 2017–( in short CGST) Section 14 about change in rate of tax. –Twelfth article in the series.

[DEVKUMAR KOTHARI]

Section starts with ‘Notwithstanding’. This is used in relation to S.12 and 13 only. Therefore, S.14 supersedes provisions of S.12 and 13.  

One explanation is found in the section.

‘Provided that’ is found once.

There has not been any amendment in this section.

The section is reproduced in left column with highlights of important and catchwords for easy analysis. In right column more observations are given.

CENTRAL GOODS AND SERVICES TAX ACT, 2017	The provisions will apply to other GST laws with necessary adaptation. E.G. AP GST Act is given with highlights in this article.
Change in rate of tax in respect of supply of goods or services.	‘goods or services’
14. Notwithstanding anything contained in section 12 or  Section 13, the time of supply, where there is a change in the rate of tax in respect of goods or services or both, shall be determined in the following manner, namely:––	‘Goods, services, or both’ are covered. Manner provided in this section will be mandatorily apply instead of S.12 and 13.
	Difference in heading and section is noticeable. But significance will be felt in due course.
(a) in case the goods or services or both have been supplied before the change in rate of tax,––	Situations of supply before change in rate:
(i) where the invoice for the same has been issued and the payment is also received after the change in rate of tax, the time of supply shall be the date of receipt of payment or the date of issue of invoice, whichever is earlier; or	Issue of invoice and payment both are after change in rate. The earlier of two dates will be date of supply.
(ii) where the invoice has been issued prior to the change in rate of tax but payment is received after the change in rate of tax, the time of supply shall be the date of issue of invoice; or	Date of issue of invoice is prior to change in rate, then date of issue of invoice will be date of supply, even if date of payment is after change in rate of tax.
(iii) where the payment has been received before the change in rate of tax, but the invoice for the same is issued after the change in rate of tax, the time of supply shall be the date of receipt of payment;	Payment is prior to change in rate, then date of payment will be date of supply, even if invoice is issued after the change in rate.

 

(b) in case the goods or services or both have been supplied after the change in rate of tax,––	Situations of supply after  change in rate:
(i) where the payment is received after the change in rate of tax but the invoice has been issued prior to the change in rate of tax, the time of supply shall be the date of receipt of payment; or	Payment is received after change; the date of receipt of payment will be date of supply, even if invoice was issued prior to change.
(ii) where the invoice has been issued and payment is received before the change in rate of tax, the time of supply shall be the date of receipt of payment or date of issue of invoice, whichever is earlier; or	Issue of invoice and receipt of payment  both are before change then earlier of  two will be time of supply.
(iii) where the invoice has been issued after the change in rate of tax but the payment is received before the change in rate of tax, the time of supply shall be the date of issue of invoice:	Invoice is issued after change, payment is before change, then date of issue of invoice will be date of supply.

 

Provided that the date of receipt of payment shall be the date of credit in the bank account if such credit in the bank account is after four working days from the date of change in the rate of tax.

In case date of credit of payment in bank is after four working days from date of change in rate, then date of credit in bank will be date of credit in bank account.

 

Explanation.––For the purposes of this section, “the date of receipt of payment” shall be the date on which the payment is entered in the books of account of the supplier or the date on which the payment is credited to his bank account, whichever is earlier.

Date of entry in books of account of supplier ( i.e. recipient of payment) is usually earlier whereas credit in bank  may not be on the same day, is  likely to be later in case of payment by physical cheque/ draft. There seems no purpose of ‘whichever is earlier’  , because  explanation is not applicable in case of receipt of cash which was deposited in bank after few days.

Observations of author:

It seems that the above provisions are result of suspicion in minds legislators (written through draftsmen)  about manipulation of dates by supplier of goods or services or both in case there is a change in rate of tax.

However, the provisions have been made so complex, that in case of change in rate of tax, each supply need to be examined for date of supply, date of invoice and date of receipt of payment.

Section 12 and 13 read with S.31 also covers protection of revenue, by prescribing upper time limits for issue of invoices. In this regard article written by the learned author on those sections can be referred to for detailed discussions.

Too many artificial provisions contemplating creation of artificial situations by taxpayers to avoid tax is not good.

In fact by creation of such artificial dates of supply, many times revenue will be looser. May be in that case, law will be amended again.

General observations:

It seems that in law different hypothetical situations have also been considered to take care of any contingencies, which may happen very casually and rarely. Such contingencies may have impact for short duration. Such impact may disappear on subsequent events.

However, the provisions have been made so complex that it may be difficult to strictly follow and apply the same even for large organizations.

This creates lot of scope of enquiries and investigation. For example, for ascertaining ‘time of supply’, each transaction may require to examine different possibilities to find out exact impact and to ascertain ‘time of supply’. Strictly speaking for each supply covered in one invoice there can be several  point of ‘time of supply’. 

Corresponding state provisions

Are similar to CGST Act. Provision of AP State is reproduced with highlights added.

For example:

Statutory Provisions of Andhra Pradesh Goods and Services Tax Act, 2017

Change in rate of tax in respect of supply of goods or services.

14. Notwithstanding anything contained in section 12 or section 13, the time of supply, where there is a change in the rate of tax in respect of goods or services or both, shall be determined in the following manner, namely:-

(a) in case the goods or services or both have been supplied before the change in rate of tax,-

(i) where the invoice for the same has been issued and the payment is also received after the change in rate of tax, the time of supply shall be the date of receipt of payment or the date of issue of invoice, whichever is earlier; or

(ii) where the invoice has been issued prior to the change in rate of tax but payment is received after the change in rate of tax, the time of supply shall be the date of issue of invoice; or

(iii) where the payment has been received before the change in rate of tax, but the invoice for the same is issued after the change in rate of tax, the time of supply shall be the date of receipt of payment;

(b) in case the goods or services or both have been supplied after the change in rate of tax,-

(i) where the payment is received after the change in rate of tax but the invoice has been issued prior to the change in rate of tax, the time of supply shall be the date of receipt of payment; or

(ii) where the invoice has been issued and payment is received before the change in rate of tax, the time of supply shall be the date of receipt of payment or date of issue of invoice, whichever is earlier; or

(iii) where the invoice has been issued after the change in rate of tax but the payment is received before the change in rate of tax, the time of supply shall be the date of issue of invoice:

Provided that the date of receipt of payment shall be the date of credit in the bank account if such credit in the bank account is after four working days from the date of change in the rate of tax.

Explanation:- For the purposes of this section, “the date of receipt of payment” shall be the date on which the payment is entered in the books of accounts of the supplier or the date on which the payment is credited to his bank account, whichever is earlier.