No GST for industry at the time of advance payment for supply of goods

KR Srivats New Delhi | Updated on January 27, 2018

The latest move is expected to ease the working capital hurdles that industry has been facing in recent times   -  REUTERS

GST Council’s latest relaxation seen as big relief for industry

In a relief for industry, the GST Council has dropped an earlier requirement of payments of Goods and Services Tax (GST) on advances received for supply of goods.

This is a relief for industry as payment of GST on advances was proving to be a major working capital hurdle for businesses.

The GST Council’s latest move has restored the pre-GST position where no excise duty or VAT was required to be paid on advances, said MS Mani, Partner GST, Deloitte India.

However, service providers would continue to be required to pay GST on advances, Mani told BusinessLine.

This is a dampener as even services face similar challenges. Tax experts feel that since GST is a unified law, there should not be divergence in treatment for goods and services considering the fact that accounting treatment is uniform.

This GST Council’s move meets the long standing demand of the industry, particularly by FMCG and auto sectors, said Pratik Jain, Leader-Indirect Tax, PwC.

“Under the VAT regime, there was no tax on advances for goods but was introduced under GST. Since the input credit was only available after receipt of goods, this led to working capital blockage for industry and additional compliance burden,” he said.

Further, there was ambiguity around the State where tax has to be paid in few cases, he added.

Jain also said that requiring GST payment on advances for services is in line with the provisions under the erstwhile service tax laws.

The GST law provides for payment of GST at the time of receipt of advance towards supply of goods or services. In October this year, the GST Council removed the requirement of payment of GST on advance receipts towards supply of goods, for persons having turnover of less than ₹1.5 crore in a year.

However, on November 15, this relaxation was extended to all persons, except those opting to pay GST under composition scheme.

Now, the GST Council has done away with the requirement to pay GST on advances post November 15 for all persons for supply of goods.

After the GST Council’s move, the time of supply for goods would be the date of issue of invoice by the supplier (or the due date, by when the invoice needs to be issued). This would apply even in case of a change in rate of tax.

The requirement to issue an advance receipt voucher at the time of receipt of advance remains.

The GST Council has also now provided the facility of submission of· manual refund claims. This is seen as yet another taxpayer friendly measure for expeditious processing of the refund claims of taxes paid/input tax credits.

Published on November 19, 2017

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