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CONCEPT OF CONTINUOUS SUPPLY

Continuous supply of goods – The Law

“Continuous supply of goods” means a supply of goods which is provided, or agreed to be provided, continuously or on recurrent basis, under a contract, whether by means of a wire, cable, pipeline or other conduit, and for which the supplier invoices the recipient on a regular or periodic basis and includes supply of such goods as the Government may, subject to such conditions, as it may, by notification, specify.

The Law simplified

The above definition implies, in case of a continuous supply of goods:

  1. The supply of goods is either provided or agreed to be provided
  2. The supply is done continuously or on recurrent basis. There is no one time supply contract.
  3. The supply is under a contract
  4. The supply can be through means of a wire, cable, pipeline or other conduit or any other mode.
  5. The supplier sends invoice to the recipient on a periodic basis i.e weekly, fortnightly, monthly, etc and there is no one time payment. The contract should specify this periodicity/ frequency of billing/ payment.
  6. The Government is empowered to notify certain supplies as continuous supply of goods.

Examples of continuous supply of goods

(a) Open purchase orders with an understanding of fortnightly billing;

(b) VMI (vendor managed inventory) where the agreed periodicity for billing is, say, monthly/ fortnightly etc.;

(c) Supply of gases through pipeline with a weekly billing schedule;

(d) Supply of say, 5 litre water cans on an as and when required basis with a frequency of monthly billing under a contract.

Time of issuing invoice for continuous supply of goods

In case of continuous supply of goods, successive statements of accounts or successive payments are involved.  The invoice shall be issued.

  1. Before or at the time each such statement is issued or,
  2. At the time, each such payment is received.

Time of supply in case of continuous supply of goods

In case of continuous supply of goods, where successive statements of accounts or successive payments are involved, the time of supply is as under:

  • when the statement or a running-claim is issued , or
  • when payment is received, whichever is earlier

Example

Continuous supply

of goods

Invoice

date

SoA/

payments

due date

Receipt of

payment

Time of

supply

Contract provides for supply of gases through pipeline – involves

successive

statements of

account/ successive

payments

01-Nov-17

05-Nov-17

01-Nov-17

01-Nov-17

11-Dec-17

05-Dec-17

11-Dec-17

05-Dec-17

01-Jan-18

05-Jan-18

01-Jan-18

01-Jan-18

Continuous supply of services – The Law

“Continuous supply of services” means a supply of services which is provided, or agreed to be provided, continuously or on recurrent basis, under a contract, for a period exceeding three months with periodic payment obligations and includes supply of such services as the Government may, subject to such conditions, as it may, by notification, specify”

The Law simplified

The above definition implies, in case of a continuous supply of services:

  1. The supply of services is provided or agreed to be provided.
  2. The supply is done continuously or on recurrent basis under a contract for a period exceeding 3 months.
  3. The supply is under a contract.
  4. The supply has periodic payment obligations.
  5. The Government is empowered to notify certain supplies as continuous supply of services.

Time of issuing of tax invoice for continuous supply of services

In case of continuous supply of services, the determination of stage of completion of services is difficult, unless specifically mentioned in the contract.

The law categorically provides for time limit to issue invoices as under:

(a)Where due date of payment can be determined from the contract – the invoice shall be issued on or before the due date of payment as specified in the contract. Invoice will be issued, whether or not any payment has been received by the supplier. 

(b) Where the due date of payment cannot be determined from the contract –the invoice shall be issued before or at the time of receipt of payment by the supplier of the service.

(c) Where the payment is linked to the completion of an event (milestones): the invoice shall be issued on or before the date of completion of that event.

(d) When the supply of services ceases under a contract before the completion of the supply - The invoice shall be issued at the time when the supply ceases and such invoice shall be issued to the extent of the service provided before stopping.

Time of supply in case of continuous supply of services

As per GST Law, the time of supply shall be

  1. Where due date of payment can be determined from the contract – the time of supply shall be the due date of payment.
  2. Where the due date of payment cannot be determined from the contract – time of supply it will be earliest of
  • date of receipt of payment or
  • the date of issue of invoice
  1. Where the payment is linked to the completion of an event (milestones) - time of supply it will be earliest of
  • date of receipt of payment
  • completion of event where payment is linked to completion of event.

Example

Nature of supply

Invoice

date

Due date as agreed in the contract/ completion of event

Receipt of

payment

Time of

supply

Annual maintenance contract for residential property (due date of payment can be determined from the contract)

 

 

15th June

 

 

14th June

 

 

17th June

 

 

14th June

Continuous supply of service relating to completion of an event (the due date of payment cannot be determined from the contract)

 

 

25th March

 

 

24th March

 

 

13th March

 

 

13th March

Examples of continuous supply of services

(a) Annual maintenance contracts

(b) Licensing of software or brand names

(c) Renting of immovable property

Disclaimer - The information provided in this document is for general information only. It is based on the information available publicly and the advice received from various professional experts regarding the GST law. The user of this document should be aware that the interpretation or implications of relevant GST rules may change/vary depending upon circumstances applicable to the user.

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