EXAMPLE-58

Determine whether the following service amounts to continuous supply of goods or services in the following cases:-

(i)                 XYZ & Bricks Co. entered an agreement with PQR Ltd for supply of bricks upto the construction site of factory building which involves supply of goods continuously or on recurrent basis, and for which the supplier issues invoices to the recipient on a regular or periodic basis.

(ii)               PQR & Co. provided work contract starting on 1^st August, 2017 which was due for completion in March, 2018 with periodic payment obligations. Total consideration is Rs. 60 lakh. As per term of agreement payment will be made in 6 equal installments on the first day of each month.

Answer

(i)                 As per section 2(32) “continuous supply of goods”  means supply of goods which is provided, or agreed to be provided, continuously or on recurrent basis, under a contract, whether or not 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.

In view of the above provision, supplies of bricks by XYZ to builder are continuous or on recurrent basis, thus, the supply shall come in the purview of continuous supply of goods.

As per section 31(4), in case of continuous supply of goods, where supply is provided on recurrent basis and where successive statements of accounts or successive payments are involved, the invoice shall be issued before or at the time of each such statement is issued or, as the case may be, each such payment is received.

 According to section 12(2), time of supply of goods shall be the earliest of the following dates:-

(a)                Date of issue of invoice

(b)               Last date on which invoice required to be issued

(c)                Date on which suppliers receive payment

(ii)               “continuous supply of services” has been defined under section 2(33).It 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 service as the Central or a State Government may, whether or not subject to any condition, by notification, specify.

In view of the above provision, in the above example work contract service is provided for a period exceeding 3 months with the obligation of periodic payment of six installments. Undoubtedly, the service shall be covered in purview of continuous supply of services.

As per section 31(5), in case of continuous supply of service, invoice is required to be issue before or on the following dates:-

Where the due date of payment is ascertainable from the contract- the invoice shall be issued on or before due date of payment.

Thus in the above example due date of payments is the first day of each month i.e. 1^st Sept, 1^st Oct, 1^st Nov, 1^st Dec, 1^st Jan and 1^st Feb. These are also the last dates for issue of invoices of 10 lakh each and these dates are known for completion of service for Rs. 10 lakh each.

Time of supply in accordance of section 13, if invoice in respect of installments is issued on or before above dates, then date of invoice or date of payment, whichever is earlier is the time of supply. In case if invoice is not issued on or before the above dates, then, last date of issue of invoice(above mentioned dates) or payment dates, whichever is earlier is the time of supply.