The Central Government notified the much-awaited indirect tax reform in India i.e., Goods and Services Tax (GST) with effect from 1st July 2017. Goods and Services Tax is a value-added tax levied on both goods and services and removes the bundle of indirect taxes like VAT, CST, Service tax, CAD, and Excise. GST also eliminates the cascading effect of tax i.e., removes tax on tax.
In this guide, let’s explore the term ‘supply’ under GST. A taxable event is any transaction that results in tax consequences. Before levying any tax, a taxable event needs to be identified. It determines the point at which the tax is to be levied. Such taxable events are termed as ‘Supply’ under GST laws. By levying tax on the ‘Supply’ of goods/services, GST laws eliminate the concepts of the taxable event under State VAT laws, Excise laws, and Service tax laws. As per GST laws, the entire value of goods/services is charged in an integrated manner, unlike earlier indirect tax laws where taxes were levied on manufacture, sale of goods, or provisions of services separately.
What is a Continuous supply of Goods?
Continuous supply of goods means supplying goods that are provided or agreed to be provided continuously or on a recurring basis. Under continuous supply of goods, the supplier invoices the customer on a regular or periodic basis as per the contract.
Example for Continuous Supply of Goods:
Supplying bricks to builders is a continuous supply of goods as there will be a periodic supply of goods for a long time.
Supply of gas through a pipeline with a weekly / monthly billing schedule
Time of Issuing the of invoice under continuous supply of goods: (Section 31(4) of the CGST Act, 2017)
In case of continuous supply of goods where successive/continuous transactions and successive/periodic payments are involved, the invoice shall be issued before or at the time each statement is issued / transaction occurs or when each payment is received.
What is Continuous supply of Services?
Continuous supply of services means a supply of services provided or agreed to be provided continuously or on a recurring basis. This can be carried out under a contract for a period exceeding three months with periodic payment obligations.
Example of Continuous Supply of Services:
Internet services provided by Telecom companies
Annual maintenance contracts
Licensing of software or brand names
Issue of invoice under continuous supply of services: (Section 31(4) of the CGST Act, 2017)
Where the due date of payment is ascertainable from the contract, the invoice shall be issued on or before the due date of payment.
When the due date of payment is not ascertainable from the contract, the invoice shall be issued before or at the time when the supplier is receiving the payment.
When the payment is linked to the completion of the event, the invoice shall be issued on or before the date of completion of that event.
The following aspects need to be noted for a continuous supply of Goods/Services
It should be a contract for the supply of goods/services on a recurring basis and cannot be a one-time supply contract
The period of contract of supply should be more than 3 months i.e. Goods or services are to be supplied on a recurring basis for at least 3 months continuously.
The contract should mention the case of periodic billing and periodic payments (weekly / monthly / every Monday, etc) and not one-time. The frequency of billing and payment should be clearly mentioned in the contract.
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