Summary:

The Kerala Authority for Advance Ruling (‘the KAAR’) has held that in case of multi-stage payment contracts, a receipt voucher must be issued at the time of receiving advances in respect of supply of goods, and a single tax invoice should be issued only at the time of final delivery of the goods. The corresponding E-way bill should be generated against this final invoice, reflecting the entire value of the consignment.

Facts:

• The Applicant was engaged in supply of goods to its customers under multiple-stage payments, as under:
  • Initial advance payment at the time of order placement
  • Interim or part payments during the manufacturing or production process
  • Final payment upon delivery of the goods
• Since advances were recorded as unbilled revenue in the books of accounts, neither any tax invoice was issued nor any GST was paid on advances. Tax invoices were issued only on delivery of goods
• The Applicant proposed to issue invoices on each advance and a final invoice for the balance, but this could have caused E-way bill mismatches with the total invoice value
• An alternative approach of issuing a single invoice at delivery with credit notes (to adjust for the earlier invoices raised against advances) faced practical constraints due to GST time limits, particularly when manufacturing spanned multiple financial years

Issues before the KAAR:

1. Whether the Applicant can issue Tax invoices at the time of receiving advance or part payments from customers, in the case of domestic and export sales of goods, and declare the same as turnover in the corresponding GST return period and pay the taxes accordingly?
2. If the Applicant issued multiple tax invoices for the same goods upon receipt of advances (as in query 1), can  a tax invoice be issued for the balance amount at the time of delivery, and generate an E-way bill reflecting the full value of the goods, supported by the earlier invoices issued against the advances?
3. Whether, instead of issuing a tax invoice only for the balance amount (as in query 2), the Applicant can issue a single tax invoice for the total value of the goods at the time of delivery and subsequently issue credit notes against the advances or part payments for which tax invoices were issued earlier to adjust the tax liability?

Discussion and Ruling:

• Notification 66/2017-Central Tax mandated all non-composition registered persons to pay CGST on outward supplies at the time of supply under Section 12(2)(a), including situations under Section 14 (e.g., tax rate changes), and the word “shall” makes this compliance mandatory. The time of supply is the earlier of invoice issuance or the last date for issuing the invoice under Section 31
• Section 31 required that a registered person should issue a single tax invoice before or at the time of removal of goods and does not allow multiple invoices for a single supply, unlike continuous services
• Judicial principles establish statutory provisions must be followed as prescribed, without taxpayer discretion. Suppliers must pay tax at the time of invoice issuance, not on receipt of advances in respect of supply of goods, and cannot revert to alternative practices
• Accordingly, issuing tax invoices on advances or part payments in respect of supply of goods is not permitted under GST laws. Advances must be recorded via a receipt voucher under Rule 50, and a tax invoice must be issued only at or before removal/ delivery of goods under Section 31(1)
• Proposed method of issuing a single tax invoice at final delivery and adjusting earlier advance invoices through credit notes is not compliant, as Section 34 permits credit notes only against valid tax invoices issued for completed supplies within prescribed time limits
• The Applicant must issue receipt vouchers for advances, a single tax invoice at the time of final delivery and generate the E-way bill against the final invoice reflecting the full consignment value.

Click to download a copy of the ruling