GST: Treatment of an advance received for service contract which subsequently got cancelled


Circular No.136/06/2020-GST, dated 03.04.2020 had been issued to clarify doubts regarding relief measures taken by the Government for facilitating taxpayers in meeting the compliance requirements under various provisions of the Central Goods and Services Tax Ac.

CBIC has issued Circular No. 137/07/2020-GST dated 13.04.2020 to reduce challenges being faced by taxpayers in adhering to the compliance requirements under various other provisions of the CGST Act.

⧫The clarification w.r.t 4 important issues out of 7 issues are discussed here:

1.Issue: A supplier of service received an advance and he has issued invoice before supply also paid GST on such advance, but due to any reason [e.g Lock-down] service contract got cancelled. What can be done in such situation. 

Clarification: In such case two options are available with supplier, 
  1. The supplier is required to issue a “credit note” in terms of section 34 of the CGST Act. He shall declare the details of such credit notes in the return for the month during which such credit note has been issued. The tax liability shall be adjusted in the return subject to conditions of section 34 of the CGST Act. There is no need to file a separate refund claim.
  2. However, in cases where there is no output liability against which a credit note can be adjusted, registered persons may proceed to file a claim under “Excess payment of tax, if any” through FORM GST RFD-01.  
2. Issue: What if supplier of service has not issued invoice  in terms of section 31 (2) of the CGST Act, but issued receipt voucher for advance received as mentioned in above issue?

Clarification: In such case , Supplier is required to issue a “refund voucher” in terms of section 31 (3) (e) of the CGST Act read with rule 51 of the CGST Rules. Supplier can apply for refund of GST paid on such advances by filing FORM GST RFD-01 under the category “Refund of excess payment of tax”

3.Issue: What if Goods supplied by a supplier under cover of a tax invoice are returned by the recipient ?

➥Clarification: In such case two options are available with supplier of goods:
  1. The supplier is required to issue a “credit note” in terms of section 34 of the CGST Act. He shall declare the details of such credit notes in the return for the month during which such credit note has been issued. The tax liability shall be adjusted in the return subject to conditions of section 34 of the CGST Act. There is no need to file a separate refund claim in such a case.
  2. However, in cases where there is no output liability against which a credit note can be adjusted, registered persons may proceed to file a claim under “Excess payment of tax, if any” through FORM GST RFD-01
4.Issue:  As per section 54 (1), a person is required to make an application (Refund Application)  before expiry of two years from the relevant date. If in a particular case, date for making an application for refund expires on 31.03.2020, can such person make an application for refund before 29.07.2020?

Clarification: As per notification No. 35/2020-Central Tax dated 03.04.2020, where the timeline for any compliance required as per sub-section (1) of section 54 of the Central Goods and Services Tax Act, 2017 falls during the period from 20.03.2020 to 29.06.2020 [30.08.2020]*, the same has been extended till 30.06.2020. Accordingly, the due date for filing an application for refund falling during the said period has also been extended till 30.06.2020 [31.08.2020]*.

* Notification 55/2020-CGST dt 27th June 2020 has been issued to amend notification 35/2020. 

#You can read here all issues and clarifications by CBIC dated 13.04.2020 here
http://cbic.gov.in/resources//htdocs-cbec/gst/Circular_Refund_137_7_2020.pdf

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