There is a mis-conception amongst the businssmen and industry that the GST liability arises only if there is a sale. This is not so. Even advance payment received is subject to GST.

The GST liability arises at the “time of supply”. The time of supply under the GST Act for applicability of GST is

a) At the time of receipt or payment
or

b) At the time of issue of invoice

whichever is earlier.

If advance is received, GST is required to be paid on such advance receipt (not on full value but on the amount of advance).

 It may be noted that taxability of Advance payment is different for dealer covered by composition scheme and dealer covered by regular scheme .

Taxability in the case of dealer covered by regular Scheme

• When supply is of Goods, dealer is exempted from paying GST on Advances received under Notification no. 66/2017 dated 15.11.2017 and
• when supply is of Services then GST is to be paid at the time of receipt of advances.
• If Nature  of Supply is not Determinable (Rule 50) then it has to be treated as inter-state supply & GST rate should be taken @ 18%& taxes be paid accordingly.

Section 31 (3) (d) of the CGST Act, 2017 incorporates the requirements of issuing receipts wherever advance is received. It provides that every registered person on receipt of advance payment with respect to any supply of goods or services or both is duty bound to issue a receipt voucher or any other document containing such particulars as may be prescribed evidencing receipt of such payment.

The receipt voucher shall contain the particulars as contained in Rule 50 of the CGST Rules, 2017 which are as follows:

1. Name, address and Goods and Services Tax Identification Number of the supplier;
2. A consecutive serial number not exceeding sixteen characters, in one or multiple series, containing alphabets or numerals or special characters hyphen or dash and slash symbolized as “-” and “/” respectively, and any combination thereof, unique for a financial year;
3. Date of its issue;
4. Name, address and Goods and Services Tax Identification Number or Unique Identity Number, if registered, of the recipient;
5. Description of goods or services;
6. Amount of advance taken.
7. Rate of tax (central tax, State tax, integrated tax, Union territory tax or cess);
8. Amount of tax charged in respect of taxable goods or services (central tax, State tax, integrated tax, Union territory tax or cess);
9. Place of supply along with the name of State and its code, in case of a supply in the course of inter-State trade or commerce;
10. Whether the tax is payable on reverse charge basis; and.
11. Signature or digital signature of the supplier or his authorised representative.

If Tax invoice is Issued, credit note should be issued to square off transaction as per section 34 r.w Rule 54.

If however the deal got cancelled or tax invoice is not issued whatsoever then advance taken can be refunded & a refund voucher has to be issued.

 The refund voucher has to be in accordance with Rule 51 and must incorporate the following particulars:

a) name, address and Goods and Services Tax Identification Number of the supplier;

b) a consecutive serial number not exceeding sixteen characters, in one or multiple series, containing alphabets or numerals or special characters’ hyphen or dash and slash symbolized as “-” and “/” respectively, and any combination thereof, unique for a financial year.

c) date of its issue;

d) name, address and Goods and Services Tax Identification Number or Unique Identity Number, registered, 49 of the recipient;

e) number and date of receipt voucher issued in accordance with the provisions of rule 50;

f) description of goods or services in respect of which refund is made;

g) amount of refund made & rate of tax (central tax, State tax, integrated tax, Union territory tax or cess);

h) amount of tax paid in respect of such goods or services (central tax, State tax, integrated tax, Union territory tax or cess);

i) whether the tax is payable on reverse charge basis; and

j) signature or digital signature of the supplier or his authorised representative.

In short, Rule 56 takes care of the situation where after receiving advance, supply is not done and the amount is required to be returned back. Every registered person has to maintain a separate account of advances received, paid and adjustments made thereto as per the stipulations of  Rule 56(3).

Table 11 in Part A and B of GSTR 1 require to furnish the Consolidated Statement of Advances Received, Advance adjusted in the current tax period, Amendments of information furnished in earlier tax period, Rate wise and intra/interstate wise

There is a special provision for composition dealer  which is contained in Section 10 of the Act. Composition dealers are not liable to pay GST on advances received if such advance pertains to the outward supplies. In such cases, unlike dealer covered by regular scheme, advances received and goods returned do not form part of taxable supplies and do not form part of the turnover in a state at the end of the quarter (tax period) for the purpose of computing turnover in a state