GST on Advance Payment - Educational Resource

GST on Advance Payment for Goods and Services

This resource is for educational purposes only and does not constitute legal advice.

1. Introduction: GST on Advance Payment

Question:

Can advance on goods or services be taken before supply of goods or services? Can GST be paid on such advances?

2. Legal Framework under GST Act

2.1 For Goods - Section 12(2) CGST Act, 2017

Section 12(2)(a) - Time of Supply of Goods:

The time of supply of goods shall be the earlier of the following dates:

(a) the date of issue of invoice by the supplier; or
(b) the last date on which he is required to issue the invoice

Provided that: No tax shall be payable on advances received in respect of supply of goods.

Reference: CGST Act Bare Law (April 2025), Page 30-31

2.2 For Services - Section 13(2) CGST Act, 2017

Section 13(2) - Time of Supply of Services:

The time of supply of services shall be the earlier of:

(a) the date of issue of invoice or date of receipt of payment, whichever is earlier; or
(b) the date of provision of service if invoice not issued within prescribed period

Interpretation: GST is payable immediately on receipt of advance for services

Reference: CGST Act Bare Law (April 2025), Page 34-36

2.3 Receipt Voucher Requirements - Section 31(3)(d) & Rule 50

Section 31(3)(d) CGST Act:

A registered person who receives advance payment with respect to any supply of goods or services or both shall issue a receipt voucher or any other document evidencing receipt of such payment at the time of receipt of advance.

Reference: CGST Act Bare Law (April 2025), Page 56-57

Rule 50 - Contents of Receipt Voucher:

Name, address, GSTIN of supplier
Serial number and date of voucher
Name, address, GSTIN of recipient (if registered)
Description of goods or services
Amount of advance received
Rate of tax (if determinable)
Place of supply (for inter-State transactions)
Signature/digital signature of supplier

Reference: CGST Rules Bare Law (April 2025), Page 350-351

2.4 CBIC Circular Clarification

Circular No. 47/21/2018-GST dated 08.06.2018:

"It is clarified that no tax is payable at the time of receipt of advance in respect of supply of goods. Tax shall be payable only when the invoice is issued for such supply."

Reference: GST All Circulars Compilation (2017-2025), Page 425-430

2.5 ICAI Background Material (BGM Vol. 1, January 2025)

Chapter 9 – Time of Supply (Page 308-312):

"No GST is payable at the time of receipt of advance in respect of supply of goods. However, the supplier is required to issue a receipt voucher on receipt of advance and adjust the same at the time of invoice."

"In case of services, tax liability arises on the earlier of issue of invoice or receipt of payment. Accordingly, GST is payable on advance received for services."

Reference: ICAI GST BGM Vol. 1 (January 2025), Page 308-312

3. Detailed Analysis: Advance on Goods

Question:

Can advance be received before supply of goods? What is the GST liability?

Detailed Solution for Goods:

Key Points:

Advance Permitted: Yes, there is no restriction under GST law to collect advances for goods before actual supply
GST Not Payable on Advance: As per Section 12(2)(a) proviso, no tax shall be payable on advances received in respect of supply of goods
Receipt Voucher Mandatory: Supplier must issue receipt voucher under Rule 50 when advance is received
Time of Supply: Tax liability arises only when:
- Invoice is issued, OR
- Goods are delivered/supplied
- Whichever is earlier
Adjustment at Invoice Stage: When final invoice is raised, the advance received is adjusted against the invoice value

Practical Illustration:

Example:

ABC Ltd. receives advance of ₹2,00,000 on 15th May 2025 for supply of machinery (GST @ 18%).

Invoice is issued on 30th June 2025 for total value of ₹5,00,000.

Date	Action	GST Liability
15th May 2025	Advance received: ₹2,00,000	NIL - No GST payable
15th May 2025	Receipt Voucher issued	Document requirement only
30th June 2025	Invoice raised: ₹5,00,000	GST: ₹90,000 (on ₹5,00,000)
30th June 2025	Balance Payment: ₹3,00,000	Advance adjusted

Compliance Workflow:

Receive advance from customer
Issue receipt voucher immediately (Rule 50)
Record advance in books (Bank/Cash Dr, Advance from Customer Cr)
No GST payment required at this stage
When goods supplied and invoice raised:

Calculate GST on full invoice value
Adjust advance received
Report in GSTR-1 and pay GST in GSTR-3B

4. Detailed Analysis: Advance on Services

Question:

Can advance be received before supply of services? What is the GST liability?

Detailed Solution for Services:

Key Points:

Advance Permitted: Yes, there is no restriction on taking advance for services before actual supply
GST Payable on Advance: Unlike goods, GST is payable immediately on receipt of advance for services
Receipt Voucher Mandatory: Supplier must issue receipt voucher under Rule 50 when advance is received
Time of Supply: Date of receipt of advance payment becomes the time of supply
GST Return Filing: GST on advance must be paid in the month when advance is received
Adjustment at Invoice Stage: When final invoice is raised, advance is adjusted and only balance amount is taxed

Practical Illustration:

Example:

XYZ Consultants receives advance of ₹1,00,000 on 10th May 2025 for consultancy services (GST @ 18%).

Invoice is issued on 30th June 2025 for total value of ₹2,00,000.

Date	Action	GST Liability
10th May 2025	Advance received: ₹1,00,000	GST: ₹18,000 payable
10th May 2025	Receipt Voucher issued with GST	Total: ₹1,18,000 received
31st May 2025	GST Return GSTR-3B filed	₹18,000 paid to government
30th June 2025	Invoice raised: ₹2,00,000	GST on balance: ₹18,000
30th June 2025	Balance Payment: ₹1,18,000	Total GST: ₹36,000

Note: Total GST = ₹36,000 (₹18,000 on advance + ₹18,000 on balance)

Accounting Entries:

At the time of receipt of advance (10th May):

Particulars	Dr (₹)	Cr (₹)
Bank A/c Dr	1,18,000
To Advance from Customer		1,00,000
To Output GST (CGST + SGST)		18,000

At the time of raising final invoice (30th June):

Particulars	Dr (₹)	Cr (₹)
Advance from Customer A/c Dr	1,00,000
Accounts Receivable A/c Dr	1,18,000
To Service Income		2,00,000
To Output GST (on balance)		18,000

Compliance Workflow:

Receive advance from customer
Calculate GST on advance amount
Issue receipt voucher with GST details (Rule 50)
Record advance with GST liability in books
Report in GSTR-1 Table 11A (Advances Received)
Pay GST in GSTR-3B for that month
When service provided and invoice raised:

Adjust advance in final invoice
Calculate GST only on balance amount
Report adjustment in GSTR-1 Table 11B

5. Case Laws: GST on Advance for Goods

Case Law 1: M/s. Jindal Pipes Limited v. Deputy State Tax Officer

Citation: W.P. (MD) No. 17211 of 2024

Court: Allahabad High Court

Date: July 25, 2024

Judge: Hon'ble High Court of Allahabad

Facts of the Case:

The petitioner was transporting goods and there were certain discrepancies in the e-way bill
Tax authorities imposed penalty under Section 129(3) of the UPGST Act
The discrepancies were of technical nature without any intention to evade tax
The petitioner had received advance payment for goods but invoice details had minor errors

Key Legal Issues:

Whether penalty can be imposed for minor technical defects in documentation
Whether mens rea (intention to evade tax) is required for imposing penalty under Section 129
Treatment of advance payments and corresponding documentation requirements

Court's Judgment:

The Allahabad High Court set aside the order imposing penalty under Section 129(3) of the UPGST Act. The Court held that:

The defects were of technical nature only
There was no intention to evade tax (mens rea)
For goods, advance payment does not attract immediate GST liability
Minor discrepancies in documentation should not be treated as fatal errors
As per Section 129 and Rule 138A, until and unless mens rea exists and is proved, errors should be treated as non-fatal

Key Takeaways for Advance on Goods:

                            Advance received for goods does not create immediate GST liability
Receipt voucher and proper documentation is essential
Minor technical errors in documentation should not attract penalty if there is no intention to evade tax
Tax authorities must prove mens rea before imposing penalty

                        

Case Law 2: Sri Yogiram Traders v. State Tax Officer

Citation: Writ Petition dated July 9, 2024

Court: High Court (State not specified in available records)

Date: July 9, 2024 (Order set aside)

Subsequent Order: January 24, 2025

Facts of the Case:

The petitioner received show cause notice for consolidated amount covering multiple invoices
Each individual invoice was below ₹1 lakh threshold (exempt from e-way bill)
Tax authorities questioned the advance payments received for goods
Issues related to documentation of inward invoices and advance receipts

Key Legal Issues:

Whether multiple small invoices can be clubbed together to exceed threshold limits
E-way bill requirements when individual invoices are below threshold
Documentation requirements for advance payments for goods
Proper maintenance of inward invoices and receipt vouchers

Court's Judgment:

The High Court set aside the impugned order dated July 9, 2024. The Court directed that:

Each invoice should be evaluated individually for e-way bill requirements
Invoices below ₹1 lakh are exempt from e-way bill as per GST regulations
Advances for goods must be properly documented through receipt vouchers
Petitioner was directed to produce necessary invoices and address issues related to inward invoices before concerned authority by January 24, 2025

Key Takeaways for Advance on Goods:

                            Proper documentation of advance receipts through receipt vouchers is mandatory
Each transaction should be evaluated on its own merit
Receipt vouchers for advance on goods should clearly mention the goods description
Threshold limits for e-way bills apply to individual invoices, not consolidated amounts
Taxpayers must maintain proper records of all advances received and corresponding adjustments

                        

Practical Implications:

This case emphasizes the importance of:

Issuing proper receipt vouchers when advance is received for goods
Maintaining clear documentation trail from advance to final invoice
Understanding threshold limits and compliance requirements
Keeping advance register separate from regular invoice register

6. Case Laws: GST on Advance for Services

Case Law 1: L&T IHI Consortium v. Union of India and Ors

Citation: Writ Petition, Bombay High Court

Court: Bombay High Court

Date: November 14, 2024

Judge: Hon'ble Bombay High Court

Facts of the Case:

Contract between L&T IHI Consortium and Mumbai Metropolitan Development Authority (MMRDA) for Atal Setu project
Consortium paid advance to its contractor (L&T) for services
GST was paid on advance amount before actual service was received
Consortium claimed Input Tax Credit (ITC) on GST paid on advance
Department denied ITC stating Section 16(2)(b) requires actual receipt of services

Key Legal Issues:

Whether ITC can be claimed on GST paid on advance for services before actual receipt of services
Interpretation of "supply" under Section 7 of CGST Act
Whether advance payment constitutes a loan or advance for services
Harmonious interpretation between provisions requiring GST payment on advance vs provisions allowing ITC only on receipt

Court's Judgment:

The Bombay High Court held that the petitioner was entitled to avail GST Input Tax Credit on GST paid on advance amount to its contractor, before the actual service was received. The Court observed:

On "Supply": Under Section 7, the expression "supply" includes "all forms of supply of goods or services or both"
Time of Supply: For services, time of supply is on receipt of advance payment as per Section 13(2)
ITC Eligibility: Section 16(1) allows ITC on goods or services "used or intended to be used" in course of business
Harmonious Interpretation: Provisions should be read harmoniously - if supplier must pay GST on advance, recipient should be eligible for ITC
Not a Loan: Court rejected argument that advance should be treated as loan - it was clearly advance for services

Key Legal Principles Established:

                            Advance for services attracts GST immediately: Time of supply occurs on receipt of advance
ITC available on advance: If GST is payable on advance, ITC should also be available
Receipt voucher is a valid document: For claiming ITC on services advance
Economic regulation view: Courts should view GST provisions with greater latitude as economic regulation
"Intended to be used" is key: ITC available if services are intended to be used in business, even if not yet received

                        

Reliance on Previous Judgments:

R. K. Garg v. Union of India: Economic regulations should be viewed with greater latitude
State of M.P. v. Rakesh Kohli: Judicial deference to legislature's judgment in economic matters
Mod. Serajuddin case: Interpretation of supply provisions

Key Takeaways for Advance on Services:

                            GST is mandatory on advance received for services
Receipt voucher must be issued showing GST charged
Recipient can claim ITC on GST paid on advance even before receiving services
Advance is not a loan - it is part of consideration for services
Time of supply for services is on receipt of advance payment
Harmonious interpretation of GST provisions is essential

                        

Practical Impact:

This landmark judgment provides clarity that:

Service providers must charge GST on advance receipts
Service recipients can claim ITC on advance payments
Receipt vouchers are valid documents for ITC claims
GST system operates symmetrically - if tax is charged, credit is available

Case Law 2: M/s. Portescap India Private Limited

Citation: MAH/AAAR/RK-SK/27/2020-21

Authority: Maharashtra Appellate Authority for Advance Ruling

Date: November 3, 2020

Facts of the Case:

Recipient filed application for Advance Ruling
Question: Whether tax is payable under Reverse Charge Mechanism (RCM) on services
Issue involved advance payments received for services
Determination of who is liable to pay GST on advance - supplier or recipient

Key Legal Issues:

Whether advance ruling can be sought by recipient on taxability of inward supply
Who is liable to pay GST on advance - supplier under forward charge or recipient under RCM
Applicability of advance ruling on supplier when recipient obtains ruling
Time of supply determination for advance payments

Authority's Ruling:

The Maharashtra Appellate Authority clarified that:

Recipient can seek ruling: Recipient of services can file application for advance ruling on RCM applicability
Ruling not binding on supplier: If recipient obtains ruling on inward supply taxability, the supplier is not bound by that ruling
Advance on services taxable: GST is payable on advance received for services
Forward charge is normal: Unless specifically notified under RCM, supplier is liable to pay GST on advance
Time of supply principles apply: Section 13 provisions apply for determining time of supply on advances

Interpretation Principles:

Key Observation of the Authority:

"It is amply clear that if a recipient of supply obtains a ruling on the taxability of his inward supply of goods or services or both, the supplier of such goods or services or both is not bound by that ruling and he is free to assess the supply according to his own determination/understanding of law and hence ruling loses its relevance and applicability."

Legal Principles on Advance for Services:

Forward Charge Default: Unless notified under RCM, services attract GST under forward charge
Supplier's Obligation: Supplier must charge and collect GST on advance for services
Receipt Voucher Essential: Must be issued immediately on receipt of advance
Time of Supply: Date of receipt of advance becomes time of supply
Liability Cannot be Shifted: Parties cannot contract out of GST liability provisions

Key Takeaways for Advance on Services:

                            Service provider is responsible for charging GST on advance (unless RCM notified)
Advance ruling by one party does not bind the other party
Each party must assess their own liability under GST law
Receipt voucher must clearly show GST liability and payment
RCM applies only when specifically notified by government
Supplier cannot avoid GST payment by claiming it's recipient's liability

                        

Practical Implications:

For Service Providers:
- Must charge GST on all advance receipts
- Cannot defer GST payment till service completion
- Must issue proper receipt vouchers
For Service Recipients:
- Should verify if service falls under RCM
- Can claim ITC on GST paid on advance (as per L&T case)
- Must ensure supplier issues proper documentation

Advance Ruling Mechanism Insights:

This case also provides guidance on advance ruling mechanism:

Advance ruling can be sought on proposed or ongoing transactions
Ruling is binding only on the applicant and concerned officer
Other parties to transaction not bound by ruling
Proper application with all facts is essential

7. Comparative Analysis: Goods vs Services

Parameter	Goods	Services
Can advance be received before supply?	✔️ Yes	✔️ Yes
GST payable on advance?	❌ No	✔️ Yes
Relevant Section (Time of Supply)	Section 12(2) CGST Act	Section 13(2) CGST Act
Document to be issued	Receipt Voucher (Rule 50)	Receipt Voucher with GST (Rule 50)
When does tax liability arise?	Invoice issuance OR Delivery, whichever is earlier	Receipt of advance OR Invoice, whichever is earlier
Notification/Circular exemption	Notification No. 66/2017-CT exempts GST on advance for goods	No exemption notification for services
GSTR-1 Reporting (Advance)	Not required for advance (Report only at invoice stage)	Table 11A - Advances Received
GSTR-1 Reporting (Adjustment)	Normal invoice reporting	Table 11B - Adjustment of Advances
GSTR-3B Payment	At invoice/supply stage only	In month of advance receipt
ITC for recipient	At invoice stage only	Available on advance payment (L&T IHI case)
Key CBIC Circular	Circular 47/21/2018-GST dated 08.06.2018	No specific circular - governed by Section 13
ICAI Guidance	BGM Vol. 1 (Jan 2025) - No GST on advance	BGM Vol. 1 (Jan 2025) - GST payable on advance
Adjustment mechanism	Advance adjusted against invoice value	Advance adjusted, GST on balance only
Refund if supply cancelled	Full refund (no GST paid)	GST refund through proper procedure
Compliance complexity	Lower - No immediate GST payment	Higher - Immediate GST calculation & payment

Summary

The fundamental difference:

Goods: Advance receipt does NOT trigger GST liability. GST payable only at invoice/delivery stage.
Services: Advance receipt TRIGGERS GST liability immediately. GST must be paid in the month advance is received.

1. Introduction: GST on Advance Payment

Question:

Solution:

For Goods:

For Services:

2. Legal Framework under GST Act

2.1 For Goods - Section 12(2) CGST Act, 2017

2.2 For Services - Section 13(2) CGST Act, 2017

2.3 Receipt Voucher Requirements - Section 31(3)(d) & Rule 50

2.4 CBIC Circular Clarification

2.5 ICAI Background Material (BGM Vol. 1, January 2025)

3. Detailed Analysis: Advance on Goods

Question:

Detailed Solution for Goods:

Key Points:

Practical Illustration:

Compliance Workflow:

4. Detailed Analysis: Advance on Services

Question:

Detailed Solution for Services:

Key Points:

Practical Illustration:

Accounting Entries:

Compliance Workflow:

5. Case Laws: GST on Advance for Goods

Case Law 1: M/s. Jindal Pipes Limited v. Deputy State Tax Officer

Facts of the Case:

Key Legal Issues:

Court's Judgment:

Key Takeaways for Advance on Goods:

Case Law 2: Sri Yogiram Traders v. State Tax Officer

Facts of the Case:

Key Legal Issues:

Court's Judgment:

Key Takeaways for Advance on Goods:

Practical Implications:

6. Case Laws: GST on Advance for Services

Case Law 1: L&T IHI Consortium v. Union of India and Ors

Facts of the Case:

Key Legal Issues:

Court's Judgment:

Key Legal Principles Established:

Reliance on Previous Judgments:

Key Takeaways for Advance on Services:

Practical Impact:

Case Law 2: M/s. Portescap India Private Limited

Facts of the Case:

Key Legal Issues:

Authority's Ruling:

Interpretation Principles:

Legal Principles on Advance for Services:

Key Takeaways for Advance on Services:

Practical Implications:

Advance Ruling Mechanism Insights:

7. Comparative Analysis: Goods vs Services

Summary

8. Decision Flowchart: GST on Advance Payment

9. Mind Map: GST on Advance Payment