GST time of supply explained

Below if an example from the GST handbook by ICAI:

Now, this example is not well explained, especially for a beginner who is learning about GST for the first time. So I will try to simplify this, as this is the most common GST return filing for every taxpayer every month. And could be one of the reasons why they thought GST is very complex.

The first question would be why should the registered person pay interest in the month of Aug, even though his tax liability in last month was only Rs 7 lakhs and he has 10 lakhs worth of ECL(Electronic Cash Ledger) for which he can claim ITC also ?

The actual answer to this is below, please check the above modified table again:

Month (2019)	Opening Balance of ECL (+)	ITC for the month (+)	Output Tax Liability (-)	Amount Withdrawn (-)	Amount Added (+)	Closing Balance of ECL
June	12,00,000	7,00,000	8,00,000			11,00,000
July -1	11,00,000	0	7,00,000	5,00,000		3,00,000 (11-7-5 lakhs)
July-2	6,00,000(11-5 lakhs)	0	7,00,000			-1,00,000 (6-7 lakhs)
July -20	11,00,000(6+5 lakhs)	0	7,00,000		5,00,000	4,00,000 (11-7 lakhs)
July-21	4,00,000	6,00,000	0			10,00,000(6+4 lakhs)
August	10,00,000	8,00,000	9,00,000			9,00,000

So the OTL(Out put tax Liability) is due for the registered person on the 1st of the Aug month. Assuming he is filing the return on the 1st of Aug month, and his sale was on the last day of the July month in the last hour. And he can file this in his GSTR-1 return from the 1st of the Aug month onwards.

But for the ITC claim, lets assume that he files the GSTR-3B on the 20th of Aug month. Then he will get the ITC in his ledger only after the 20th of the Aug month. So during this 20 day period, his ledger is in (-) negative. Because he has withdrawn 5 lakhs from it.

Now the GST portal, may or may not show this data accurately everyday due to their own reasons. So it may or may not be taken as a source of truth. But, we can learn from this example to manage our own accounts to calculate the taxes correctly. I have broken down the July month into 4 separate rows to make it clear how the software is calculating the ledger in the backend. Now you can ask the below questions:

• Why is the Tax liability starting from the day of sales only ? Because the registered person may not receive the money on the exact day of sale.
• Why is GST credit in ITC calculated after a delay of minimum 20 days ? As he has spent money already on date of purchase. So he should also get the credit from the same date with interest as well ?

This entire delay in the “time of supply” is inclined to benefit anyone who is not a registered person. And because loss of one person is gain for another. So the registered person is at a loss.

If a businessman is small he can track the sales and purchases dates easily every month. But if his sales and purchases both are on the higher side. Then it will be almost impossible for him to manage everything efficiently without making a mistake.

And the reason for me to write this blog was to underline the fact that the “GST department discourages high volume legitimate sales and purchases”. This is sharp contrast to the advertisements and banners we see everyday for more sales is a better thing. Which is fine till now, but what if the GST proper officer is not fair due to lack of data and misguided by the advertisements ?

So, out of the 2 groups mentioned in the next statements. If you join the group that is involved in “making laws” by being unregistered, then you are better off.

But if you join the group of a registered person, who is following the law, then you have to face penalties. Registered person “does not make law”, he is only supposed to abide by them. And so he can be easily framed for doing wrong business activity and is made a scapegoat.

Basic Loopholes in GST:-

• Supplier if found breaking certain laws during goods movement, has to give all his goods and also pay the Maximum Retail Price for these goods to the GST officer(Unregistered person).
• If a supplier is using a Job worker(Unregistered person) for some service on his goods. Then he has to pay the price of the goods to the Job worker, and may not get the goods back also in some conditions.
• There is no Law to prevent unauthorized collection of tax from the officer. It is a moot topic.

So the above loopholes are enough to take everything from the small business owner in one shot and payment also for the same by deceit or trickery.

Most of the laws are framed to protect and give benefits to the unregistered persons(normal person who does not have a GST number). If these sales and purchases are done by using the loop holes in the GST law mentioned above. Then the number of sales and purchases can be much higher without breaking any laws. Hence people find it very difficult to do legal business in India.

Don’t get high hopes about other countries in this regard. Because if doing legal business in India is bad, then doing it in every other country is worse. In other countries including developed countries, the law following people ratio is worse than in India.

Now the sad reality is that how is everything still functioning smoothly ? and why is someone like a registered person willing to become a scapegoat knowingly? I think the answer to this is, because the registered person thinks that he is the father and the unregistered person is a child. And so he forgives the mistakes of the child. If you go with this analogy, everything above I have written would start making sense.