Subject : Time of supply of goods and ITC when price is not known at time of delivery

1. Querist has purchased certain raw material from ABC Ltd. which will be delivered within 15 days of the execution of the agreement. This raw material will be used in the production of export goods which will thereafter be sold in foreign markets. The export goods are manufactured within India itself.

2. However, the price of the raw materials is not stipulated in the agreement. Parties have agreed that the price payable to ABC Ltd., will be equivalent to the 50% of the profits from the sale of the export goods.

3. Querist seeks to know the time of supply of the purchase of raw material and the availability of input tax credit on the purchase of the raw material.


1. This is a contract for sale of goods against deferred monetary consideration. Such a contract can come into existence even if an exact price is not determined by the parties before the delivery of goods. This is apparent from a bare reading of Section 5(1) read with 9(1) of the Sale of Goods Act, 1930:

“5. Contract of sale how made

(1) A contract of sale is made by an offer to buy or sell goods for a price and the acceptance of such offer. The contract may provide for the immediate delivery of the goods or immediate payment of the price or both, or for the delivery or payment by instalments, or that the delivery or payment or both shall be postponed.

9. Ascertainment of price

(1) The price in a contract of sale may be fixed by the contract or may be left to be fixed in manner thereby agreed or may be determined by the course of dealing between the parties.


2. Thus, only a promise to pay money is sufficient for a contract of sale to come into being. The quantum of money can be fixed later.

3. This transaction is undoubtedly liable to GST. However, it is impossible to determine the actual price at the time of delivery, since the price is based on the share of profits which will be determined after delivery.

4 Thus, as a matter of necessity, the time of supply will arise only at the time the price is determined and the invoice is raised by ABC Ltd., or the payment is made by Querist (whichever is earlier). The invoice itself cannot be issued before the exact details of the share of profit is calculated.

5. However, determination of time of supply and the time of issue of invoice is really ABC Ltd.’s problem, since it is ABC Ltd., which is liable to pay tax on the supply of goods and issue the invoice. Querist’s only real interest is the availability of Input Tax Credit on the payments made to ABC Ltd. as and when the share of profit is tendered to ABC Ltd., (or if the invoice is issued by ABC Ltd., before the payment by Querist). It is pertinent to note that under the GST Act and the rules, recipient’s right to claim input tax credit is not dependent on whether the supplier has wrongly determined the time of supply or whether the supplier has issued the invoice at the wrong time. As long as the Querist is in possession of the tax invoice and the tax is actually paid into the Government Treasury by ABC Ltd., there is no prohibition whatsoever on taking of credit.

Subject : Composite v. Mixed Supply – Renting of banquet halls along with decoration and food services

Querist is engaged in providing duly decorated and furnished banquet halls on rent to various parties for different kinds of social and family functions and ceremonies. Querist not only provides space, but also supplies food, decoration services and other incidental and ancillary services as a package to its customers.

Querist wishes to know the Service Accounting Code for the said service. We are informed that the Querist is contemplating classification of its services under SAC 9963 which deals with “accommodation, food and beverages”.


1. We are of the view that the SAC applicable to this service is 997212, which is the accounting Code applicable for “rental or leasing services involving own or leased non-residential property”.

2. SAC 9963 is not relevant because the Querist is not providing accommodation services or food or beverage services as such. Even though food and beverages are supplied during the course of these services and even though it is true that the SAC 9963 applies to “supply of food or beverage as a part of any service”, it must be remembered that the rules of composite and mixed supply cannot be overlooked while determining classification of services.

3. In the case of the services provided by the Querist, it is quite clear that the supply of rental services is the principal supply and the supply of food and beverages during the course of the entire supply is only an incidental or ancillary supply. As such, under section 8 of the CGST Act and the SGST Act, the incidental and ancillary supply will take on the identity of the principal supply and will completely lose any separate identity. The food and beverage supply will thus merge into the identity of the rental supply and the entire supply will take the colour of rental services as per section 8.

4. The words “as a part of” are used in SAC 9963 “supply of food …. as part of any service” cannot be interpreted in such a way so as to put in SAC 9963 all supplies where food does not even form a principal element. To do so would tantamount to elevating an incidental supply of food or beverage to the status of a principal supply in contravention of section 8. The SAC and the classification of services are notified through delegated legislation which cannot override Section 8, which is a provision contained in the parent Act. Thus, SAC 9963 can only apply to those cases in which food and beverage is supplied as a principal supply and not where they are supplied incidentally.

5. Therefore, the services of renting banquet halls along with decoration, food, beverage and other services is classifiable under SAC 997212.

Subject : Whether sending of defective goods for repair/replacement is a “supply”?

Querist has sold certain products to XYZ Ltd. which is situated in Kolkata, West Bengal. IGST at the due rate has already been paid on this sale.

After the goods were delivered, certain defects were noticed in those products and they were sent back by XYZ Ltd. to the Kolkatta branch of Querist for repairs and replacements.

XYZ Ltd., has again charged IGST when sending the goods back to Querist for repairs and replacements.

Querist has not yet paid the tax element to XYZ Ltd. Querist seeks to know whether XYZ Ltd., is correctly charging tax on sending back of defective goods for repairs or replacements and whether input tax credit is available on such a transaction?


We are of the considered view that there is no “supply” which takes place when defective goods are sent for repairs or replacements. These goods are generally sent back as a part of free warranty obligations or additional commercial warranty obligations. There is no consideration for sending of such goods.

Since there is no supply, XYZ Ltd., should not pay any tax on the sending back of goods for repairs or replacements. If Querist pays the same to XYZ Ltd., and takes credit of the same, it is quite possible that the GST Department will seek to deny input tax credit on the same on the ground that there was no “supply” in the first place and that the tax was not payable by XYZ Ltd., at all.

It is our view that Querist should not pay any tax to XYZ Ltd., and should not take any credit to avoid unnecessary and avoidable litigation on such issues.


Comments are closed.