GST Payable on Advances at Time of Receipt: AAR

The Gujarat Authority of Advance Ruling (AAR) has ruled that that GST is liable to be paid on the advance payment received and the liability to pay tax shall arise on the date of receipt of payment of advance. The bench of Sushma Vora and Vishal Malani has observed that in case an invoice is issued for the advance received, within the period prescribed under Section 31 of the CGST Act, 2017, the liability to pay tax would be the date of issue of invoice or the date of receipt of payment of advance, whichever is earlier. The applicant is a Government Contractor providing services related to Sewage Treatment Plant. As the facts of the case were not clear from the application filed by the applicant, they were asked to submit the facts properly in writing during the course of hearing held on 04.12.2025. As per the letter dtd. 13.12.2025 received from the applicant, the applicant has received a contract for providing services related to storm water drainage, for the newly developed areas falling under Ahmedabad Urban Development Authority (AUDA). As per the terms of the tender, 10% of the accepted contract amount is given as advance/loan to the applicant, which is backed by an equivalent amount of security to be given by the applicant to AUDA. The said terms are mentioned in clause 14.2 and sub-clause 14.2.1 of the contract. Further, all payments made by AUDA to them towards execution of the contract are paid along with GST @ 18%. However, in case of the advance payment, AUDA does not pay GST @ 18%. This clearly indicates that the advance payment is not a payment for the services rendered, but is in the nature of a loan to facilitate execution of the work. All such payments are recovered in subsequent payments of the R.A. Bills as per the tender conditions. On receipt of payment of R.A. Bills, they are paying GST on the full payment. In the event of the contract getting terminated, the full or part balance amount of the advance payment shall be recovered by AUDA from the guarantee submitted by it. The GST paid by them will remain deposited with the GST Department and they shall incur a huge loss. Therefore, they are of the opinion that payment of such advance does not attract 18% GST. The applicant sought the advance ruling on the GST Applicability on the advance payment which will be recovered from running account bills subsequently, resulting in GST payable at the time of issuance of invoices. The AAR held that As per Section 31(2) of the CGST Act, 2017, a registered person supplying taxable services shall before or after the provision of service but within a prescribed period, issue a tax invoice, showing the description, value of tax charged thereon and such other particulars as may be prescribed. Thus, an invoice for the advance can be raised before the provision of service. It does not appear that any invoice is being issued by the applicant when the advance is received by the applicant, because as per their view, they are not liable for payment of GST on the advances received. The advance is being adjusted during the issue of R.A. Bills and the GST is being proposed to be paid by the applicant in advance during this stage. The AAR held that the invoice for the advance was raised in the R.A. Bill, at a much later stage from the date of receipt of advance. Therefore, the time of supply of services would be the date of receipt of payment of the advance and consequently, liability to pay tax would be on the date of receipt of payment. Ruling Details Applicant’s Name: P C Snchal Construction Private Limited Citation: JURISHOUR-124-HC-2026(Ker) Ruling Date: 19/02/2026 Click Here To Read Ruling Read More: 5% GST Payable On Mukhwas Capsule & Digestive Goli: AAR

GST Payable on Advances at Time of Receipt: AAR

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