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Continuous supplies refer to supply of goods or services on a recurrent basis, under a contract for which the supplier invoices the recipient on a periodic basis and receives the payment before the completion of the contract. This usually applies to a contract having a longer duration. This is also known as progressive billing because series of invoices are prepared at different stages of the project to seek payment for the percentage of work that has been completed.
The time of supply for continuous supplies or contract which involves progressive billing will be the earliest of the date of tax invoice, the due date of payment as shown on the tax invoice or the date of receipt of payment.
Continuous Supplies or Progressive Billing
Earliest of the following
|Date of Tax Invoice|
|The Due date of payment as shown on the Tax Invoice|
|The date of receipt of payment|
Note: This is applicable only if periodic payments or consecutive invoices does not exceed one year from the date of the provision of such goods and services.
Let us understand the time of supply in case of continuous supplies or progressive billing with examples.
Max Ltd, a construction company registered in Dubai, UAE, entered into a contract with Stamps Ltd. to supply and install manufacturing plants. The installation of manufacturing plant at Stamps Ltd.’s site located in Ajman is expected to be completed in 8 months. The contract is provisioned to do periodical billing such that Max Ltd can issue a tax invoice on the completion of work at different stages of the project and accordingly receive the payment. The date of completion of contract at different stages is given below:
|1st Phase (20%)||2nd Phase (50%)||3rd Phase (30%)|
|10th March,2018||29th March,2018||15th August,2018||5th October,2018|
Considering the above example, we have created different scenarios to understand the determination of the time of supply for continuous supplies or progressive billing.
Note: For the purpose of understanding the time of supply, in the following examples, we have considered the VAT Return Period of Monthly and Quarterly
|Date of Completion of 1st Phase||Date of Invoice||Due Date to Receive Payment||Date of Receipt of Payment||Time of supply||
Return Period(Period In which VAT needs to be reported and paid)
|29th March, 2018||15th April,2018||30th April,2018||10th May,2018||15th April,2018||Monthly||Quarterly|
In the above scenario, the time of supply will be 15th April, 2018. The reason being, the time of supply will be the earliest of:
In this case, the date of tax invoice is earlier than the due date of payment and the date of receipt of payment. Accordingly, the output VAT needs to be reported and paid for Apr-Jun’18 quarter, if it is a quarterly return and April’ 18, if it is monthly return.
|Date of Completion of 2nd Phase||Date of Invoice||Due Date to Receive Payment||Date of Receipt of Payment||Time of supply||Return Period (Period In which VAT needs to be reported and paid)|
|15th August, 2018||25th August,2018||30th September, 2018||25th Jun,2018||5th October, 2018||25th June,2018||Monthly||Quarterly|
In the above scenario, the time of supply will be 25th June, 2018 to the extent of advance received and for remaining, it will be 25th August, 2018. The reason being, the time of supply for services will be the earliest of:
In this case, to the extent of advance received, the time of supply will be June, 2018 and accordingly, VAT needs to be paid in Apr-Jun’18, if it is quarterly return and June’18, if it is monthly return. For remaining, the time of supply will be 25th August, 2018 and VAT needs to be paid in the Jul-Sep’18 quarter, if it is quarterly return and August, 2018, if it is monthly return.
For suppliers, it is important to note that not all contracts having longer duration to complete the supply will qualify under continuous supply concept. The contract that qualifies here should be the one that contains periodic billing and receipt of payment before the completion of final supply. Also, the time duration of periodic billing /payment and date of supply is not more than 12 months. The identification of dates discussed above plays a vital role in the accurate determination of the time of supply and avoid the penalties or early payment of tax which will impact the cash flow of the businesses.