Intermediary – under GST

Intermediary – under GST

Intermediary – a person who arranges/facilitates the supply between two persons in common parlance.

As per   Act, Intermediary means a broker, an agent, or any other person, by whatever name called, who arranges or facilitates the supply of goods or services or both, or securities, between two or more persons, but does not include a person who supplies such goods or services or both or securities on his own account.

Service Provider: Intermediary/Agent/Broker.

Service Recipient: Any person (In India / Outside India).

Supply: Facilitation of main supply

 

Why is Intermediary service an area of concern for taxpayers? Why do not companies want to be classified as intermediary? Why is it unjust to tax intermediary as per taxpayers?

The Company carrying on business for recipients in non-taxable territory want to buy the reliefs of exports for themselves. If they get classified as intermediary, the place of supply falls in taxable territory by the specific inclusion of intermediary services which many believe to be unjust as the supply is provided to a person outside India and consideration is received in foreign currency.

As per  , the place of the following services shall be the location of supplier of services, namely: –

a) services supplied by a banking company, or a financial institution, or a non-banking financial company, to account holders

b) Intermediary services (Emphasis Applied)

c) services consisting of hiring of means of transport, including yachts but excluding aircrafts and vessels, up to a period of one month.

The moot point being classified as taxable services instead of export of services(zero-rated) which brings the supply liable to GST. Tax treatment by government cannot be said to be unjust because the services become liable to tax. Article 286(2) grants power to Parliament to frame laws to regulate such supplies and accordingly, cannot be said to be unconstitutional. Also, as the service provider is in India there is direct nexus of the services in India.

The vexation being relevant to some extent as Revenue Department brings under the umbrella all transactions with slightest point under the ambit of intermediary services. There are numerous rulings/judgements where the companies are made to pay massive amounts of tax, interest, and penalties due to classification of service as intermediary services at a later stage. It is imperative for companies to capture the transaction as intermediary/non-intermediary at initial stage to avoid litigation.

The dissenting judgement by Bombay High Court in Dharmendra M. Jani Vs Union of India to unfavourable Order by Gujarat High Court in Material Recycling Association of India Vs Union of India and numerous other rulings, brought the need for clarification to stabilize taxation of intermediary service. Circular No.159/15/2021-GST dated September 20, 2021, lays down five checks for intermediary services: –

1. Minimum of three parties

2. Two distinct supply: –

3. Main Supply- between the two principles i.e., supplier and customer

4. Ancillary Supply- between agent and principle i.e., facilitating the main supply

5. Intermediary service provider to have the character of an agent, broker, or any other similar person- i.e., the agent/broker should facilitate the main supply

6. Does not include a person who supplies such goods or services or both or securities on his own account- i.e., a supplier supplying on principle-to-principle basis; and

7. Sub-contracting for a service is not an intermediary service- Where the main supply is sub-contracted and not facilitated between the customers.

Conclusion

Even after clarification by government, the companies need to check whether they will pass the test laid down by the Circular and draft their agreements with utmost clarity to avoid any litigation.

Understanding E-commerce Operators under GST

Understanding E-commerce Operators under GST

In the rapidly evolving world of online commerce, electronic marketplaces have become instrumental in facilitating seamless transactions between buyers and sellers. With the advent of E-commerce, governments worldwide have been adapting their tax systems to keep pace with the digital economy. In India, the GST was introduced on July 1, 2017, and it brought about significant changes for E-commerce operators. 

What is an E-commerce Operator?

An E-commerce operator refers to any person or entity that owns, operates, or manages a digital platform that facilitates the supply of goods or services between suppliers and customers. Popular E-commerce platforms like MDND, Amazon, Flipkart, and eBay are classic examples of E-commerce operators. These operators act as intermediaries, bringing sellers and buyers together and facilitating transactions.

GST Registration of E-commerce Operator

E-commerce operators are required to register under GST, regardless of their turnover. They must obtain a unique Goods and Services Tax Identification Number (GSTIN) for each state where they operate. E-commerce operators must electronically apply for registration, duly signed, or verified through Electronic Verification Code (EVC), using the form GST REG-07. This is to be done either directly on the GST portal or from a facilitation center notified by the Commissioner.

When is the E-Commerce Operator liable to pay GST?

 The liability of an E-commerce operator to pay GST arises under the following circumstances:

1.Tax Collection at Source (TCS):

Under Section 52 of the Central Goods and Services Tax (CGST) Act, 2017, E-commerce operators are required to collect Tax Collection at Source (TCS) 0.5% CGST, 0.5% SGST from the consideration received by sellers from customers. This TCS is collected by the operator on behalf of the government.

The collected TCS is reflected in the electronic cash ledger of the supplier, and they can utilize it for discharging their GST liability when they file their GST returns.

2. Commission charged by E-Commerce operator:

An E-Commerce transaction is undertaken between three parties, i.e., the supplier, the buyer, and the E-Commerce operator.

Supply of goods and services happen between supplier and buyer using an E-commerce platform. For this, the e-commerce operator charges commission on which GST is applicable SAC 9962.

3.GST Payable under section 9(5) of the CGST Act 2017:

Section 9 (5) of the CGST Act is a special case where liability of tax falls on the e-commerce operator and he is treated as if he is the supplier of those services. This includes passenger transport services, housekeeping services, restaurant services (includes cloud kitchens) and accommodation services.

The e-commerce operators will be required to pay tax under the reverse charge method, regardless of whether the supplier is registered under GST. The actual supplier of those services under this section is entitled to a threshold exemption.

As the e-commerce operator himself is liable for collection and deposit of GST, there is no question of TCS U/s 52.

Returns to be submitted by E-Commerce Operator

1.GSTR-8:

GSTR-8 is a return to be filed by the e-commerce operators who are required to deduct TCS (Tax collected at source) under GST. GSTR-8 contains the details of supplies effected through e-commerce platform and amount of TCS collected on such supplies.

GSTR-8 filing for a month is due on 10th of the following month. For instance, the due date for GSTR-8 for June is on the 10th of July.

2.GSTR-9B:

Every electronic commerce operator required to collect TCS under section 52 shall furnish Annual Statement in Form GSTR – 9B.

3. GSTR-1 and GSTR-3B:

ECOs shall also be required to furnish their regular returns for commission income, fees or other charges as the case may be. This return is to be filed in Form GSTR-1 and GSTR-3B.

4. GSTR-9 and GSTR-9C:

An ECO whose aggregate turnover during a financial year exceeds five crore rupees shall also be liable to furnish an Annual Return (GSTR-9) along with a self-certified Reconciliation Statement (GSTR-9C).

If it exceeds two crore rupees but up to five crore rupees then he shall be liable to furnish GSTR-9 only and if it is up to two crore rupees then both GSTR-9 and GSTR-9C are not mandatory.

Impact of GST on E-commerce Operators

1.Improved Compliance:

GST has ushered in a unified tax system that simplifies compliance for E-commerce operators. By providing a centralized registration and tax collection mechanism, it has reduced the complexity associated with dealing with multiple state taxes.

2. Level Playing Field:

With GST, the distinction between online and offline businesses has reduced, creating a more level playing field for all market players. This has encouraged healthy competition and fostered the growth of the e-commerce sector.

3. Increased Tax Revenue:

The implementation of GST has widened the tax base and increased tax revenues for the government. This additional revenue can be channelled into development projects and public welfare initiatives.

Notification No. 34/2023- Central Tax dt 31st July,2023: - CBIC notifies waiving of the mandatory GST Registration Requirement for persons supplying goods through Electronic Commerce Operator

Under this notification, persons making supplies of goods through ECOs, who have an aggregate turnover within the specified limit, are exempted from GST registration. To avail such exemption, certain conditions are required to be fulfilled. 

1. such persons shall not make any inter-State supply of goods. 

2. such persons shall not make supply of goods through electronic commerce operator in more than one State or Union territory. 

3. such persons shall be required to have a Permanent Account Number issued under the Income Tax Act, 1961 (43 of 1961). 

4. such persons shall, before making any supply of goods through electronic commerce operator, declare on the common portal their Permanent Account Number issued under the Income Tax Act, 1961 (43 of 1961), address of their place of business and the State or Union territory in which such persons seek to make such supply, which shall be subjected to validation on the common portal.

5. such persons have been granted an enrolment number on the common portal on successful validation of the Permanent Account Number declared as per clause (iv). 

6. such persons shall not be granted more than one enrolment number in a State or Union territory. 

7. no supply of goods shall be made by such persons through electronic commerce operator unless such persons have been granted an enrolment number on the common portal; and 

8. where such persons are subsequently granted registration under section 25 of the said Act, the enrolment number shall cease to be valid from the effective date of registration.

Notification No. 37/2023- Central Tax, Dt 04th August, 2023: – Special procedure to be followed by the electronic commerce operators in respect of supplies of goods through them by unregistered persons

As per this notification, Electronic Commerce Operators shall: 

1. allow the supply of goods through it by the said person only if enrolment number has been allotted on the common portal to the said person. 

2. not allow any inter-State supply of goods through it by the said person.

3. not collect tax at source under sub-section (1) of section 52 in respect of supply of goods made through it by the said person; and 

4. Furnish the details of supplies of goods made through it by the said person in the statement in FORM GSTR-8 electronically on the common portal. Where multiple electronic commerce operators are involved in a single supply of goods through electronic commerce operator platform, “the electronic commerce operator” shall mean the electronic commerce operator who finally releases the payment to the said person for the said supply made by the said person through him.

Notification No. 36/2023- Central Tax dt 04th August, 2023: - Special procedure to be followed by the electronic commerce operators in respect of supplies of goods through them by composition taxpayers As per this notification, Electronic Commerce Operators shall: 

1. not allow any inter-State supply of goods through it by the said person. 

2. collect tax at source under sub-section (1) of section 52 of the said Act in respect of supply of goods made through it by the said person and pay to the Government as per provisions of sub-section (3) of section 52 of the said Act; and 

3. furnish the details of supplies of goods made through it by the said person in the statement in FORM GSTR-8 electronically on the common portal.

GST Reconciliation

GST Reconciliation

GST reconciliation stands as a pivotal task for businesses across India, regardless of their scale. 

This critical process involves cross-checking GST data extracted from various sources like invoices, purchase orders, and bank statements to guarantee its precision and entirety. 

The intricacies of this task often make it time-consuming, particularly for enterprises dealing with high transaction volumes.

However, despite its complexities, GST reconciliation remains indispensable. Compliance with GST regulations hinges on this process, crucial for evading substantial penalties. 

Moreover, it enables businesses to maintain an accurate financial trail, identifying potential errors or discrepancies along the way.

A Proper Explanation of GST Reconciliation

GST reconciliation process serves to pinpoint errors or omissions, allowing for timely rectification.

The primary objective is to ensure consistency between your recorded invoices and purchases and the data conveyed to the GST authorities.

This synchronization guarantees the rightful claiming of tax credits, minimizing complications during return filings. By maintaining this harmony, you maximize the utilization of input tax credits, avoiding discrepancies and securing the full benefits entitled to you.

Why GST Reconciliation is Critical?

For various reasons, GST reconciliation is critical these are-

Tax Compliance: GST reconciliation is pivotal for businesses in upholding compliance with GST regulations. This holds immense significance as non-compliance can lead to substantial penalties.

 : Ensuring the accuracy and completeness of GST data through reconciliation serves dual purposes—supporting both financial reporting and tax requirements.

Tax Fraud Deterrence: Moreover, GST reconciliation acts as a deterrent against fraud. By scrutinizing invoices for duplications or unauthorized issuances, businesses can thwart potentially fraudulent activities.

ITC Optimization: Furthermore, this process facilitates businesses in rightfully claiming Input Tax Credit (ITC) for the GST paid on their purchases. Accurate ITC claims to aid in mitigating overall GST liabilities, contributing significantly to financial management.

Fixed Economic Management: By enabling precise financial tracking, GST reconciliation empowers businesses to enhance their financial decision-making and bolster their profitability.

Main Issues of GST Reconciliation

GST reconciliation often poses a significant challenge for both accountants and businesses alike. The intricacies of this process, especially for enterprises dealing with high transaction volumes, make it complex and time-intensive. Additionally, even minor errors can result in hefty penalties.

Let’s explore some prevalent issues encountered by accountants and businesses during GST reconciliation:

Manual Reconciliation Remains Prevalent: Many businesses rely on manual methods for GST returns, a laborious and error-prone process, especially when handling numerous invoices.

Data Fragmentation Persists: GST data scattered across diverse systems like accounting software, e-commerce platforms, and ERP systems hampers obtaining a comprehensive and accurate overview of all GST transactions.

Invoice Matching Challenges Persist: Matching supplier invoices with corresponding ITC claims in GST returns remains arduous, particularly with a high volume of invoices.

Complex Compliance Tracking: The intricacies and dynamic nature of GST compliance pose challenges in keeping abreast of the latest regulations and requirements.

Limited Visibility Hampers Insights: Manual reconciliation impedes real-time visibility into GST data, making it challenging to promptly identify and rectify errors.

Important reconciliations

• Purchase Register and GSTR-2A.

• Sales Register and GSTR-1

• GSTR-3B and GSTR-1

• GSTR-2B and GSTR-3B

• Input Tax Credit (ITC)

• E-way Bills and Invoices

• Annual Returns and Monthly/Quarterly Returns

• Supplier-wise GST Reconciliation

Show Cause Notices under GST

Show Cause Notices under GST

1. Acknowledgment of Notice

• Notice Dates: There may be a difference between the date of the GST notice and the date of its receipt. Always note the date and time when acknowledging the receipt of the SCN.

• Avoidance is Not an Option: Ignoring an SCN is not advisable. Receipt and then a response or contestation is the correct approach. Not acknowledging an SCN is considered equivalent to having received it.

2. Responding to Time-Barred Notices

• Challenging Time-Barred SCNs: If the service of notice is beyond the permissible period, it can be contested with appropriate evidence.

• Extended Time-Period Rule: For SCNs issued after Section 73 timelines, it is essential to demonstrate that there was no concealment or suppression of facts, preventing the department from extending the SCN issuance period to maximum 54 months. The intention to evade tax is mandatory and this has to be proved by the Department.

3. Proactive Measures

• GST Payment before Notice: If there's an anticipation of a SCN and you believe GST is due, it's advisable to pay the tax before the issuance of the SCN. This saves from Penalty.

• Hearing Rights: When an SCN seeks to increase liability or reduce refunds, the assessee must be given an opportunity to be heard, a right that cannot be denied. Section 75(4) makes it clear that before passing any adverse order, hearing is must. Few High Courts have even held that personal hearing is must even when it’s not requested before passing adverse opinion.

4. Legal and Factual Challenges

• Validity of SCN: The legality and validity of an SCN can be challenged based on facts, timing, monetary limit or jurisdiction.

• Written Format: SCNs are always issued in writing. Verbal notices are not recognized under GST law.

• Mention of Amounts: An SCN must specify the demanded amount and any proposed penalty. An SCN without these details is invalid. Orders cannot be passed for amounts greater than those specified in Notice.

5. Specificity and Scope

• Period Specificity: SCNs should be specific to a particular period. Even if a demand is raised and paid, an SCN for a subsequent period is necessary.

• Scope Limitation: The department cannot adjudicate issues not mentioned in the SCN. The Order has to be within "four corners" of the notice.

6. Timely and Detailed Responses

• Stipulated Timeframe: Responses to SCNs should be within the time mentioned in the notice.

• Extension Requests: It's advisable to request an extension or adjournment if needed.

• Comprehensive Reply: Responses should address all points in the SCN and be supported by documentary evidence and relevant case laws. For Notice issued in DRC-01 the Form for Reply is DRC-06. For Notice in Part-A of DRC-01A, the reply has to be submitted in Part-B of DRC-01A.

7. Personal Hearing and Further Options

• Personal Hearing: Even after submitting a detailed response, seek a personal hearing to amend or modify your response during adjudication.

• Alternative Relief Measures: In cases of penalties, demands, or revocation of refunds, explore options for relief based on reasonable cause for non-compliance.

8. Right to Appeal and Professional Assistance

• Appealability: Orders issued against an SCN can be appealed.

• Professional Help: If personal representation is challenging, hiring a professional for drafting responses and representation is advisable.

9. Importance of Defence

• Foundation for the Future: Proper defence and argumentation in response to SCNs are crucial as they lay the groundwork for any future actions or appeals. As Show Cause notice is considered to be foundation of the case, the first reply is the foundation of the Litigation and defence.

Rectification of errors apparent on the face of record

Rectification of errors apparent on the face of record

Section 161

Section 161 of the CGST Act, 2017 states the rectification of mistakes or errors that are recognized from the records. 

It mentions that the authority responsible for issuing decisions, orders, summons, notices, or certificates may rectify any mistake that is found in the records in such documents.

These rectifications are done by the below-mentioned relevant authority:

• Suo moto by such authority.

• Upon notice by the affected person

• Upon notices of such authority by GST officials (both at the Central and State levels).

The term “mistake evident from records” remains undefined under the GST Act, indicating an unmistakable error. In this context, Section 154 of the Income Tax Act of 1961, furnishes detailed provisions regarding the concept. The term “mistake,” from a legal perspective, includes the following scenarios:

• Misreading a clear provision is an error.

• Applying an inapplicable provision.

• Ignoring a mandatory provision.

• Application of an incorrect provision of the Act.

• Disregard of decisions by the jurisdictional High Court.

The word ‘record’ can be meant as a comprising of the whole situation, including entire proceedings such as documents and materials provided by the concerned parties and officially taken on record by the authorities. When the order was issued which is the subject matter of the rectification process, these records were available.

Both taxable individuals and officers designated in accordance with the GST law have the authority to ask for the commencement of rectification proceedings. A taxable individual must apply for rectification within three months from the date when the respective order, decision, notice, or certificate was issued.

A rectification order is required to be passed within the period of six months from the date of issuance of the respective order, decision, notice, certificate, or any other documents, in accordance with the Section itself. However, in the case where the rectification effect pertains only to rectifying clerical or arithmetic mistakes caused by unintentional slips or omissions, this six-month time limit is not applicable. In such cases, the authority may act by issuing a notice and rectifying the error on their own initiative or based on a report from any officer appointed under the act, within a span of two years from the issuance of the original document.

Useful GST Rule 142(7)

In cases, where rectification of the directive has been issued under Section 161 or in cases, where an order uploaded on the portal has been taken back, then the proper officer must upload the abstract of the rectification order or the withdrawal order electronically in Form GST DRC-08.

As per the regulations, the Proper Officer must upload an abstract of the rectification order issued under Section 151 electronically in Form GST DRC-08. This same form can also be utilized for the withdrawal of the directive. This form includes information on the original order and rectification order and a summary of the original claim and demand post-rectification.

Taxability of corporate guarantee by group companies

Taxability Of Personal and Corporate Guarantee Under GST

A corporate guarantee is a contract between a corporate entity or individual and a debtor. In this contract, the guarantor agrees to take responsibility for the debtor's obligations, such as repaying a debt.

Recent clarification issued by Central Board of Indirect Tax & Customs (CBIC) with respect to taxability of personal and corporate guarantee provided to a Company under Goods and Services Tax (GST) law. In a recent circular, following clarifications have been provided: 204/16/2023-GST on 27th October, 2023.

Taxability of personal guarantee by directors:

Directors / promoters / employees and the Company are 'related persons' as per the explanation to Section 15 of the Central Goods and Services Tax Act, 2017 (CGST Act).

The circular clarifies that personal guarantees offered by promoters, directors, managerial staff, etc. of borrowing company would be treated as taxable supplies, even if made without consideration, and is in the course or furtherance of business.

In case personal guarantee is provided without any consideration, the value of taxable supply would be determined under  . Circular No. RBI/2021-22/121 dated 9 November 2021 issued by The Reserve Bank of India, prohibits earning of income from such guarantees. 

Therefore, the circular clarifies that the taxable value for such provision of personal guarantee provided by under Rule 28 of the CGST Rules would also be zero. Hence, no GST would be payable on such supplies.

In cases where specific consideration / remuneration is provided for such guarantee, GST would apply on such consideration.

Taxability of corporate guarantee by group companies

Any transaction between related / group / holding and subsidiary companies is treated as provision of taxable supply in accordance with Section 7 read with Schedule I of CGST Act, even if it is made without any consideration and is made in the course or furtherance of business.

It is clarified that where the corporate guarantee is provided by a related / group / holding company for a borrowing company to the bank / financial institutions for securing credit facilities for its group / subsidiary company, it is regarded as taxable supply under GST even when made without any consideration.

As per Notification No. 52/2023-CT dated 26 October 2023, the value of services provided by a supplier to a related person, involving the provision of a corporate guarantee to a banking company or financial institution on his behalf, is deemed to be 1% (one percent) of the guaranteed amount offered, or the actual consideration, whichever is higher.

Comment

The deemed value of a corporate guarantee offered to any banking company or financial institution on behalf of a 'related person' is established at a rate of 1%. However, no specific valuation criteria have been outlined for cases where such a corporate guarantee is extended to government entities or individuals.

Valuation of corporate guarantees for transfer pricing purposes under Income Tax laws has been a contentious issue. The Bombay High Court, in the cases of Everest Kento Cylinders Ltd and Manugraph India Ltd has ruled that a Corporate Guarantee fee of 0.50% can be considered to be at arm's length. Conversely, the Madras High Court in the case of Redington (India) Ltd, has determined that a Corporate Guarantee fee of 0.85% to be at arm's length. However, Rule 10TD of the Indian Income-tax Rules, 1962, sets the safe harbour rate for this fee at 1% of the guaranteed amount.

The circular does not make any reference to Rule 10TD of the Income-tax Rules, 1962. As a result, the valuation of Corporate Guarantees extended to government entities or private individuals may be subject to the discretion of the involved parties. Furthermore, the taxability of such Corporate Guarantees prior to 26 October 2023, remains uncertain in the absence of a defined valuation mechanism. Notably, there have been recent instances where various field formations have issued notices demanding GST on corporate and personal guarantees.

In addition, the circular also does not throw any light on the manner of valuation from GST perspective in case of continuing guarantee or where the guaranteed amount is not fixed.

Time of Supply of Goods

TIME OF SUPPLY OF GOODS

The time of supply for goods can be classified into three broad categories.

o Time of Supply for Goods – Forward Charge

o Time of Supply for Goods – Reverse Charge

o Time of Supply for Goods – Miscellaneous Provisions

(i) Default Rule:

The time of supply of goods section 12 of the CGST act 2017, shall be the earlier of the following dates:

(a) The date of issuing of invoice (or) the last day by which invoice should have been issued, OR

(b) The date of receipt of payment.

Note-1: The date of receipt of payment shall be earlier of- (a) The date on which payment is entered in the books of accounts; OR (b) The date on which the payment is credited to bank account.

Note-2: Last date by which invoice should have been issued is the “date of removal of goods”.

(ii) Time of supply of goods when the supplier is under composition scheme:

• In such cases, time of supply of goods is the date of invoice. Time of supply of goods will be the same in case the turnover is up to 1.5 Crore even though the supplier did not opt for composition scheme.

• In other cases, where supply involves movement of goods, time of supply is the date of invoice issued at the time of removal of goods.

• In all other cases, time of supply is the date of delivery of goods.

(iii) Time of supply of goods in respect of the excess amount (up-to Rs.1000) received over the amount mentioned in invoice:

Time of supply in respect of such excess amount received will be the “date of issue of invoice” or the “date of receipt of payment”, as preferred by the supplier.

(iv) Time of supply in case of continuous supply of goods:

In case of continuous supply of goods, time of supply is the “time when each statement is issued”, or the “time when each payment is received”, whichever is earlier.

(v) Time of supply of goods sent on approval basis:

Under the current GST regime, goods sent on approval basis is treated as deemed supply and accordingly it is taxable if the recipient fails to return the goods within a stipulated time period say six months. So, to fix the tax liability, it has become important to know the time of supply of goods in such cases.

Time of supply of goods sent on approval basis is the “time when it becomes known that supply is taken place”, or the “Six month from the date of removal of goods”, whichever is earlier.

(vi) Time of supply of goods under RCM:

Time of supply of goods taxable under reverse charge basis is the earlier of the following three dates:

(a) Date of receipt of goods, OR

(b) Date of receipt of payment, OR

(c) Date Immediately following 30 days from the date of issue of invoice.

Note: If time of supply cannot be determined with the help of above provisions, then the time of supply shall be the date on which entry in the books of the recipient of goods is made.

(vii). Time of Supply in case of Vouchers

Situation Time of Supply

If the supply is identifiable at the point at which voucher is

identified Date of issuance of the voucher

In all other cases i.e the supply is not identifiable at the point

at which voucher is identified Date of redemption of voucher

(viii). Residuary Provision

In case it is not possible to determine the time of supply under aforesaid provisions, the time of supply is:

Due date of filing of return, in case where periodical return has to be filed Date of payment of tax in all other cases.

(ix). Time of supply in relation to an addition in the value of supply by way of interest, late fees, or penalty

Time of supply related to an addition in the value of supply by way of interest, late fee, or penalty for delayed payment of any consideration shall be the date on which supplier receives such addition in value.

For example, a supplier receives consideration in the month of September instead of due date of July and for such delay he is eligible to receive an interest amount of Rs. 1000/- and the said amount is received on 15.12.22. The time of supply of such amount (Rs. 1000/-) will be 15.12.22 i.e. the date on which it is received by the supplier and tax liability on this is to be discharged by 20.01.23.