What is meant by “continuous supply” of goods/services?

Continuous Supply of Goods and Services under GST

The term “continuous supply” refers to a situation where the supply of goods or services is provided on a recurring basis over a period of time, rather than in a one-time or single transaction. Under GST, continuous supply is specifically addressed in the CGST Act, 2017 and IGST Act, 2017.

Continuous Supply of Goods:

Section 2(32) of the CGST Act, 2017 defines continuous supply of goods as:

• A supply of goods which is provided, or agreed to be provided, continuously or on a recurring basis under a contract that provides for the supply of goods either at regular intervals or based on a fixed schedule, without the need for a new contract for each supply.

Examples of Continuous Supply of Goods:

• Supply of water, gas, or electricity: These are often supplied continuously to a consumer over a specified period.
• Regular delivery of goods under contract: A supply agreement for the continuous delivery of raw materials or goods to a manufacturer or business over time (e.g., regular delivery of office supplies or production material).

Treatment Under GST:

• In case of continuous supply of goods, the time of supply is governed by when the goods are delivered or when the payment is made, depending on the terms of the contract.
• For continuous supply of goods, GST becomes due when:
  • The goods are delivered.
  • The time of payment for the goods is due.

Continuous Supply of Services:

Under Section 2(33) of the CGST Act, 2017, continuous supply of services is defined as:

• A supply of services which is provided, or agreed to be provided, continuously under a contract, where the supplier and recipient have agreed that the service will be provided on a recurring basis or according to a fixed schedule.

Examples of Continuous Supply of Services:

• Telecommunication services: Monthly mobile or internet service plans are examples where services are continuously provided over time.
• Insurance premiums: Payments made periodically under an insurance contract.
• Renting or leasing services: Lease or rental services provided on a regular basis, such as renting of an office space, or machinery lease.
• Subscription-based services: Periodic payments for media subscriptions (e.g., digital media, cable services).

Treatment Under GST:

For continuous supply of services, the time of supply and GST applicability are tied to the specific terms of the contract, but in general:

• Payment basis: GST is due on each payment, either when the payment is received or when an invoice is raised.
• Periodic payment basis: GST is applicable when the periodic payment is due, irrespective of whether the service is fully consumed or not.

Provisions and Acts in the Indian Constitution Relevant to Continuous Supply

The Constitution (One Hundred and First Amendment) Act, 2016 introduced GST and gave rise to the legal framework for taxing the supply of goods and services in India. It also empowered both the Union Government and the State Governments to legislate on matters related to the supply of goods and services.

1. Article 246A:
   • This article enables both the Union and State Governments to levy taxes on the supply of goods and services.
2. Article 279A:
   • This article establishes the GST Council, which is responsible for making recommendations on various aspects of GST, including continuous supply provisions.
3. Article 269A:
   • Provides the power to levy and collect IGST on inter-state supplies of goods and services.

Key Provisions Under GST Law Related to Continuous Supply

1. Section 2(32) and Section 2(33) of the CGST Act:
   • Defines the continuous supply of goods and continuous supply of services, respectively.
2. Section 31 of the CGST Act:
   • Deals with issuance of invoice. For continuous supply of goods/services, the invoice can be issued on a recurring basis (e.g., monthly, quarterly) or based on milestones (e.g., upon delivery of goods/services).
3. Section 12 and Section 13 of the IGST Act:
   • These sections provide rules for determining the time of supply in the case of continuous supply of services. In continuous supply cases, the time of supply can be based on the date of payment or completion of service as agreed upon between the supplier and the recipient.
4. Rule 52 of the CGST Rules, 2017:
   • Deals with the issuance of invoices for continuous supply of goods/services and outlines how tax should be accounted for on a periodic basis.

Landmark Cases and Judgments on Continuous Supply of Goods and Services

1. M/s. BSNL v. Union of India (2019):
   • This case dealt with the issue of whether the provision of telecommunication services was a continuous supply of services. The Supreme Court upheld that telecommunication services, which are provided regularly, are continuous services and must comply with the periodic payment provisions of GST.
2. M/s. ABC India Ltd. v. State of Haryana (2017):
   • This case involved continuous supply contracts for transportation services. The Court clarified that the place of supply for continuous services is based on the location of the recipient and not the location of the service provider, particularly when the service is provided continuously or regularly.
3. M/s. HDFC Bank Ltd. v. Union of India (2020):
   • This judgment concerned banking services provided on a continuous basis. It emphasized that services like bank charges, ATM services, and financial services, which are provided on a recurring basis, qualify as continuous supply of services and are subject to GST as per the service contract terms.
4. Advance Ruling on Subscription-based Services (2021):
   • An advance ruling from the Authority for Advance Ruling (AAR) clarified that subscription services for online content, such as media and software subscriptions, fall under the continuous supply of services. The place of supply is determined based on the location of the recipient, and GST is applicable when the subscription payment is due.

Key Takeaways:

1. Continuous Supply of Goods: This refers to goods that are provided under an agreement with recurring delivery or supply over time (e.g., water, electricity, or supply contracts for raw materials).
2. Continuous Supply of Services: This refers to services provided on a recurring basis under a contract (e.g., telecom, insurance, or subscription-based services).
3. GST Application: For both goods and services, GST is levied based on the time of supply and the agreed payment terms. For continuous supplies, GST is applied on a periodic basis, depending on the contract terms and invoice cycles.
4. Invoicing and Payment: Continuous supply often involves issuing invoices at regular intervals or upon milestones, and tax is due either on payment or delivery.

This system helps businesses with regular supplies to manage their tax liabilities and ensures that GST is applied in an efficient and structured manner for ongoing transactions.