Section 14 Of The Central Goods And Services Tax Act 2017
Original Text
14. Change in rate of tax in respect of supply of goods or services.
Notwithstanding anything contained in section 12 or section 13, the time of supply, where there is a change in the rate of tax in respect of goods or services or both, shall be determined in the following manner, namely:––
(a) in case the goods or services or both have been supplied before the change in rate of tax,––
- (i) where the invoice for the same has been issued and the payment is also received after the change in rate of tax, the time of supply shall be the date of receipt of payment or the date of issue of invoice, whichever is earlier; or
- (ii) where the invoice has been issued prior to the change in rate of tax but payment is received after the change in rate of tax, the time of supply shall be the date of issue of invoice; or
- (iii) where the payment has been received before the change in rate of tax, but the invoice for the same is issued after the change in rate of tax, the time of supply shall be the date of receipt of payment;
(b) in case the goods or services or both have been supplied after the change in rate of tax,––
- (i) where the payment is received after the change in rate of tax but the invoice has been issued prior to the change in rate of tax, the time of supply shall be the date of receipt of payment; or
- (ii) where the invoice has been issued and payment is received before the change in rate of tax, the time of supply shall be the date of receipt of payment or date of issue of invoice, whichever is earlier; or
- (iii) where the invoice has been issued after the change in rate of tax but the payment is received before the change in rate of tax, the time of supply shall be the date of issue of invoice:
Provided that the date of receipt of payment shall be the date of credit in the bank account if such credit in the bank account is after four working days from the date of change in the rate of tax.
Explanation.––For the purposes of this section, “the date of receipt of payment” shall be the date on which the payment is entered in the books of account of the supplier or the date on which the payment is credited to his bank account, whichever is earlier.
Visual Summary
The ‘2 out of 3’ Rule
The applicable tax rate is determined by the majority. Compare the dates of: 1. Supply, 2. Invoice, and 3. Payment. Whichever side (Old Rate or New Rate) has 2 out of 3 events, that rate applies.
Supply Before Change
If goods/services were provided before the rate change, the Old Rate usually applies unless both Invoice and Payment happen after the change.
The 4-Day Rule
Normally, payment date is the earlier of book entry or bank credit. However, if bank credit is received more than 4 working days after the rate change, the book entry is ignored, and the bank credit date is used.
Summary
Section 14 acts as a tie-breaker rule. When the government changes the GST rate (e.g., from 18% to 12%), businesses often have transactions that are midway through completion—perhaps the service was done, but the invoice wasn’t issued, or the payment was received in advance. Section 14 overrides the general rules of Time of Supply (Section 12 and 13) to specifically handle these transition periods.
The core logic is simple: Look at three events—Supply, Invoice, and Payment. If the rate changes on a specific date (the “Cut-off Date”), you check when these three events occurred relative to that date. The rate applicable is the one that was in force when at least two of these three events occurred.
In-Depth Analysis
Section 14 is a non-obstante clause, meaning it starts with “Notwithstanding anything contained in section 12 or section 13”. This gives it superior legal standing over the general time of supply rules whenever a rate change is involved.
Scenario A: Supply Completed BEFORE the Rate Change
If the actual goods were delivered or services rendered before the rate change, the expectation is that the Old Rate should apply. However, Section 14(a) imposes strict conditions:
- If Invoice AND Payment are both after the change: The New Rate applies (Supply alone is not enough to hold the Old Rate).
- If Invoice is before (but Payment after): The Old Rate applies.
- If Payment is before (but Invoice after): The Old Rate applies.
Scenario B: Supply Completed AFTER the Rate Change
If the goods/services are provided after the new rate kicks in, the New Rate is the default, unless the supplier completed all paperwork and collections earlier:
- If Invoice AND Payment are both before the change: The Old Rate applies.
- If Invoice is after (even if Payment was before): The New Rate applies.
- If Payment is after (even if Invoice was before): The New Rate applies.
The Anti-Backdating Proviso (4-Day Rule)
To prevent businesses from manipulating their books (e.g., recording a cheque receipt on the 31st to catch an Old Rate, but depositing it days later), the Proviso adds a check. If the amount is credited to the bank account more than 4 working days after the rate change, the date of payment is deemed to be the date of bank credit, not the book entry date. This often shifts the “Payment Date” to the post-change period, potentially triggering the New Rate.
Deep Research & Legal Precedents
While the text of Section 14 has remained stable, its practical application has been heavily influenced by notifications and anti-profiteering rulings.
1. The Impact of Notification No. 66/2017-Central Tax
This notification fundamentally altered the application of Section 14 for traders and manufacturers of goods. It exempted advances received for goods from GST at the time of receipt. Consequently, for goods, the “Date of Payment” became largely irrelevant for determining the Time of Supply under Section 12. Legal consensus suggests that for goods, the comparison under Section 14 effectively narrows to the Date of Invoice vs. Date of Rate Change, simplifying the process for goods but leaving the complexity intact for services.
2. Anti-Profiteering Nexus (Section 171)
Section 14 often triggers Section 171 (Anti-Profiteering). When Section 14 mandates a lower tax rate (e.g., a drop from 28% to 18%), businesses must pass this benefit to consumers.
The National Anti-Profiteering Authority (NAA) and Courts have held that benefits resulting from a change in the rate of tax must be passed on immediately. Arguments regarding grammage changes or delayed MRP updates were scrutinized heavily when Section 14 triggered a lower rate liability.
3. Real Estate Transition (2019)
When GST on residential real estate was cut in April 2019, Section 14 alone was insufficient to handle the complexity of ongoing construction projects. The government had to introduce specific “removal of difficulty” orders and Notification No. 3/2019-Central Tax Rate, allowing builders to choose between old and new schemes for ongoing projects, effectively bypassing a strict Section 14 application for that specific transition.
Practical Examples
Example 1: The “Too Late” Invoice (Rate Increase)
A Chartered Accountant provides services in March (Rate 12%). The rate increases to 18% on April 1st. The CA issues the invoice on April 10th and receives payment on April 15th.
Analysis: Supply (Before) vs Invoice (After) and Payment (After).
Result: Since 2 out of 3 events (Invoice and Payment) occurred after the change, the New Rate (18%) applies.
Example 2: The Advance Payment (Rate Decrease)
A gym receives an annual membership fee on March 25th (Rate 18%). The rate drops to 12% on April 1st. The membership service begins on April 1st.
Analysis: Payment (Before) and Invoice (Assume issued on payment, Before) vs Supply (After).
Result: Since 2 out of 3 events (Invoice and Payment) occurred before the change, the Old Rate (18%) applies, even though the service happens later.
Example 3: The 4-Day Rule Trap
Rate changes on April 1st. A supplier records a cheque payment in their books on March 31st (attempting to lock Old Rate). However, the cheque is deposited late and clears the bank on April 10th (more than 4 working days later).
Result: The Payment Date is deemed to be April 10th. If the invoice was also after April 1st, the New Rate applies.
Key Takeaways
- ✓ The Majority Rule: The rate is determined by the timing of at least 2 out of the 3 key events (Supply, Invoice, Payment).
- ✓ Banking Delay Risk: If bank credit takes more than 4 working days after the rate change, the book entry date is invalid.
- ✓ Service Sector Focus: This section is most critical for service providers, as goods are largely exempt from tax on advances (Notification 66/2017).
- ✓ Overrides General Rules: Section 14 takes precedence over Section 12 and 13 during rate changes.
Process Flowchart
Practice Questions
Q1. Goods were supplied on 25th March. The GST rate changed on 1st April. The Invoice was issued on 2nd April and Payment received on 5th April. Which rate applies?
A) Old Rate
B) New Rate
C) Average of both
D) Exempt
Show Answer
Correct Answer: B) New Rate.
Reason: Supply was before, but both Invoice and Payment were after the change. Majority (2 out of 3) falls in the post-change period.
Q2. For the purpose of Section 14, the date of receipt of payment is the date of credit in the bank account if such credit is after how many working days from the date of change in rate?
A) 2 working days
B) 3 working days
C) 4 working days
D) 7 working days
Show Answer
Correct Answer: C) 4 working days.
Reason: The proviso to Section 14 specifically mentions “four working days”.
Related Provisions
| Section | Description |
|---|---|
| Section 12 | Time of Supply of Goods (General Rule) |
| Section 13 | Time of Supply of Services (General Rule) |
| Section 31 | Tax Invoice |
Conclusion
Section 14 of the CGST Act, 2017 is a crucial compliance checkpoint during any GST rate revision. While it appears complex, the “2 out of 3” rule provides a logical framework for determining liability. Businesses, especially in the service sector, must be vigilant about the timing of invoicing and banking transactions around the date of a rate change to avoid disputes and interest liabilities.