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GST has been implemented from 1st July 2017, but still, there are many topics which need further clarification. Many taxpayers are confused as to how to proceed with their day to day transactions with their suppliers and customers after GST Registration. They have queries regarding GST invoices etc.
One of the many common phenomena in any business is a change in the contract price. This change can be a result of any escalation clause inserted in any contact. Few of the common reasons for this change in contract price under GST can be changed in the prices of input materials or input services or any change in the market situation.
Now the big question is what will be the result of such a change in contract price after the implementation of GST. The provisions for this situation are provided in Sub-section 2 of Section 142 of Central Goods and Service Tax Act, 2017. This section deals with miscellaneous provisions regarding the transition from old laws to GST. In order to understand the implications of it we have to be clear about the fact that such change can either result in an increase in the contract price or decrease in the contract price. Treatments of such increase or decrease in contract price are provided in Clause (a) and (b) of the said Sub-section 2 of Section 142 respectively. Let us discuss them in detail in this article.
Table of Contents
If the change in contract price is in the upward direction on or after the date of implementation of GST on 1st July 2017, the following provisions apply;
Mr. A entered into a contract with Mr. B to sell him goods worth Rs.50,000/- on 20th June 2017. Later on 15th July, he revised the contract price to Rs.60,000.
In the given situation contract price was revised after the implementation of GST on 1st July 2017. Hence, Mr. A will be required to issue a supplementary invoice or debit note for such increased amount of Rs.10,000 (60,000-50,000).
This supplementary invoice or debit note is to be issued by 15th August 2017.
In the given case the tax implication will depend on two factors:
In this case where payment is already received before GST implementation by Mr. A and he had deposited the tax applicable on the same too, then GST will only apply to the additional cost of contract i.e. Rs.10,000.
In this case where payment not received before GST implementation by Mr. A and he had not deposited the tax applicable on the same, then GST will apply on the additional entire revised cost of contract i.e. Rs.60,000.
If the change in contract price is in the downward direction on or after the date of implementation of GST on 1st July 2017, the following provisions apply;
We will reverse the previous example. Mr. A entered into a contract with Mr. B to sell him goods worth Rs.50, 000/- on 20th June 2017. Later, on 15th July, he revised the contract price to Rs.40, 000.
In the given situation contract price was revised after the implementation of GST on 1st July 2017. Hence, Mr. A will be required to issue a credit note for such a decreased amount of Rs.10, 000 (40,000-50,000).
This credit note is to be issued by 15th August 2017.
In the given case if the tax implication will depend on two factors:
In this case where payment is already received before GST implementation by Mr. A and he had deposited the tax applicable on the same too, then he has an option to revise his tax return and can claim a refund of tax paid on such reduced contract price. Here Mr. B will also be required to revert back the ITC claimed on such tax paid if carried forward under GST.
In this case, where payment not received before GST implementation by Mr. A and he had not deposited the tax applicable on the same, Mr. A can only reduce his tax liability if Mr. B lets go of his ITC by the same amount.
In an ongoing business, while dealing with contracts, change in contract price is highly common. After the implementation of GST many are worried about how it will impact the price revision. One is advised to go through the government GST website for more info. and more clarity on GST related laws.
Read our article:
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Ashish M. Shaji has done his graduation in law (BA. LLB) from CCS University. He has keen interests in doing extensive research and writing on legal subjects especially on corporate law. He is a creative thinker and has a great interest in exploring legal subjects.
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