AAR Kerala: GST on advances for goods barred by Notif. 66/2017; invoice at supply

Navigating GST compliance for advances received against supply of goods can feel like walking a tightrope—especially for manufacturers and project-based businesses where payments and deliveries are staggered over months or even years. The recent Advance Ruling in In re Navalt Solar & Electric Boats Private Limited (AAR Kerala) has brought much-needed clarity to this area, decisively settling the debate on whether GST must (or even can) be paid on advances for goods, and how businesses should document such transactions.

Let’s break down the legal position, the practical implications, and the compliance roadmap—so you can avoid costly missteps and keep your GST house in order.

The Business Dilemma: Advances, Invoicing, and GST

Manufacturers like Navalt Solar & Electric Boats often receive payments in tranches—an initial advance, further instalments during production, and a final payment at delivery. The natural question arises: Should GST be paid on each advance? Can a tax invoice be issued at every stage, or only at the end? And what about the E-way bill, which must match the value of goods in transit?

The confusion is understandable. While accounting standards may require recognition of “unbilled revenue” as work progresses, GST law has its own rules for when tax liability arises and what documents must be issued at each stage.

Statutory Documents for Advances: Receipt Vouchers vs. Tax Invoices

What the Law Says

Under Section 31(3)(d) of the CGST Act, whenever a registered person receives an advance for supply of goods, they must issue a receipt voucher (or similar document) as prescribed. The specifics are laid out in Rule 50 of the CGST Rules, which details the particulars to be included in a receipt voucher—such as the amount, date, payer details, and nature of supply.

A tax invoice, on the other hand, is governed by Section 31(1) and Rule 46. For goods, it must be issued at or before the time of removal or delivery—not at the time of advance receipt.

Key Differences: Receipt Voucher vs. Tax Invoice

• Purpose:
• Receipt Voucher: Acknowledges receipt of advance; does not trigger GST liability for goods.
• Tax Invoice: Establishes the taxable event; triggers GST liability and is required for movement of goods and input tax credit.
• Timing:
• Receipt Voucher: Issued immediately upon receiving advance.
• Tax Invoice: Issued at or just before delivery/removal of goods.
• GST Impact:
• Receipt Voucher: No GST is payable on advances for goods (post-Notification 66/2017).
• Tax Invoice: GST is payable at the time of supply, as per the invoice.

Compliance Checklist for Advances (Goods):

• Issue a receipt voucher for every advance received.
• Do not issue a tax invoice until the goods are ready for delivery/removal.
• Ensure receipt vouchers contain all particulars as per Rule 50.
• For cancelled orders, issue a refund voucher to reverse the advance.

For expert support on GST compliance including issuance of statutory documents like receipt vouchers and tax invoices, consider consulting our GST Registration Services in India experts.

The Time of Supply Puzzle: Notification No. 66/2017-Central Tax

The Usual Rule vs. The Special Procedure

Ordinarily, Section 12(2) of the CGST Act says the “time of supply” for goods is the earlier of:

• The date of issue of invoice, or
• The last date on which the invoice is required to be issued, or
• The date of receipt of payment (advance).

This meant that, pre-2017, GST was payable on advances for goods.

Enter Notification No. 66/2017-Central Tax (issued under Section 148):
This notification mandates that for suppliers of goods (other than those under composition), GST is to be paid only at the time of supply as per Section 12(2)(a)—i.e., the date of invoice/delivery, not on receipt of advance.

Why Is This Mandatory, Not Optional?

The notification uses the word “shall”—a clear signal that it is not a mere exemption or optional benefit. It is a special procedure for a class of taxpayers, issued under Section 148, and it overrides the general rule in Section 12(2)(b) (which would otherwise trigger GST on advances).

This means:

• You cannot opt to pay GST on advances for goods, even if you want to.
• You must follow the procedure: receipt voucher on advance, single tax invoice at supply.

Legal Precedent:
The AAR Kerala, echoing Supreme Court principles, held that when the law prescribes a procedure for a class of persons, it must be followed strictly—no room for voluntary deviation.

For a detailed case analysis, see our blog on AAAR Lacks Power to Condone Delay Beyond 60 Days under Section 100(2) CGST.

Risks of Issuing Tax Invoices on Advances (for Goods)

Some businesses, perhaps to align with accounting or customer requests, may be tempted to issue tax invoices on receipt of advances. This is not permitted under the current GST framework for goods.

What can go wrong?

• Statutory violation: Issuing a tax invoice before actual supply is contrary to Section 31(1) and the notification.
• Audit risk: Multiple invoices for a single supply can trigger scrutiny, mismatches in E-way bill and invoice values, and possible denial of input tax credit to buyers.
• Credit note confusion: You cannot “regularise” such invoices later by issuing credit notes—Section 34 allows credit notes only for valid tax invoices against completed supplies.

Bottom line:
Stick to the prescribed sequence—receipt voucher for advances, single tax invoice at supply.

To mitigate audit risks related to GST invoicing and documentation, our GST Audit Services team can guide your business.

Accounting for Advances: Unbilled Revenue vs. GST Liability

Accounting standards may require you to recognise “unbilled revenue” as work progresses, especially for long-term manufacturing contracts. However, GST liability is not triggered by accounting entries—it arises only when the tax invoice is issued at the time of supply.

Practical tip:
Maintain clear reconciliation between advances received (and recognised as unbilled revenue) and GST documentation. The receipt voucher tracks the advance; the tax invoice triggers GST. This alignment is crucial for both compliance and audit readiness.

If you want to streamline your accounting processes to ensure GST compliance, explore our Accounts Outsourcing Services.

If you are located in the NCR region and want expert chartered accountants to help with GST or finance compliance, reach out to our Chartered Accountants Gurgaon office.

Questions or need tailored GST advisory? Reach out to our team for practical solutions and compliance support.

Managing advances, invoicing, and compliance for long-term supply contracts can be a minefield—especially when projects stretch across financial years, customers demand early invoices, and the GST portal expects everything to line up perfectly. Building on the legal clarity from In re Navalt Solar & Electric Boats (AAR Kerala), let’s tackle the practical challenges and solutions for manufacturers, exporters, and project-based businesses.

Managing Advances and Final Invoicing Across Financial Years

For businesses with contracts spanning several months or years, advances may be received in one financial year and the goods delivered in the next. This raises two key questions: How should you document these advances, and how do you ensure both accounting and GST compliance?

Best Practice Sequence:

• For every advance received: Issue a receipt voucher (as per Section 31(3)(d) and Rule 50).
• At the time of delivery/removal: Issue a single tax invoice for the full value of goods.
• In your accounts: Recognise advances as “unbilled revenue” or “advance from customers” until supply is completed.

Year-End Reporting Tips:

• Ensure that advances received but not yet supplied are shown as liabilities in your balance sheet.
• Only revenue corresponding to goods actually supplied (i.e., invoiced and delivered) should be recognised as turnover for GST and income tax purposes.
• For GST returns, do not report advances for goods as outward supply; only report the supply when the tax invoice is issued.

Handling Cross-Year Advances:

• No GST is payable on advances for goods, even if the advance and supply fall in different financial years.
• Maintain a robust reconciliation of advances received, receipt vouchers issued, and final invoices to avoid audit flags.

For specialized assistance on taxation and GST year-end compliance, our Corporate Tax Services can support your business.

E-way Bill Generation and Reporting: One Invoice, Multiple Advances

A common pain point is E-way bill generation when multiple advances have been received, but only one tax invoice is permitted at delivery.

What the law requires:

• The E-way bill must reflect the value as per the final tax invoice issued at the time of supply.
• Do not generate E-way bills against receipt vouchers or any “advance” invoice—these are not valid for goods movement.

Risk Flags:

• If you issue multiple tax invoices for advances, the E-way bill value will not match the actual consignment value, leading to mismatches and possible detention of goods.
• Mismatched documentation can trigger GST audits and denial of input tax credit to buyers.

Mitigation:

• Always generate the E-way bill based on the single, final tax invoice.
• Ensure your accounts and GST returns reflect the same value as the E-way bill and invoice.

Learn more about efficient movement of goods with our detailed blog on E-Way Bill 2.0: Key Changes in GST E-Way Bill System.

Credit Notes: Why They Cannot Adjust Improper Advance Invoices

Some businesses try to “fix” the issue of multiple advance invoices by issuing credit notes at the time of final supply. This is not permitted under GST law.

Section 34 of the CGST Act allows credit notes only against valid tax invoices for completed supplies—not for reversing invoices that should never have been issued (i.e., advance invoices for goods).

Risks of Misuse:

• Credit notes issued to offset improper advance invoices have no legal standing.
• Such adjustments can be disallowed in audit, leading to tax demands, penalties, and reversal of input tax credit.

Golden Rule:
If a tax invoice was wrongly issued against an advance for goods, the only correct course is to cancel it and issue the proper documents (receipt voucher for advance, tax invoice at supply).

Customer Requests for Tax Invoices on Advances – Statutory Response

It’s common for customers—especially corporates or government entities—to request a tax invoice at the time of advance payment, often for their own accounting or funding reasons.

How to respond:

• Politely explain that GST law (post-Notification 66/2017) does not permit issuance of tax invoices for advances against goods.
• Offer a receipt voucher as statutory proof of payment.
• If the order is cancelled, issue a refund voucher to return the advance.

Suggested Documentation:

• Share a copy of the relevant GST notification or a brief note explaining the legal position.
• Maintain a standard communication template for such requests to ensure consistency and compliance.

Our Chartered Accountants in Chandigarh office frequently guides clients on best practices for such scenarios.

Risks & Consequences of Non-Compliance

Non-compliance with the mandatory GST procedures can have serious consequences:

• Audits and investigations: Multiple invoices, mismatched E-way bills, or improper credit notes are red flags for GST officers.
• Penalties and interest: Statutory violations can attract penalties under Sections 122 and 125 of the CGST Act.
• Reversal of input tax credit: Buyers may lose ITC if your documentation is not in order.
• Reputational risk: Persistent non-compliance can affect your standing with customers and authorities.

Case Law Reminder:
The AAR Kerala ruling is a clear precedent—procedural lapses are not condoned, even if there is no revenue loss.

To mitigate compliance risks, we offer comprehensive GST Litigation Services and advisory.

Aligning Internal Accounting with GST-Mandated Procedures

To avoid disputes and ensure smooth audits, businesses must align their internal accounting with GST requirements.

Practical Internal Control Checklist:

• Track all advances received and issue receipt vouchers promptly.
• Maintain a register mapping advances, receipt vouchers, and final invoices.
• Reconcile “unbilled revenue” and “advance from customers” in your accounts with GST documentation.
• Review contracts and billing cycles to ensure compliance with GST invoicing timelines.
• Conduct periodic GST compliance reviews, especially before year-end and audits.

Our Finance Services include support for integrating accounting controls with GST compliance.

Do’s and Don’ts for GST Compliance on Advances (Goods)

Statutory Timeline for Documents on Advance and Goods Supply

FAQ: Common Queries on GST Advances for Goods

Q: Can I issue a tax invoice for an advance if my customer insists?
A: No, GST law does not permit this for goods. Issue a receipt voucher instead.

Q: What if I already issued a tax invoice on advance—can I fix it with a credit note?
A: No, credit notes cannot regularise an invoice that was never valid. Cancel the invoice and follow the correct procedure.

Q: Does recognising unbilled revenue in my accounts create GST liability?
A: No, GST liability arises only when the tax invoice is issued at supply.

For further clarifications, check our GST Practical Guide: Input Tax Credit blog.

Final Advisory: Seamless GST Compliance for Advances

The Navalt AAR makes it clear: For goods, GST on advances is not just deferred—it is barred by law. The only correct path is to issue receipt vouchers for advances, a single tax invoice at supply, and ensure all documentation and reporting align with this framework. Attempting to “volunteer” GST payment on advances, or to regularise with credit notes, is not just unnecessary—it’s a compliance risk.

Key Takeaways 

• For goods, advances are documented by receipt vouchers, not tax invoices.
• Notification 66/2017 is a binding special procedure—no GST on advances, no option to pay early.
• E-way bills must match the final invoice value; mismatches can trigger audits.
• Credit notes cannot be used to adjust improper advance invoices.
• Align your accounting, GST returns, and documentation to avoid disputes and penalties.

For tailored GST advisory, compliance reviews, or help with complex contracts, our Chartered Accountants in Aligarh are ready to support you—reach out for practical, business-friendly solutions.

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