Invoice the supply made at the actual cessation
CGST Act section 31(6) applies where a service under a contract ceases before completion. Issue the invoice at the time the supply ceases and only to the extent of supply made before cessation. Determine the actual cessation date and the extent of services using the contract, instructions and delivery evidence. A billing dispute, temporary suspension or a notice that takes effect later is not automatically the cessation event.
Read the applicable text: CBIC CGST Act compilation, sections 31 and 34.
Measure work delivered using the agreed terms
Identify completed deliverables, accepted time or units, partly completed milestones and any terms for valuation on early termination. The original contract value or cash advance is not necessarily the value of supply made. Document partial work and disputed consideration rather than defaulting to an arbitrary completion percentage. This guide's examples assume the stated amounts are supported values before GST, except where cash or a disputed item is described separately.
Reconcile earlier documents without duplicating turnover
Link the final invoice to earlier invoices and advances. Identify amounts already invoiced for the same supply and any unused cash separately. If an earlier invoice overstates taxable value or tax, assess a credit note under section 34 and check the reporting deadline: 30 November after the end of the financial year of the supply or the date the relevant annual return is furnished, whichever is earlier. From 1 October 2025, the supplier cannot reduce output tax if the registered recipient has not reversed the attributable input tax credit it availed, or, in other cases, if the tax incidence was passed on to another person. Reconcile unused advances separately. The refund voucher route under section 31(3)(e) applies where a receipt voucher was issued for an advance, no supply was made and no tax invoice was issued for it. Do not assume that route applies to every partly performed or previously invoiced contract.
Keep termination charges and period reporting separate
A termination payment, forfeiture or damages label does not itself settle whether a separate supply exists. Apply CBIC Circular 178/10/2022-GST to the facts: compensation for breach does not by itself establish a supply of tolerating the breach; a cancellation facility or another separately identifiable supply may require a different analysis. Verify time of supply and return reporting using the applicable rules and reconcile the final document to the outward-supply register without duplicating earlier tax. Preserve evidence for cases where cessation and acceptance or settlement dates differ.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Partial milestone delivered
A ₹12 lakh contract ceases after services of supported value ₹7 lakh are supplied. Earlier invoices cover ₹4 lakh of those services. On the stated facts reconcile ₹3 lakh for remaining supply invoicing, not the ₹5 lakh of work never supplied.
Illustrative example 2: Termination effective later
Notice is sent 4 November 2026 but work continues until cessation on 12 November. Eight calendar days separate the events. Use the actual cessation for the section 31(6) review.
Illustrative example 3: Advance exceeds delivered value
The customer paid an advance of ₹6 lakh towards the price, and services worth ₹4.5 lakh before GST were supplied, with no earlier service invoice. Compare these figures on the same pre-GST basis: ₹1.5 lakh of the advance is unapplied to service value. Reconcile GST already paid or collected and any refund separately; the ₹1.5 lakh is not a calculation of the final cash refund.
Illustrative example 4: Time-based engagement
Of 100 planned hours, 64 are supported as supplied at ₹2,000 per hour. Value of work supplied is ₹1.28 lakh. With 40 hours previously invoiced, the remaining 24 hours represent ₹48,000.
Illustrative example 5: Separate a disputed termination fee
Supported service value is ₹3.2 lakh and a separate disputed termination demand is ₹0.8 lakh. Keep the service invoice working at ₹3.2 lakh on the stated facts and assess ₹0.8 lakh independently.
Illustrative example 6: Earlier billing exceeds work delivered
Earlier invoices show ₹8 lakh while supported services at cessation total ₹6.5 lakh. The ₹1.5 lakh difference is a correction review item; do not create a negative service invoice or assume GST can be reduced without testing section 34.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Obtain the contract | Terms and charging basis |
| 2 | Identify the cessation event | Notice and actual service records |
| 3 | Separate pause from cessation | Work history and authority |
| 4 | Measure supported supply | Acceptance, hours or milestones |
| 5 | Identify previous invoices | Invoice register and cross-references |
| 6 | Reconcile cash and advances | Bank and receipt evidence |
| 7 | Separate disputed or termination items | Legal and valuation working |
| 8 | Check any correction route | Section 34 analysis and documents |
| 9 | Reconcile the GST reporting | Outward register and period review |
| 10 | Preserve the closing file | Evidence and sign-off |
Sixteen practitioner FAQs
1. Does a notice date always control?
Identify the actual cessation under the contract and facts.
2. Does section 31(6) apply to goods?
It addresses supply of services.
3. Is an operational pause always cessation?
No. Determine whether the supply has actually ceased.
4. What is the invoice limited to?
The extent of supply made before cessation.
5. Does an unpaid invoice mean no service was made?
Verify the supply separately from payment.
6. Does the full contract value become taxable on termination?
Measure the services made and analyse other payments separately.
7. Can the invoice repeat earlier billed services?
Reconcile earlier documents and avoid duplicating the same supply.
8. What if a milestone is partly complete?
Use the contract and evidence of actual supplied services.
9. Can an unused advance be treated as extra service value?
No automatic treatment applies; reconcile the cash and tax separately.
10. Does a damages label settle GST treatment?
No. Examine the underlying facts and legal basis.
11. Can an overbilling automatically reduce output tax?
No. Check eligibility for a section 34 credit note, the reporting deadline and the applicable restriction on reducing output tax.
12. What if work is measured after cessation?
Preserve the actual cessation date and address any timing or documentation issue.
13. Does a final settlement date reset the rule?
Do not substitute it for actual cessation without legal basis.
14. How do earlier milestone invoices fit?
Match them to the services measured before cessation.
15. Does this guide set a universal rate?
No. Classify the actual supply separately.
16. What evidence should be retained?
Contract, cessation record, work evidence, prior documents and GST reconciliation.
Official sources
CBIC CGST Act compilation, sections 31 and 34
Finance Act, 2022, section 102: credit-note reporting deadline (Gazette copy)
Notification 18/2022–Central Tax: commencement on 1 October 2022
Finance Act, 2025, section 126: amendment to CGST section 34(2)
Notification 16/2025–Central Tax: commencement on 1 October 2025
CBIC Circular 178/10/2022-GST on breach compensation and cancellation charges