2019 (8) TMI 1153 - AAR - GST

Time and value of supply - levy of GST - mobilisation advance - GST implication on the lump-sum so received before the implementation of GST and its recovery by KMRCL against the Applicant s sales invoices issued post introduction of the GST - whether GST shall be charged on the gross amount of the invoice or the net amount after adjusting the lump-sum amount outstanding as on 30/06/2017? HELD THAT - The Finance Act 1994 allowed the contractor to pay service tax on that portion of the works contract which was attributable to the actual provisioning of service arrived at applying Rule 2A(i) of the Service Tax (Determination of Value) Rules 2006. Under this method the value of the taxable service was the residual amount that remained after deducting from the gross amount charged for the works contract the actual value of the property in goods transferred in the course of executing the contract. The value of the taxable service was therefore not ascertainable before the contractor raised the invoice - As the value of the taxable service was not ascertainable before the invoice was raised no payment received in advance could be included in the gross amount charged for such taxable service except the portion adjusted in the service bills - Therefore no service tax was leviable on the mobilisation advance except the portion adjusted in the service bills. As the Applicant apparently raised no service bill the unadjusted part of the advance as on 01/07/2017 has not suffered tax under the pre-GST regime under Finance Act 1994. After the GST comes into force the works contract is no longer divisible into a contract for the supply of goods and a service contract. It is a service contract and the entire unadjusted mobilisation advance as on 01/07/2017 according to the Contract applies towards payment of consideration for the works contract service - The contract provides a mechanism in the form of a bank guarantee that ensures that the advance is not diverted or misappropriated. Its application as payment for inducing the supply is therefore direct and unambiguous. It is therefore consideration whether or not in the form of a deposit for the supply of the works contract service. The Contract makes it amply clear that the entire amount is applied as consideration for provisioning works contract service. The valuation of works contract no longer requires a rule separate from other services. The Contract therefore is to be valued as provided under section 15(1) of the GST Act which does not restrict in any way the scope of time of supply as provided under section 13(2) of the GST Act. Moreover consideration under the GST Act has a wider scope and includes deposits if applied as consideration. In that context whether the mobilisation advance is earnest money or not is of little relevance. The Applicant is therefore deemed to have supplied works contract service to KMRCL on 01/07/2017 to the extent covered by the lump-sum that stood credited to its account on that date as mobilisation advance. As the supply to the extent of the above amount is deemed to have been made on 01/07/2017 and tax is leviable thereon accordingly the value of the supply of works contract service in the subsequent invoices as and when raised should therefore be reduced to the extent of the advance adjusted in such invoices.

Issues Involved:

1. Admissibility of the Application
2. GST Implication on Lump-Sum Mobilisation Advance
3. Time and Value of Supply
4. Consideration and Taxability under GST Regime
5. Relevance of Previous Tax Regime and Tribunal Decisions

Detailed Analysis:

1. Admissibility of the Application:

The Applicant entered into a contract with KMRCL for the "design, supply, installation, testing, and commissioning" of various systems for the Kolkata East-West Metro Rail Project. The contract included a lump-sum mobilisation advance of ?16,33,33,924/- received on 24/06/2011, with ?13,80,74,549/- outstanding as of 30/06/2017. The Applicant sought clarity on whether GST should be charged on the gross amount of the invoice or the net amount after adjusting the lump-sum amount outstanding as of 30/06/2017. The application was admitted under section 97(2)(c) of the GST Act as the issues raised were not pending or decided in any other proceedings.

2. GST Implication on Lump-Sum Mobilisation Advance:

The Applicant argued that the lump-sum mobilisation advance was provided at 10% of the contract value and was recoverable as adjustment towards payment due for tax invoices issued upon achieving contract milestones. The lump-sum amount was not attributable to any specific supply of goods or services but was meant for executing the contract. The Applicant contended that the advance was akin to an earnest money deposit and not a payment towards specific goods and services, citing Tribunal decisions in Thermax Instrumentation Ltd and GB Engineering Enterprises Pvt Ltd.

3. Time and Value of Supply:

Section 13(2) of the GST Act states that the "time of supply shall be the earliest of the date of issue of invoice, the date of receipt of payment, or the date of provision of service." If the supplier receives any advance payment, the supply is deemed to have been made to the extent covered by the payment. The Applicant is deemed to have supplied works contract service to KMRCL on 01/07/2017 to the extent covered by the lump-sum credited to its account on that date, provided no tax was levied under the pre-GST regime.

4. Consideration and Taxability under GST Regime:

Section 2(31) of the GST Act defines 'consideration' to include any payment made for the supply of goods or services. The mobilisation advance received by the Applicant was interest-free and secured by a bank guarantee, meant to assist in mobilising resources for the project. The advance was recoverable as adjustment towards payment for tax invoices issued after achieving contract milestones. Under the GST regime, the works contract is treated as a service contract, and the entire unadjusted mobilisation advance as of 01/07/2017 is considered as payment for the works contract service, making it taxable.

5. Relevance of Previous Tax Regime and Tribunal Decisions:

Under the pre-GST regime, the contract was divisible for taxation purposes, and the mobilisation advance was not taxed under the West Bengal Value Added Tax Act, 2003, or the Central Sales Tax Act, 1956. The Finance Act, 1994 allowed service tax on the portion of the works contract attributable to the actual provisioning of service. The Tribunal decisions in Thermax Instrumentation Ltd and GB Engineering Enterprises Pvt Ltd were relevant under the Finance Act, 1994 but not under the GST regime. The GST Act has a broader definition of 'consideration,' including deposits applied as consideration.

Conclusion:

The Applicant is deemed to have supplied works contract service to KMRCL on 01/07/2017 to the extent covered by the lump-sum credited to its account. GST is leviable on this amount, and to avoid double taxation, GST should be charged on the net amount remaining after adjusting the advance in subsequent invoices.

RULING:

The Applicant is deemed to have supplied works contract service to KMRCL on 01/07/2017 to the extent covered by the lump-sum mobilisation advance, and GST is leviable thereon. The value of the supply in subsequent invoices should be reduced by the advance adjusted, and GST should be charged on the net amount remaining after such adjustment. This ruling is valid subject to the provisions under Section 103 until declared void under Section 104(1) of the GST Act.

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