2021 (10) TMI 635 - AAR - GST

Levy of GST - Classification of services - HSN Code - rate of GST - proposed receipt of money in case of Arbitration claims awarded for works contract completed in the Pre-GST regime - Unpaid amounts including escalation of price for works executed in pre-GST period - Refund of excess deductions made - Interest on delayed payments of interim payment certificates - Cost of Arbitration - Liquidated damages - Interest on Arbitration Amount. Unpaid amounts including escalation of price for works executed in pre-GST period - time of supply of services - HELD THAT - The time of supply of service according to Section 13(2) is the earliest of the date on which invoice is issued or date of provision of service or date of receipt of payment or date on which recipient shows the receipt of services in his books. As seen from the averments of the applicant the supply was made prior to introduction of GST. Therefore it is not covered by Section 13(2) of the CGST/SGST Acts. Hence the amounts claimed pertaining to the works executed earlier to introduction of GST are not taxable under CGST/SGST Acts. Refund of excess deductions made - HELD THAT - The refund of excess deductions both statutory and non-statutory made against the bills raised for the works completed in pre-GST period do not constitute consideration for supplies made under GST period. Therefore these amounts are not taxable under CGST/SGST Acts. Interest on delayed payments of interim payment certificates - HELD THAT - In the present case, Arbitration as service was supplied independently after the introduction of GST i.e., the tribunal was constituted conclusively on 20.11.2017 and rendered its orders on 09.05.2019 and therefore this supply is liable to tax on reverse charge basis under GST. Liquidated damages - HELD THAT - The time of supply of the service of tolerance is the time when such determination takes place. However, the contractee/employer has not determined the cost of delay prior to arbitration award. It was determined only by arbitration award on 09.05.2019. Therefore the time of supply of this service as per Section 13 of the CGST Act is 09.05.2019. The Consideration received for such forbearace is taxable under CGST and SGSt @9%. Each under the chapter head 9997 at serial no. 35 of Notification No.11/2017- Central/State tax rate. Interest on Arbitration Amount - HELD THAT - The applicant is claiming interest on the amounts determined by the arbitrary tribunal under various heads. Under Section 15(2)(d) of the CGST/SGST Acts interest for delayed payment against a supply is consideration which is taxable under CGST/SGST Acts. Therefore the interest on amounts exigible to tax under CGST/SGST forms part of value of taxable supply.

Summary

Issues Involved: GST applicability on arbitration claims for pre-GST works contracts, HSN Code, and GST rate for liabilities.

Issue-wise Detailed Analysis:

1. Unpaid Amounts for Work Executed Including Escalation:

The liability to tax under CGST/SGST Acts for works contracts is determined by the time of supply of services as per Section 13 read with Section 31. The time of supply of service according to Section 13(2) is the earliest of the date on which the invoice is issued, the date of provision of service, the date of receipt of payment, or the date on which the recipient shows the receipt of services in his books. Since the supply was made prior to the introduction of GST, it is not covered by Section 13(2) of the CGST/SGST Acts. Therefore, amounts claimed for works executed before the introduction of GST are not taxable under CGST/SGST Acts.

2. Refund of Excess Deductions Made:

Refunds of excess deductions, both statutory and non-statutory, made against bills raised for works completed in the pre-GST period do not constitute consideration for supplies made under the GST period. Hence, these amounts are not taxable under CGST/SGST Acts.

3. Interest on Delayed Payments of Interim Payment Certificates:

Interest claimed on delayed payments for works executed and payment certificates received in the pre-GST period is not liable to tax under CGST/SGST Acts. This is because the time of supply, as per Section 13(2) of the CGST Act, is not in the GST period.

4. Cost of Arbitration:

The consideration received by the arbitral tribunal is taxable on a reverse charge basis under CGST & SGST Act @9% each, with the service tariff code being 998215. Since the arbitration service was supplied independently after the introduction of GST, it is liable to tax on a reverse charge basis under GST.

5. Liquidated Damages:

Liquidated damages claimed for delays in making available possession of the site, drawings, and other schedules by the contractee are considered consideration for tolerating an act or situation arising out of contractual obligations. This is classified under entry 5(e) of Schedule II to the CGST Act, which covers agreeing to the obligation to refrain from an act, tolerate an act, or a situation, or to do an act. Therefore, such toleration constitutes a supply of service, and the consideration is taxable under CGST and SGST @9% each under chapter head 9997 at serial no. 35 of Notification No.11/2017-Central/State tax rate.

6. Interest on Arbitration Amount:

Interest on amounts determined by the arbitral tribunal under various heads is considered under Section 15(2)(d) of the CGST/SGST Acts as consideration for delayed payment against a supply, making it taxable under CGST/SGST Acts. Hence, the interest forms part of the value of the taxable supply.

Advance Ruling Issued:

a. GST Applicability on Arbitration Claims for Pre-GST Works Contracts:

GST is applicable as enumerated above under each head.

b. HSN Code and GST Rate for Liabilities:

HSN codes as enumerated above where GST is leviable.