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2023 (11) TMI 870 - AAR - GSTLevy of GST - supply involved in terms of section 7 of the CGST Act, 2017 or not - amount deposited by the applicant (75%) in escrow account against bank guarantee pending outcome of the further challenge against Arbitral Award or dissatisfaction against DAB decision - time of supply'when tax on such DAB/arbitral award is payable to Government exchequer - eligibility to claim Input Tax Credit (ITC) - scope of 'consideration' as defined under section 2(31) of the CGST Act, 2017 - HELD THAT - Consideration in relation to supply/goods, as defined in the Act, includes payment made or to be made, in money or otherwise, in respect of/response to, for and the inducement of the supply, whether by the recipient or by any other person. It shall not include any subsidy given by the Central/State Government. Consideration further also includes monetary value of any act/forbearance, whether by the recipient or by any other person. What is significant is however, the proviso to the definition which states that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply. Though the amount ie 75% paid into an escrow account is towards the dispute pertaining to the supply, what brings this particular transaction out of the scope of the consideration is the fact is that it is not paid to the contractor supplier but is deposited in an escrow account; that it cannot be withdrawn from the account without the explicit approval of the applicant; that the amount can be withdrawn only subject to the condition that the supplier) contractor provides a BG for the said amount - the applicant, though he has deposited the amount in an escrow account, also does not term this as a consideration for the supply since he is agitating his ease, feeling aggrieved by the decision rendered against him. In view of the foregoing, it is held to be outside the scope of 'consideration' as defined under section 2(31) of the CGST Act, 2017. Supply or not - HELD THAT - The moment the Supplier contractor finally succeeds in the dispute/the applicant accepts the adverse decision, this ruling would be rendered infructuous. This finding is in operation only for a limited period when the supplier contractor has not succeeded in the litigation/the applicant has not accepted an adverse decision the supplier uses the amount lying in the escrow account subject to his furnishing a BG. It also goes without saying that the department reserves every right to recover any interest due on such amount for the delay in payment of GST, if any, on account of the non acceptance of adverse decision of the DAB/Tribunal. The amount deposited by the applicant (75%) in escrow account against bank guarantee pending outcome of the further challenge against Arbitral Award or dissatisfaction against DAB decision, is not liable to GST under the provisions of CGST Act, 2017.
Issues Involved:
1. GST liability on the amount deposited in escrow. 2. Time of supply for GST purposes. 3. Eligibility for Input Tax Credit (ITC). Summary: Issue 1: GST Liability on Escrow Deposit The primary question was whether the 75% amount deposited by the applicant in an escrow account, pending the outcome of further challenges against an Arbitral Award or dissatisfaction against a Dispute Adjudication Board (DAB) decision, is liable to GST under the CGST Act, 2017. The applicant argued that the amount deposited in the escrow account is not a 'consideration' as per Section 2(31) of the CGST Act, 2017, since it is not paid to the contractor but deposited in an escrow account and cannot be withdrawn without the applicant's approval. The applicant maintained control over the amount, and it was subject to the contractor providing a bank guarantee (BG) for the same amount. The applicant cited various legal precedents to support this argument. The Revenue's submission was that GST should be applicable on the amount deposited into the escrow account, considering it within the scope of 'supply' under Section 7 of the CGST Act, 2017. Findings: The Authority for Advance Ruling (AAR) examined the definitions of 'consideration' and 'supply' under Sections 2(31) and 7 of the CGST Act, 2017. It found that the 75% amount deposited in the escrow account is not 'consideration' because it is not paid to the contractor but deposited in an escrow account, and it cannot be withdrawn without the applicant's explicit approval. Consequently, this amount does not fall within the ambit of 'supply' under Section 7. The AAR ruled that the 75% amount deposited in the escrow account is not liable to GST under the provisions of the CGST Act, 2017. Issue 2: Time of Supply Since the first question was answered in the negative, the second question regarding the 'time of supply' for GST purposes was rendered infructuous. Issue 3: Eligibility for Input Tax Credit (ITC) Similarly, the third question regarding the eligibility for ITC was also rendered infructuous due to the negative ruling on the first question. Ruling: 1. The amount deposited by the applicant (75%) in the escrow account against a bank guarantee, pending the outcome of further challenges against an Arbitral Award or dissatisfaction against a DAB decision, is not liable to GST under the provisions of the CGST Act, 2017. 2. Since the answer to the first question is negative, the second and third questions are rendered infructuous.
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