2021 (3) TMI 802 - AAAR - GST

Time of supply - Deposit Works' being executed by the applicant - whether it is the time of receipt of funds from the client government department or the time when expenditure incurred towards execution of the work is debited to Deposit Works account? - value of supply under both situations - Challenge to AAR decision - Authority of Advance Ruling has ruled that the value of the supply, on the advance payment received by the applicant, will be the amount of advance received by the applicant towards that particular work/supply. HELD THAT - Apart from entrusted work of executing housing and improvement schemes in the State, the applicant may also undertake the execution of any housing or other building project at the request of the State Government or, with the previous approval of the State Government, at the request of any other person on such terms and conditions as may be agreed upon. This work is known as Deposit Work . As per the appellant the funds required for execution of such projects are provided entirely by the Government, generally in lump sum before the start of the work string with certain restrictions viz. the funds cannot be diverted to any other project and any interest accruing from these funds will be paid back to the Government by depositing it in the relevant Head of Accounts. Whether the advance received by the appellant, for the said deposit work, is to be treated as Advance Payment received for the said work or as Deposit ? - HELD THAT - As per the appellant the money received for the said deposit work to be treated as deposit in terms of proviso of Sub Section (31) of Section 2 of the CGST Act, 2017. Absolute control of the money - HELD THAT - Advances are generally given so that the work get completed smoothly without any hindrances and may not get delay due to lack of fund. Restrictions regarding use of advance are normally attached so that the amount cannot be diverted for any other project and to avoid any delay in timely completion of the project - any condition/restrictions attached with the advance do not alter its character, it remains advance which later on get adjusted in payment once bills /invoices are issued). Interest paid back to the Government - HELD THAT - As per the definition of Deposit Work given in the Chapter 2 of Financial Handbook, Vol-VI, Deposit work are those works which are assigned to government construction agencies for execution in such capacity. IN such case, the funds are provided by the Government through the department for whom the building or any other structure is to be constructed - as per the interest payment challans provided by the appellant the interest amount is being credited to the Government account and not in the account of the service recipient agency. The law is crystal clear that once any advance amount is received towards provision of any service that will be treated as the time of supply. We, therefore, opined that the Authority has rightly ruled that the time of receiving of advance payment will be time of supply with reference to discharge of GST liability. The Authority of Advance Ruling has correctly ruled that the value of the supply, on the advance payment received by the applicant, will be the amount of advance received by the applicant towards that particular work/supply - ruling of AAR upheld.

Summary

Issues Involved:
1. Classification of funds received for "Deposit Work" as "Advance Payment" or "Deposit".
2. Determination of the "Time of Supply" for "Deposit Work".
3. Determination of the "Value of Supply" for "Deposit Work".

Issue-wise Detailed Analysis:

1. Classification of Funds Received for "Deposit Work" as "Advance Payment" or "Deposit":

The appellant argued that the funds received for "Deposit Work" should be classified as "Deposit" rather than "Advance Payment" due to the restrictions imposed on their usage. The appellant contended that the funds were not under their constructive control and any interest earned on these funds had to be returned to the government. They referenced proviso to sub-section (31) of Section 2 of the CGST Act, 2017, which states, "a deposit given in respect of supply of goods or service or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply."

The appellate authority observed that the term "Deposit Work" refers to works funded from non-government sources, which are provided in lump sum before the start of the work with restrictions on their usage. The authority concluded that these funds, although restricted, are still "Advance Payments" as they are provided to ensure smooth completion of the project without delays. The authority emphasized that the restrictions do not alter the character of the advance and confirmed that the funds received for "Deposit Work" should be treated as "Advance Payment".

2. Determination of the "Time of Supply" for "Deposit Work":

The appellant argued that the "Time of Supply" should be the date on which the funds are utilized, not when they are received. However, the authority referred to Section 13 of the CGST Act, 2017, which states that the time of supply of services is the earliest of the following dates:
a) The date of issue of invoice by the supplier.
b) The date of provision of service if the invoice is not issued within the prescribed period.
c) The date of receipt of payment.

The authority concluded that the law is clear that the time of supply is the date of receipt of advance payment, thus affirming that the "Time of Supply" for "Deposit Work" is the date when the funds are received.

3. Determination of the "Value of Supply" for "Deposit Work":

The appellant questioned the determination of the value of supply, arguing that it should not be based on the total amount of funds received. The authority referred to the explanation provided in sub-section (2) of Section 13 of the CGST Act, 2017, which states, "the supply shall be deemed to have been made to the extent it is covered by the invoice or, as the case may be, the payment."

The authority also cited a flyer issued by the Central Board of Indirect Taxes and Customs, which clarified that the value of supply should be the amount of advance received. For instance, if an advance of ?10 lacs is received for a supply worth ?1 crore, the time of supply for the ?10 lacs is at the time of receipt of advance, and for the remaining ?90 lacs, it is determined with reference to the date of issue of invoice and other parameters.

The authority upheld the ruling that the value of the supply, on the advance payment received by the appellant, will be the amount of advance received towards that particular work/supply.

Ruling:

The appellate authority unanimously upheld the ruling passed by the Authority for Advance Ruling, Uttar Pradesh, vide Order No. 45 dated 13.12.2019, affirming that the funds received for "Deposit Work" are "Advance Payments", the "Time of Supply" is the date of receipt of funds, and the "Value of Supply" is the amount of advance received.