GST on proposed receipt of money of Arbitration claims - Logitax

GST on proposed receipt of money of Arbitration claims




Nature of the Business – Construction

Facts of the case – 

>>Applicant has executed certain works contract in pre-GST era.

>>Applicant raised certain claims regarding compensation for delay in execution, payment of difference in rates and other contractual breaches.

>>The arbitration tribunal initiated proceedings and passed the order in favour of the applicant.

>>Applicant sought advance ruling about Whether GST is applicable on the proposed receipt of money. In case of Arbitration claims awarded for works contract completed in the Pre-GST regime. If yes, then under what HSN Code and GST rate the liability is to be discharged by the applicant.

Conclusion – 

>>The liability to tax under CGST/SGST Acts for works contracts is determined by the time of supply of services in Section 13 read with Section 31 i.e., the provisions pertaining to tax invoice.

>>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.

>>Since the supply was made prior to introduction of GST, 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.

>>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.

>>The applicant the interest is claimed on delayed payments on the works executed and payment certificates received in pre-GST period. In light of Section 13(2) of the CSGT Act the time of supply is not in GST period, hence these amounts are not liable to tax under CGST/SGST Acts.

>>Cost of Arbitration – As the service is provided after introduction of GST, the consideration received by arbitral tribunal is taxable on reverse charge basis under CGST & SGST Act @9% each. The service tariff code is 998215.

>>Liquidated damages – These damages are claimed by the applicant from the contractee due to the delays in making available possession of site, drawings & other schedules by the contractee beyond the milestones fixed for completion of project. These damages are consideration for tolerating an act or a situation arising out of the contractual obligation – 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 and the same 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 forbearance is taxable to 18% GST under the chapter head 9997 at serial no. 35 of Notification No.11/2017-Central Tax (Rate).

>>Interest on Arbitration Amount – The applicant is claiming interest on the amounts determined by the arbitrary tribunal under various heads. Under Section 15(2)(d) of the CGST Act interest for delayed payment against a supply is consideration which is taxable under CGST Act. Therefore, the interest on amounts eligible to tax under CGST/SGST forms part of value of taxable supply.

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