Authority for Advance Ruling (AAR) recently confirmed that GST shall not be applied to the ‘Mobilization Advance’ received prior to the implementation of the Goods and Service Tax (GST) regime in India. ‘Mobilization Advance’ is basically the payment done to the supplier/contractor for performance under a contract.
M/s.Shapoorji Pallonji and Co.Pvt.Ltd is a construction dealer (and the applicant here) and a registered taxpayer under GST. The company is in the construction business deals with the clients on ‘Contract Basis’ involving the supply of Goods and Services as well.
The applicant thus confirmed that they have signed a contract of constructing the Service and Teaching Facility at CMC and as mentioned in the contract the issuing company was obliged to give 5% of the contract price as the ‘Mobilization Advance’ to the applicant (construction company). The said ‘Mobilization Advance was to be given in two installments each bearing. 2.5 percent and the value completely amounting to Rs. 15,83,72, 000/.
It was also revealed that both the installments were paid off before the GST regime and the receiver (construction company) has already paid the Service Tax that came to them as a liability under section 66B read with Sec.67 of the Finance Act, 1994. Though no Value Added Tax was paid by the applicant as usually VAT is applicable to the Running Bill (RA Bill) in which Mobilization Advance is also adjusted. The ‘Mobilization Advance’ had to be recovered on a time basis in fifteen equal installments on a monthly basis against the Running Bill during the month or separately if no Bill is raised in that particular month.
It was on 30 June 2017, the applicant (construction company) paid the five installments of the first portion and three installments of the second portion that was the total of Rs. 4,22,32,533 / paid. The AAR judiciary consisting of Additional Commissioner, Manasa Gangotri Kata and Joint Commissioner, Thiru Kurinji Selvaan V.S gave their final verdict on the application filed by Shapoorji Pallonji and Company Private Limited.
Section I42(11)(b) defines as -applies to transactions in services on which Service tax is leviable and it overrides Section 13 of GST law which states that liability to pay tax on services arises at the time of supply as determined by provisions of Section 13. AAR judiciary saw that the applicant has raised the invoice of complete Mobilisation Advance received by them and therefore they are deemed to have supplied the contract services to CMC before 1 July 2017 (GST implementation date) to the extent covered by Mobilization Advance that was already credited in the account as per section 13 of GST Act.
AAR further stated that ‘Supply of Works Contract’ is categorized as a service under GST and prior to the debut of the GST regime in India tax was only applicable to the service portion of the ‘Actual Work Contract’ being the actual work the tax on it was 40% of the entire value.
On receiving 40% of the value in advance for their actual work, the applicant has given the service tax on it (as mandated by the provisions of Service Tax).
The AAR judiciary gave a final verdict saying that any situation like this has to be covered under Section 742(11)(b) as per which no tax is payable on services until the services are subjected to tax levy under Chapter V of the Finance Act. With this verdict, the conclusion drawn was that no tax is payable on Mobilization Advance that has been received by any contract based company dated before the implementation of GST as mentioned in Section 142(11)(b) of the Act.
M/s.Shapoorji Pallonji and Co.Pvt.Ltd is a construction dealer (and the applicant here) and a registered taxpayer under GST. The company is in the construction business deals with the clients on ‘Contract Basis’ involving the supply of Goods and Services as well.
The applicant thus confirmed that they have signed a contract of constructing the Service and Teaching Facility at CMC and as mentioned in the contract the issuing company was obliged to give 5% of the contract price as the ‘Mobilization Advance’ to the applicant (construction company). The said ‘Mobilization Advance was to be given in two installments each bearing. 2.5 percent and the value completely amounting to Rs. 15,83,72, 000/.
It was also revealed that both the installments were paid off before the GST regime and the receiver (construction company) has already paid the Service Tax that came to them as a liability under section 66B read with Sec.67 of the Finance Act, 1994. Though no Value Added Tax was paid by the applicant as usually VAT is applicable to the Running Bill (RA Bill) in which Mobilization Advance is also adjusted. The ‘Mobilization Advance’ had to be recovered on a time basis in fifteen equal installments on a monthly basis against the Running Bill during the month or separately if no Bill is raised in that particular month.
It was on 30 June 2017, the applicant (construction company) paid the five installments of the first portion and three installments of the second portion that was the total of Rs. 4,22,32,533 / paid. The AAR judiciary consisting of Additional Commissioner, Manasa Gangotri Kata and Joint Commissioner, Thiru Kurinji Selvaan V.S gave their final verdict on the application filed by Shapoorji Pallonji and Company Private Limited.
Section I42(11)(b) defines as -applies to transactions in services on which Service tax is leviable and it overrides Section 13 of GST law which states that liability to pay tax on services arises at the time of supply as determined by provisions of Section 13. AAR judiciary saw that the applicant has raised the invoice of complete Mobilisation Advance received by them and therefore they are deemed to have supplied the contract services to CMC before 1 July 2017 (GST implementation date) to the extent covered by Mobilization Advance that was already credited in the account as per section 13 of GST Act.
AAR further stated that ‘Supply of Works Contract’ is categorized as a service under GST and prior to the debut of the GST regime in India tax was only applicable to the service portion of the ‘Actual Work Contract’ being the actual work the tax on it was 40% of the entire value.
On receiving 40% of the value in advance for their actual work, the applicant has given the service tax on it (as mandated by the provisions of Service Tax).
The AAR judiciary gave a final verdict saying that any situation like this has to be covered under Section 742(11)(b) as per which no tax is payable on services until the services are subjected to tax levy under Chapter V of the Finance Act. With this verdict, the conclusion drawn was that no tax is payable on Mobilization Advance that has been received by any contract based company dated before the implementation of GST as mentioned in Section 142(11)(b) of the Act.
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