TMI Blog2019 (8) TMI 1153X X X X Extracts X X X X X X X X Extracts X X X X ..... ue of the taxable service was not ascertainable before the invoice was raised, no payment received in advance could be included in the gross amount charged for such taxable service except the portion adjusted in the service bills - Therefore, no service tax was leviable on the mobilisation advance except the portion adjusted in the service bills. As the Applicant apparently raised no service bill, the unadjusted part of the advance as on 01/07/2017 has not suffered tax under the pre-GST regime under Finance Act, 1994. After the GST comes into force, the works contract is no longer divisible into a contract for the supply of goods and a service contract. It is a service contract and the entire unadjusted mobilisation advance as on 01/07/2017, according to the Contract, applies towards payment of consideration for the works contract service - The contract provides a mechanism in the form of a bank guarantee that ensures that the advance is not diverted or misappropriated. Its application as payment for inducing the supply is, therefore, direct and unambiguous. It is, therefore, consideration, whether or not in the form of a deposit, for the supply of the works contract service. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supply, installation, testing and commissioning of the power supply and distribution system, third rail system and SCADA system for the entire line and depot of the Kolkata East-West Metro Rail Project. It includes the supply of equipment, training of the personnel etc. The Applicant has been awarded onshore scope of work for the contract under an open consortium arrangement with the offshore contractor Siemens AG. 1.2 According to the Contract, the Applicant received ₹ 16,33,33,924/- on 24/06/2011 as mobilisation advance, which was 10% of the original contract value. The lump-sum mobilisation amount so received is recoverable as adjustment towards the payment due for the tax invoices that the Applicant raises on attaining contract progress milestones. Of the total lump-sum amount ₹ 13,80,74,549/- is stated to be outstanding on 30/06/2017. The Applicant s question relates to the GST implication on the lump-sum so received before the implementation of GST and its recovery by KMRCL against the Applicant s sales invoices issued post introduction of the GST. More specifically, the Applicant wants to know whether GST shall be charged on the gross amount of the inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the respective tax laws. Under the GST, the contract is being treated as a works contract as defined u/s 2(119) of the CGST Act, 2017. Services provided under the contract qualify for exemption in terms of Entry No. 14(a) of Notification No. 25/2012 - ST dated 20/06/2012 under the Service Tax regime. 2.4 The liability to pay VAT under the previous tax regime arises on transfer of the property in goods. It is not payable at the time of receipt of the lump-sum amount. On the other hand, liability to pay service tax, as laid down under the Point of Taxation Rules, 201 1, arises upon receipt of payment towards the provision of services or actual provisioning of service whichever is earlier. As such, provisioning of service under the Contract, as stated above, was exempt from service tax. 2.5 The Applicant argues that the lump-sum amount received is in the nature of earnest money deposit and not a payment towards the supply of any specific goods and services. No tax, therefore, is payable at the time of receipt of the lump-sum amount. In support of its argument, the Applicant refers to the decisions of CESTAT in the matter of Thermax Instrumentation Ltd [2016 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of, in response to, or for the inducement of the supply of the goods or services, provided that a deposit given in respect of the supply shall not be considered as payment made for such supply unless the supplier applies it as consideration for the said supply. 3.4 The Applicant has received interest-free mobilisation advance against bank guarantee. The primary purpose of such advances is to extend financial assistance within the terms of the contract to enable the contractor to mobilise resources for a smooth take-off of the project. Such advances are invariably ring-fenced with securities like bank guarantees to prevent misuse and misappropriation. The advance shall be recovered as adjustment towards payment due for the tax invoices that the Applicant shall issue after achieving successive contract milestones. In case of delay in recovery for the slow progress of work, the contract provides KMRCL with the option to charge penal interest. If the advance is misused or diverted, KMRCL, if required, can recover the unadjusted advance with penal interest by means of invoking the bank guarantee. 3.5 In the pre-GST regime, the Contract was divisible for the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsideration includes any payment for the inducement of a supply. Mobilisation advance is meant specifically for inducing the contractor to spend for provisioning the works contract service. The contract provides a mechanism in the form of a bank guarantee that ensures that the advance is not diverted or misappropriated. Its application as payment for inducing the supply is, therefore, direct and unambiguous. It is, therefore, consideration, whether or not in the form of a deposit, for the supply of the works contract service. The Contract makes it amply clear that the entire amount is applied as consideration for provisioning works contract service. 3.9 The Applicant s reference to the decisions of the Tribunal in Thermax Instrumentation Ltd (supra) and GB Engineering Enterprises Pvt Ltd (supra) is misplaced in this context. The relevance of these decisions in the legal framework of the Finance Act, 1994 is discussed in para 3.6 and need not be repeated. They are not relevant under the GST regime, as the valuation of works contract no longer requires a rule separate from other services. The Contract, therefore, is to be valued as provided under section 15(1) of the GST ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
