TMI Blog2022 (3) TMI 1146X X X X Extracts X X X X X X X X Extracts X X X X ..... GUJ/GAAR/R/2022/06 - - - Dated:- 7-3-2022 - ATUL MEHTA AND ARUN RICHARD, MEMBER Present for SPSC : Shri Rajat Mittal, Advocate Brief Facts M/s SP Singla Constructions Pvt. Ltd., hereinafter referred to as SPSC for the sake of brevity, submits that it is engaged in the business for construction SPSC of bridges and other projects for Government of India as well as State Governments and the undertaking of these Governments. 2. SPSC has submitted that as all the Engineering, Procurement and Construction Contract (EPC contracts) are generally similarly worded, for the purpose of the present applicant, they have referred to the EPC Contract dated 15-1-18 entered into between Government of India, through Ministry of Road Transport Highways, New Delhi (the Authority) for construction of New 4 -lane Signature Bridge. 3. Vide the EPC Agreement dated 15.01.2018, the Authority has entrusted SPSC with the responsibility of Construction of New 4-Lane Signature Bridge (900M Long Central Cable-Stayed Module) Connecting Missing Link between Okha and Beyt Dwarka on EPC Mode including Construction of Approached road on New National Highway No. NH-51 in the State of Gujarat ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use 19.3.1, supported with necessary particulars and documents in accordance with this Agreement. .. 6. SPSC has submitted that the Authority also makes an interest-bearing advance payment - generally equal to 10 (ten) percent of the contract price, exclusive for mobilization expenses ( Mobilization Advance ) to them (Article 19.1 and 19.2 of the EPC Agreement dated January 2018). The Mobilization Advance (for the sake of brevity referred to as said Advance) is generally paid by the authority to SPSC to extend financial assistance to a contractor to mobilize resources for timely and smooth take off of the project. 7. In lieu of the Mobilization Advance, SPSC is required to give a counter Bank Guarantee in a prescribed form to the concerned authority of generally an amount of 110% of such Mobilization Advance extended to SPSC which would remain effective till complete and full repayment of the Mobilization Advance (Refer clause 19.2.2 of the EPC Agreement dated January, 2018). 8. SPSC has submitted that payment for the construction work done by them is given by the concerned authority on completion of a payment stage (say a month) as defined in an EPC Contract, post ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s; (b) import of services for a consideration whether or not in the course or furtherance of business; (c) the activities specified in Schedule I, made or agreed to be made without a consideration; and (d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II. 11.1 Thus, consideration is a necessary concomitant of taxable event of supply of goods or services. 12. SPSC has submitted that in order to calculate and discharge liability under the CGST Act 2017 and SGST Act 2017, it is important to know the date when the GST liability arises i.e., the date on which the charging event has occurred. In GST law, it is known as Time of Supply and the relevant provisions of the CGST Act, 2017 are referred herein as they are pari-materia with the provisions under the SGST Act, 2017. 13. SPSC submits that CGST Act, 2017 has provided separate provisions to determine the time of supply of goods and time of supply of services. While Section 12 of the CGST Act, 2017 provides for time of supply of goods , Section 13 of the CGST Act, 2017 contains provisions for time of supply of services. Thus, in order to determi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibed period of thirty days, then the date of provision of service or date of receipt of payment, whichever is earlier. Date on which recipient shows the receipt of service in his books of account, in a case aforesaid two provisions do not apply. 15. SPSC has submitted that in accordance with the above provision, where the payment for the supply of service is made in advance i.e. before completion of service or before raising of invoice, the date of receipt of such advance payment is the time of supply and accordingly the GST liability accrues on the said date. However, not all monetary receipts can be said to be a payment. For a receipt to be categorized as an advance payment, it should partake the character of payment towards a supply i.e., such receipt should be in the nature of consideration for the supply. If the Mobilization Advance is in the nature of payment towards the supply of services by SPSC, the liability of GST arises at the time of receipt of such Mobilization Advance. However, if the Mobilization Advance is not in the nature of payment towards the services provided by SPSC, liability to pay GST does not arise at the time of receipt of Mobilization Adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uable thing accepted in partial or full discharge of the obligation. 2. The money or other valuable thing so delivered in satisfaction of an obligation. 17.1 A perusal of the meaning of the term payment reveals that it is a delivery of money in full or partial discharge of an obligation or satisfaction of an obligation. Thus, a person who makes a payment is in a sense obligated to part with the money to the recipient. 18. Moreover, the definition of consideration includes only those payments within its ambit that are made towards a supply of goods/ services. Thus, where money is given to a recipient without an obligation to be discharged, it cannot be called as a payment. In the present case, the Mobilization Advance is given by the Customers to SPSC to extend financial assistance to SPSC to mobilize resources for timely and smooth take off of the project i.e., such an Advance is not towards discharge of an obligation. 19. The fact that Mobilization Advance extended by the Customers to SPSC is not a payment towards discharge of an obligation or towards a supply of goods/services, is also evidenced from the fact that SPSC is required to give a counter Bank Guarantee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Part Payment. 22. SPSC submitted that in the case of Secretary, West Bengal of Higher Education Vs. Soumyadeep Banerjee and Ors., in regards to an order of deposit a counsel contended that once an order of deposit is made, it obviously gives rise to entitlement of successful litigant to appropriate the same, as it becomes a vested right and cannot be taken away subsequently. The High Court of Calcutta did not agree with the submissions of the counsel and observed there is a difference between deposit and payment. The Court further observed that the submissions of the counsel would have been meritorious if it has been an order of payment as opposed to order of deposit. Meaning thereby a payment gives a recipient a right to appropriate the same the way it deems fit as the same is in the nature of a vested right which cannot be taken away. In the present case, the Mobilization Advance is extended to SPSC only for mobilization of resources. Further, such Mobilization advance cannot be said to be a vested right which cannot be taken away in as much as there is an obligation on SPSC to repay the same subsequently. 23. In this regard, SPSC placed reliance on the cases under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applied as a consideration for the supply. This is consistent with the proviso to the definition of consideration which provides that a deposit given in respect of the supply of services shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the supply. 27. The term deposit defined in the Black s Law Dictionary (10th Edition), in the following manner: Deposit, n. (17c) 1. The act of giving money or other property to another who promises to preserve it or to use it and return it in kind; esp., the act of placing money in a bank for safety and convenience. Also termed (when made at a bank) bank deposit. 2. The money or property so given. 27.1 A perusal of the meaning assigned to the term deposit in the Black s Law Dictionary reveals that a typical deposit has the following three characteristics viz. (i) it is an act of giving money to another, (ii) the recipient promises to preserve it or use it, and (iii) the said money is required to be returned. 27.2 SPSC has submitted that in the present case, when Mobilization Advance is extended by the customers, it fulfils all the three characteristics ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ai in the case of Thermax Instrumentation Ltd. Vs. CCE [2016 (42) STR 19 (Tri. Mumbai] wherein the issue arose as to whether the mobilization advance received by the assessee from their customers is leviable to service tax. It is important to note that the terms of contract in the said case were largely similar to the facts in the present case. The assessee therein contended that the Mobilization Advance is only in the nature of deposit to ensure contractual commitments. Further, the said advance is shown as current liability in the books of accounts and not shown as income. The advance is provisionally transferred to sale/ consideration for service as and when the proportionate amount is deduced from the invoices raised on the customers. On the other hand, the revenue contended that the fact that the amount of advance is being adjusted in the bills establishes the linkage between the advance and the service provided, therefore, the said amount is part of the gross amount received towards taxable service and thus exigible to service tax. The Tribunal held that service tax is not payable on the Mobilization Advance as the account books of the assesse indicate that the advance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tween the parties. The High Court held that the Mobilization Advance is in the nature of a loan and the party is entitled to recover the same. The Court also observed that the purpose of Bank Guarantee given in lieu of the Mobilization Advance is to secure the Mobilization Advance. The entire purpose of securing the Mobilization Advance by way of bank guarantee would be frustrated if its invocation is interdicted till adjudication of dispute. 33. SPSC has submitted that above judgment clearly proves that Mobilization Advance when extended to SPSC is not in the nature of consideration. Only when the Mobilization Advance is applied against the consideration payable to SPSC, it assumes the character of consideration. Before the event of setting off, the Mobilization Advance is merely a deposit in the custody of SPSC which is secured by way of Bank Guarantee and required to be repaid. 34. SPSC submitted that Mobilization Advance is received towards procurement of machinery, etc. which are goods. In respect of goods, there is no requirement under GST law to deposit GST at the time of receipt of Advance. Therefore, on this count also, they are of the opinion that no GST is payable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il such time as the advance payment has been re- paid; provided that the advance payment shall be completely repaid prior to the time when 80% of the Contract Price has been certified for payment. At every stage payments when Invoices are issued, advances are deducted and adjusted and service recipient has to pay only the balance amount of invoice minus advance applied. iv. SPSC, as and when it raises invoices on its service recipient, correspondingly reduces the Advances from recipient in its Current liabilities on the portion adjusted for payments by recipient and reflects the corresponding amount in its Revenue Income. 42. We have considered the relevant Statutory provisions of the GST law and place relevant excerpts on record: i. As per proviso to Section 2(31) CGST Act, deposit shall be considered as payment made for supply of goods or services or both if the supplier applies such deposit as consideration for said supply. ii. SPSC is a service provider and its contracts are for supply of Services. Thereby, we refer to Time of Supply of services. iii. As per Section 13(1) CGST Act, the liability to pay tax on service shall arise at the time of supply. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 6 7 I Information for the current tax period 11A. Advance amount received in the tax period for which invoice has not been issued (tax amount to be added to output tax liability) 11A (1). Intra-State supplies (Rate-wise) 11A (2). Inter-State Supplies (Rate-wise) 11B. Advance amount received in earlier tax period and adjusted against the supplies being shown in this tax period in Table Nos. 4, 5, 6 and 7 11B (1). Intra-State Supplies (Rate-wise) 11B (2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. Payment Voucher 8. Refund voucher (**On receipt of said Advances, receipt vouchers as stipulated in CGST Act are to be issued. Section 31(3)(d) CGST Act reads, a registered person shall, on receipt of advance payment with respect to any supply of goods or services or both, issue a receipt voucher or any other document, containing such particulars as may be prescribed, evidencing receipt of such payment). 43. The format of GSTR-1 is to capture advances received for Supply for determining its taxability on its date of receipt for supply of services. 44. Considering the facts and GST Scheme of law, we find no ambiguity that Time of Supply of Service on advances received is date of its receipt. 45. We find no merit in SPSC submission to defer the payment of Tax on Advances till the stage of issue of invoice. This leads to delayed payment of Tax on advance received. Time of Supply envisaged in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... note that the Interest borne on the said Advance is also used by the recipient as adjustment in paying its dues by recipient, as reflected in the RA bill 25 dated July 21 at sr no 2(vii) under deductions and Receipt Dwarka voucher RTGS-50355 dated 11-3-21 raised by SPSC. We find that vide this variant of advance, which bears interest, wherein advance and its interest is applied into the invoice amount raised by SPSC and balance due is paid by recipient. We hold that GST levy on advances for supply of services is leviable, irrespective of the form/ terminology of advances. iii. Counter Bank Guarantee in lieu of said Advance. We find that as per the contract with its recipient, wherein for the amount debited in Advances under Current liabilities of Balance Sheet of SPSC and that amount reflected in Revenue income of SPSC, a corresponding reduction is made in the value of the Bank guarantee. Thereby, the Bank guarantee amount is regularly reduced at each stage payments by recipient, as advances are applied into invoices. This is the agreement of the contracting parties and this contractual Bank guarantee shall not obscure the provision of Time of Supply for services on adva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vance will be adjusted for payments to be made by recipient. SPSC applies said Advance as consideration for its supply. We find that as per the proviso to Section 2(31) CGST Act, the said advance is consideration. We find that SPSC has misplaced its reliance that said advance is a deposit and has cited case laws pertaining to the word deposit . We find these case laws inapplicable in subject matter. vii. TDS provisions under Section 194C Income Tax Act, 1961 a. The issue before us is Time of Supply for GST levy on Advances received by SPSC. We are not ruling on the provisions of IT Act. We note that CGST Act 2017 and SGST Act 2017 are Indirect taxation laws and not in para materia with Direct Taxation Income Tax Act 1961. We hold that Competent Legislature has enacted the CGST Act, 2017 and the GST Scheme of law has to be canvassed within the confines of statutory provisions of CGST ACT and Rules. We find that SPSC has cited Income Tax case laws which shall have no bearing on GST taxation/ time of supply. We find that the case law of West Bengal Higher Education is not applicable to the present facts. b. We do note that Section 194C, IT Act pertains to contractual p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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