In Re Louis Dreyfus Company India Pvt. Ltd. (GST AAR Punjab)
Applicability of GST on the differential payment received by a party to the aforesaid contract from the other party to the contract is event of ‘Settlement’, ‘Washout’ or ‘Closure’ of Contract by it?
In the present case, there is clearly an agreement between the contracting parties to refrain from bringing in arbitration, which is also built in the contract, if the contract is settled by payment of agreed amount of monies. Therefore, this activity can clearly be considered as supply of service by ‘agreeing to the obligation to refrain from an act’, and would therefore by subject to applicable tax. The present activity is also a toleration of the act of not providing the other party to the contract, the agreed quantity of goods at agreed prices at the agreed date, on payment of agreed amount of monies to settle the contract. Therefore, this would be liable for consideration as supply of service by way of agreeing to the obligation to tolerate an act or a situation. It is also clear that the applicant and the other contracting party are agreeing to the obligation of doing an act
(ii) In forward contracts in cotton sales, being settled by M/s Louis Dreyfus Company India Pvt. Ltd. with the other party to the contract by way of payment of the differential of forward rate and rate fixed by the applicant using his discretion, such rate being different than the market price of cotton on the date of settlement, the same would not be falling within the purview of `securities’ as defined in Section 2(101) of the CGST Act, 2017 and would therefore be chargeable to GST.
(iii) In the forward contracts in cotton purchase being settled by M/s Louis Dreyfus Company India Pvt. Ltd. with the other party to the contract by way of payment of the differential of forward rate and prevailing market rate on the settlement date, the same would be falling within the purview of ‘securities’ as defined in Section 2(101) of the CGST Act, 2017and would therefore not be chargeable to GST.
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING, PUNJAB
M/s Louis Dreyfus Company India Private Limited, Ground Floor, House No. 378, Model Town, Phase-1, Bhatinda, 151001(Punjab) hereinafter referred to as ‘applicant’ had submitted an application for advance ruling in form GSTARA-01 vide his letter dated 07.06.2018 received on 20.06.2018 seeking ” to determine the applicability of Goods and Services Tax (“GST”) on the differential payment received by a party to the aforesaid Contract from the other party to the Contract is event of “Settlement”, “Washout” or “Closure” of Contract by it.” In this regard, comments from the concerned officer i.e. Assistant Commissioner of State Taxes, Bathinda has been sought. The concerned officer vide his letter No. 5076 dated 03-08-2018 stated that charges received on account of washed away / cancelled contracts for supply of goods are covered under GST as services as per definition of services u/s 2(102) of the Act ibid. The activities relating to use of money are clearly covered under services in view of the above mentioned definition of services. As per the definition of consideration under the Act as per section 2(31)(b) of the CGST, the charges received on account of forbearance for supply of goods are part of consideration. A personal hearing was held on 13.08.2018 before the Advance Ruling Authorities, Punjab. On 13-08-2018, Sh. Abhishek Mishra & Sh. Anand Aggarwal, Chartered Accountants appeared on behalf of the applicant with regard to advance ruling application and reiterated their submissions made in Annexure-1 & Annexure-2 of their advance ruling application dated 07-06-2018. They stated that the activity of M/s Louis Dreyfus Company India Private Limited, Ground Floor, House No. 378, Model Town, Phase-1, Bhatinda, 151001 (Punjab) of signing forward contracts for sale/purchase of Cotton wherein the contract is closed by settlement without supply of goods would not be covered under the term “Services” as defined under section 2(102) of the CGST Act, 2017, in as much as these above said activity would be covered under the term “Securities” which has been excluded from the scope of “Services”. They argued that the legal scope of “Services” would prevail over the scope of “Supply” as defined in section 7 of the CGST Act, 2017. They also stressed that the question raised by them in the present advance ruling application has been clarified by the Government in FAQ on Banking, Insurance and Stock Brokers section which is entered at Sr. No. 36 and 37 and available at the website www.cbic.govin. They further stated that the activity of M/s Louis Dreyfus Company India Private Limited, Ground Floor, House No. 378, Model Town, Phase-1, Bhatinda, 151001 (Punjab), discussed above would not be covered in the term “activities relating to the use of money ” mentioned in section 2(102) as the term “Securities” has been specifically excluded from the term “Services” and once a specific exclusion has been made in the definition, it cannot be covered under general inclusion. The question raised by the applicant has been discussed at length. The Chartered Accountants for the applicanthave nothing more to submit or add in addition to Annexure-1 & Annexure-2 already submitted with the advance ruling application, which are reproduced as follow:
Annexure 1
Statement of relevant facts having a bearing on the question(s) on which advance ruling is required
Background
1. The Applicant is a Company incorporated under the Indian Companies Act, 1956, and is inter alia engaged in the business of purchase and sale of cotton, oil and grains. The Appellant, for the purposes of carrying on its business, is registered under the provisions of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as the ‘CGST Act’) and State Goods and Services Tax Act, 2017 vide Goods and Services Tax Identification No. 03AAACL7361E1ZV.
Nature of activity proposed to be undertaken by the Applicant
2. In order to stay competitive in the trading of commodities and to ensure minimal profitability in highly volatile commodities market, the Company enters into customized Contracts which are an ensemble of “Supply” cum “Settlement” Contracts. Such Contracts culminate into and entail performance either by way of actual delivery of goods or settlement by payout of differential sum.
3. The Company enters into Sale and Purchase Contracts of aforesaid nature with its customers and vendors respectively, the salient terms of which are produced hereunder for ease of reference:
