Case Law Details
In re Fastrack Deal Comm Pvt. Ltd. (GST AAR Gujarat)
The main issue is here to decide whether the amount forfeited on account of breach of agreement of sale of land is liable to GST or not.
The applicant contention is that the amount of Rs. 20 lacs forfeited is on account of sale of land and as per Schedule III of CGST Act, 2017, sale of land is an activity or transaction, which is treated as, neither supply of goods nor service. Therefore, they have claimed that such transaction is not liable to GST.
As per Section 7(1) of the CGST Act, 2017, activities referred to in Schedule II are covered under the scope of supply of goods and service. Clause 5(e) to Schedule II to CGST Act 2017, declares that ‘agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act‘ shall be treated as supply of service. The amount, which was received from Mr. B and forfeited by the applicant, was a part of the terms and condition of an agreement held between the applicant and Mr. B (customer). This means that while entering into the agreement, Mr. B was well aware about the terms and condition of the contract that in absence of breach of agreement or nonfulfillment of terms and condition of payment as per the contract, the amount given as an advance would become forfeited by the applicant being settlement of exit of the contract. In other words, Mr. B (customer) has understood and accepted the condition that in the contingency of his inability to fulfill the transaction, applicant can exercise the option of forfeiting the amount received as an advance to agree to the obligation of letting him go, which Mr. B is bound to do as it is part of the terms and conditions of contract already agreed to and settled between them. Thus, the appellant has refrained from taking subsequent action/ tolerated an act of the Mr. B (customer), for which consideration has been received by hm. The purpose of payment of amount is an act of tolerance in the sense that when there is breach of the contract, the appellant is put to certain hardships, which he tolerates in return of the payment received as advance being forfeited. Therefore, the impugned transaction is also a ‘supply’ under the provisions of the CGST Act and therefore taxable. In our view, therefore, this transaction of the applicant agreeing to the obligation of refrain or tolerate or to do an act (exiting from the contract) on the part of Mr. B (customer), for payment of a sum, will be covered under Clause 5(e) to Schedule II to CGST Act 2017, as a declared service.
In view of the above, we hold that the GST is leviable on the amount forfeited by the applicant in terms of clause 5(e) of Schedule II to CGST Act 2017.
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Absurdity has its limitations except in cases of taxation. GST is no exception. In a transaction where no GST applies, to hold that forfeited amount is taxable for GST is absurd indeed. With all the distortions in reading any tax law can only result in unlimited litigation. So will it be in the current one. Floodgates of litigation.