In re Dedicated Freight Corridor Corporation of India Limited (GST AAR Gujarat)
The AAR Gujarat’s recent ruling on GST pertaining to the escrow deposit made by the Dedicated Freight Corridor Corporation of India Limited is a crucial development in the realm of indirect taxation. This article aims to provide an insightful analysis of the ruling, dissecting its various components and implications.
Background:
- The applicant, a PSU under the Ministry of Railways, is engaged in the construction, maintenance, and operation of dedicated freight corridors through contracts with third-party contractors.
- Dispute resolution mechanisms, including the Dispute Adjudication Board (DAB), are established in the contracts.
- NITI Aayog directed PSUs challenging awards to deposit 75% of the amount in an escrow account pending litigation, which was extended to adverse DAB decisions.
Applicant’s Position:
- The deposited amount in the escrow account is not a consideration as per the definition in the CGST Act, 2017.
- There is no supply of goods/services, as the amount is deposited to revive the construction industry, and it is subject to pending litigation.
- The applicant has control over the deposited amount, and the contractor requires permission to withdraw it.
Revenue’s Submission:
- GST should be applicable on the deposited amount into the escrow account until the final outcome of the litigation, considering it falls within the scope of supply under Section 7 of the CGST Act.
AAR Findings:
1. Consideration: The amount deposited in the escrow account is not considered as payment for supply unless the supplier applies such deposit as consideration for the supply. The applicant does not term this as consideration, and the deposit is subject to specific conditions.
2. Supply: The deposit does not fall within the scope of supply as there is no transfer, barter, exchange, or disposal made for consideration. The dispute is not about the GST liability after a decision but specifically about the levy of GST on the 75% deposited amount.
3. Ruling: The 75% amount deposited in the escrow account is not liable to GST under the provisions of the CGST Act.
4. Additional Points:
