In re P C Snehal Construction Private Limited (GST AAR Gujarat)
The Authority for Advance Ruling (AAR), Gujarat, examined whether GST is payable on a mobilisation advance received under a works contract and determined the time at which tax liability arises. The applicant, a GST-registered government contractor, was awarded a contract by Ahmedabad Urban Development Authority (AUDA) for construction and five years of operation and maintenance of a storm water drainage system. Under the tender terms, 10% of the contract value was paid as an interest-free mobilisation advance, backed by a guarantee and recoverable through amortised deductions from running account (R.A.) bills. While GST at 18% was paid on R.A. bill payments, GST was not paid on the advance, as the applicant treated it as a loan rather than consideration for services.
The AAR examined whether the advance qualified as “consideration” under Section 2(31) of the CGST Act. It held that although a deposit is generally excluded, it becomes consideration if applied toward payment for supply. Since the mobilisation advance was adjusted against R.A. bills, it was treated as consideration for works contract services.
Regarding time of supply under Section 13 of the CGST Act, works contracts are treated as supply of services. The Authority noted that no invoice was issued at the time of receipt of advance. Therefore, as per Section 13, the time of supply is the date of receipt of payment, making GST payable at that stage. However, if an invoice is issued within the prescribed period under Section 31, liability arises on the earlier of the date of invoice or receipt of payment.
