In re Rites Limited (GST AAR Haryana)
No GST on recoveries on account of Notice Pay, Bond Forfeiture, Canteen Charges, ID Cards replacement Liquidated Damages etc.
The AAR, Haryana in the matter of M/s Rites Ltd. [Advance Ruling No. HR/ARL/19/2022-23 dated October 18, 2022], Re has passed a ruling on the taxability of amount collected or received or forfeited as Notice Pay Recovery, Bond forfeiture of contractual employees, canteen charges, recovery on account of loss or replacement of ID Cards, Liquidated damages due to delay in completion, Forfeiture of earnest money and security deposit and bank guarantee by applicant, and Amount written off as creditors balance in the books of accounts of the applicant.
Facts:
M/s RITES Ltd. (“the Applicant”) was established in 1974 and was incorporated as a Public Ltd. company under the Companies Act, 1956. It is a multi-disciplinary consultancy organization, which deals in the field of transport, infrastructure and other related technologies. The nature of various amounts received or forfeited are as follows:
1. Notice Pay Recovery
Charges received by the company in cases where the employee is unable to serve the notice period as per the employment contract. It can also be understood as charges for not serving the notice period.
2. Bond forfeiture of contractual employees
The amount paid as surety is forfeited in case the minimum bond period is not served and the employee resigns before the conclusion of the contract.
3. Canteen Charges
For the purposes of ease in conducting business and for increase in efficiency, the Applicant deemed it fit to enter into a contract with a third-party vendor to provide food and beverages to its employees. Rate of the meals is provided by that third party vendor and is finalized in advance by the applicant. An invoice for the agreed amount is also generated along with GST and a nominal amount is also deducted from the employees for the aforementioned reasons and the rest of the amount for the canteen services is borne by the Applicant company as a service to its employees.
4. Recovery on account of loss or replacement of ID Cards
In case of loss or mutilation of existing ID Card, new ID cards needs to be made and for the purpose of reissuance, some amount is charged. It is essential to note that the printing of the new ID cards and re-issuance is not through any third party vendor, but through in-house facility itself.
5. Liquidated damages due to delay in completion
Since the Applicant receives construction work due to its expertise, it being affiliated with the Government of India, invites tenders and bids to carry out such construction activity that they are entrusted with. In case there is a delay in completion of the activity, the contractor is required to pay the agreed sum as liquidated damages, subject to maximum limit decided as per the contract.
6. Taxability on forfeiture of earnest money and security deposit and bank guarantee by applicant
Applicant receives earnest money from bidders and returns such money of the unsuccessful bidders except in certain situations. Similarly, Security Deposit and Bank Guarantee of the successful bidder maybe forfeited in situation where damages may arise.
7. Taxability of amount written off in the books of accounts of the Applicant as creditor’s balance.
A contractor whose security deposit is forfeited and when such contractor becomes eligible for refund of such amount but is untraceable and does not come forward to claim the said amount, then such amount shall be considered as expenditure to be incurred and would reflect on the liabilities side of the balance sheet and is written off as credit entry in P&L account.
Issue:
Whether the GST leviable on amount collected or received or forfeited as Notice Pay Recovery, Bond forfeiture of contractual employees, Canteen charges, Recovery on account of loss or replacement of ID Cards, Liquidated damages due to delay in completion, Forfeiture of earnest money and security deposit and bank guarantee by applicant, and Amount written off as creditors balance in the books of accounts of the Applicant and if yes, at what rate GST to be levied?
Analysis
