In this article , an attempt has been made to simplify the content of Ruling by Tamilnadu AAR in response to question raised by M/S Shapporji Pallonji & Co Pvt Ltd.
Whether mobilization advance received prior to implementation of GST towards supply of Works Contract Service is subjected to GST?
Facts & Figures: M/s. Shapoorji Pallonji and Co. Pvt. Ltd is primarily engaged in the construction business dealing with various clients under composite Works Contracts involving supply of both materials (goods) and service.
They had entered into an agreement, dated November 27, 2016 with the Christian Medical College, Tamil Nadu, India (CMC) for construction of Service and Teaching Facility at CMC. Their works contract with client is for Rs. 315 crores.
As per the Agreement CMC was required to pay ‘Mobilization Advance to the applicant, which would be equivalent to 5 percent of the contract price in two tranches of 2.5 percent each totally amounting to Rs.15.83 crores. Both the tranches of ‘Mobilization Advance were paid to them by CMC during the Pre-GST regime.
On receipt of ‘Mobilization Advance the applicant had paid Service tax, as the same was leviable/payable under Sec.66B read with Sec. 67 of the Finance Act, 1994.
The ‘Mobilization Advance’ had to be recovered on a time basis in fifteen equal installments on monthly basis against the Running Bill during the month or separately if no Bill is raised in that particular month.
As on 30th June 2017 the applicant had paid five installments of first trench and three installments of second trench of Mobilization Advance totally amounting to Rs.4.22 crores.
They have filed TRAN-I Return for transferring the amount of Rs.1.44 crores being Service Tax paid on the ‘Mobilization Advance’ under Sec. 66B read with Sec.67 of the Finance Act, 1994 during the Pre-GST regime. During September 2017, this amount has been transferred into GST common portal and credited into the Electronic Credit Register of the applicant
Submission by the Applicant- The Applicant has stated that GST was implemented in India from July 1, 2017. Therefore, it is clear that the payment of remaining ten installments of first trench and the remaining twelve installments of second trench of the ‘Mobilization Advance’ totally amounts to Rs. 11.61crores transitioned into the GST regime.
The question here is whether, the Applicant would be liable to pay GST, under the provisions of the CGST Act, 20I7, on the installments of the ‘Mobilization Advance of Rs 11.61 crores ,which has transitioned into the GST regime and adjusted/ deducted by the Applicant post implementation of GST (i.e. post July 1, 2017).
In other words , whether GST is to be paid on the amount raised in the RA Bill periodically post implementation of GST, without deducting the part of mobilisation advance adjusted in the bills raised or the liability to GST is to be arrived at after deducting the part of Mobilisation advance being adjusted in the RA bill.
Findings of the Authorities:- It is held by AAR that GST is payable after adjusting the part of Mobilisation advance which has been received prior to GST implementation as per Section 142(11)(b) of the Act. Thus mobilization advance received prior to GST implementation is not subject to GST .
Relevant Provisions and explanations in support of the said Ruling is as indicated below :-
Supply of Services :- After the GST came into force, the works contract entered into by the applicant for construction is a ‘Supply of Service’ as per Sl. No. 6 of Schedule-II to CGST Act .Thus the work contract services by the applicant is a Supply of Services under the GST Act.
Considerations :- As per sec 2 (31) of CGST Act 2017 , consideration includes any payment in respect of supply of goods or services . Entire unadjusted advance is paid towards consideration for the said supply of service of Works Contract.
Time of Supply :- As per Sec 13 of CGST Act , time of supply shall be the earliest of the date of issue of invoice by the supplier or the date of receipt of payment.
In the given case , the applicant had issued Tax Invoice No. CMC/1349/Mob.Adv.01/16-17 / 07 dated 13.12.2016 and Tax invoice No. CMC/13a9/Mob.Adv.02/16-17/16 dated 04.03.2017 . The applicant has received the first tranche in the month of December 2016 Tranche 2 of the advance in the month of March 20I7. Thus the time of supply as per Sec13 of CGST Act 2017 is 13 Dec 2016 and 04 March 2017 respectively.
Explanation (i) and (ii) of Sec 13 of CGST Act :- As per explanation (i) and ( ii) of Sec 13 of CGST Act 2017 , the supply is deemed to have been made to the extent it is covered by the invoice or of the payment and the ‘date of payment ‘is the date on which it is entered into the books of account of the supplier, i.e, the applicant.
In the case at hand the applicant has raised the invoice to the full Mobilization Advance received by them and is, therefore, deemed to have supplied works contract service to CMC prior to 01-07-2017 to the extent covered by the Mobilization advance that stood credited to its account as per Section 13 of the GST Act.
Section 142(11)(b) : As per sec 142(11)(b) of CGST Act 2017 , Notwithstanding anything contained in section 13, no tax shall be payable on services under this Act to the extent the tax was leviable on the said services under Chapter V of the Finance Act, 1994. Section 142 (11)(b) applies to transactions in services on which Service tax was leviable and it over-rides Section 13 of GST law which states that liability to pay tax on services arise at the time of supply as determined by provisions of Section 13.
In view of the above provisions and explanations , It is concluded that Mobilisation advance to extent received prior to implementation of GST towards supply of Works Contract Service is not to be subjected to GST.
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