GST Applicable on Amount Received by Arbitration for Contract works executed in pre-GST Regime: AAR [Read Order]

In a recent ruling the Telangana State Authority For Advance Ruling (TSAAR) held that the Goods and Service Tax (GST) is applicable on the proposed receipt of money in case of Arbitration claims awarded for works contract completed in the Pre-GST regime.

The applicant , M/s. Continental Engineering Corporation sought an advanced ruling with regard to the question  whether the GST is applicable on the proposed receipt of money in case of Arbitration claims awarded for works contract completed in the Pre-GST regime. He further sought under what HSN Code ,the GST rate the liability is to be discharged by the applicant.

The applicant submitted that the works were completed in the Pre-GST regime and that only money was receivable after introduction of GST due to arbitration award. They relied on case law to assert that receipt of money cannot be considered as taxable event as the entire work was completed in the Pre-GST regime and only money is receivable in the GST regime. They further stated that there is no man power and operation after the GST as seen from the financial statements.

The applicant sought clarification regarding the eligibility of money received in an arbitration regarding a contract executed prior to GST. The liability to tax under CGST/SGST Acts for works contracts is determined by the time of supply of services. The refund of excess deductions made against the bills raised for the works completed in pre-GST period does not constitute consideration for supplies made under GST period.

 The Authority Bench noted that the interest on delayed payments of interim payment certificates is not liable to tax under CGST/SGST Acts.

The Bench also observed that the Liquidated damages are claimed from the contractee due to delays in making available possession of site, drawings & other schedules. Interest on Arbitration Amount is taxable under CGST/SGST Acts.

It was thus ruled by the panel of Sri B. Raghu Kiran and  S.V. Kasi Visweshwar Rao that the Arbitration as service was supplied independently after the introduction of GST, and is taxable on reverse charge basis at 9% each.

To Read the full text of the Order CLICK HERE

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