GST not leviable on Surety Bond Forfeiture Compensation and Notice Pay Recovery: AAR [Read Order]

GST - leviable - Surety - Bond - Compensation - Notice - AAR - TAXSCAN

The Haryana Authority for Advance Ruling (AAR) has ruled that, no Goods & Services Tax (GST) can be levied on recovery of notice pay or compensation paid on forfeiture of surety bond while placing reliance on Circular No. 178/10/2022-GST dated 03.08.2022 by the Central Board of Indirect Taxes & Customs (CBIC).

The application was made by M/s Rites Limited, on 7 grounds for clarification.

Namely, GST taxability of notice pay recovery, compensation on forfeiture of surety bond, recoveries for canteen facility, on amount collected for providing new ID Cards, liquidated damages for performance/short-performance/delay in performance, forfeited security deposit/bank guarantee and written of unclaimed creditors’ balance.

In deciding the first two matters, the Authority comprising Central Goods & Services Tax Member Sunder Lal and State Goods and Services Tax Member Kumud Singh observed that, no provision of service or goods happen in this matter, when compensation on forfeiture of surety bond is collected or notice pay is recovered.

The applicant was represented by Chartered Accountant Anmol Gupta who briefed the Authority of the factual and legal details of each query.

Reissuance of ID cards and provision of canteen facilities, the lack of independent contract and direct provision of facilities point towards non taxability, as observed by the authority.

The taxability of written off amount as creditors balance, liquidated damages awarded and the forfeiture of bank guarantees and security deposits were also held to be not taxable as they reflect income and not supply of goods or services and in light of the abovementioned circular of CBIC.

Consequently, the AAR, Haryana ruled that, “it can be said that none of the above transactions on which the applicant has sought the advance ruling regarding the taxability under the CGST Act, 2017 falls under the scope of supply”.

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In Re: M/s RITES Limted,Rites Bhawan


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