The Haryana Authority for Advance Ruling (AAR), ruled that there is no GST on Amount of Creditors Balance Unclaimed/Untraceable, Written Off by Crediting Profit and Loss (P&L) Account. The applicant in the present matter is Rites Limited.
The Contractor whose Security Deposit is deducted by the Applicant, after completion of work and when he is eligible to claim back such security deposit, does not come back to seek refund of such security deposit for a certain period of time or sometimes becomes untraceable for refund of Security Deposit.
In such cases, after the management’s decision, such security deposit of the contractor lying with the Applicant which is in effect expenditure of the Applicant to be incurred and reflecting on Liabilities side of Balance Sheet is written off by way of credit entry in Profit & Loss Account.
Similarly, there may be certain other creditors balance which is lying unpaid/unclaimed for a certain period of time and where such creditor is untraceable, in such cases, the balance of such creditor is written off by the Applicant by way of a credit entry in Profit & Loss Account.
The Applicant company is of the view that the amount written off in the books of accounts cannot be regarded as the amount is received for rendering any supply of service or goods to another person and instead, merely written off its outstanding expenses (creditors) which Applicant will not pay in future. Therefore, this entry merely amounts to writing off its outstanding expenses, i. e, amount outstanding against services or goods received by the Applicant in past is written off in books of accounts as not payable in future.
The Bench of Sunder Lal, Member CGST and Kumud Singh, Member SGST observed that “The authority is of view that there are no services received or provided by the applicant company in the above mentioned situations/transactions. So, this transaction of writing off unclaimed amount of the contractors/other creditors is basically an income and not a supply, hence outside the purview of scope of supply under the GST Act.”
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