Maharashtra Electricity Transmission Co. Liable to Pay GST on Additional Deposit Received from End Users for Work Completion: AAR [Read Order]

MSETCL had filed an application before the AAR seeking clarity on various aspects of GST applicability on its project-based deposits.

As per the business model employed by MSETCL, the company collects an advance deposit from consumers based on estimated project costs, along with supervision charges. However, in the instances where actual project expenses exceed the initial deposit, the shortfall is recovered in the form of an additional deposit from the end users.

The key query raised by MSETCL before the AAR was whether such additional payments, made after project completion, would attract GST.

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Chartered Accountant Arpit Jain appeared for MSETCL while the Revenue was represented by Sudarshana J. Patil, Deputy Commissioner of SGST. It was the contention of MSETCL that the additional deposit collected post-completion was merely an adjustment for cost recovery and did not constitute a fresh supply of service.

It contended that GST should not apply as the original supply had already been taxed to the extent of the advance deposit.

Meanwhile, the Department maintained that even if such recovery occurred after a significant time lapse involved in the completion of the project, the fact remained that it related to a taxable supply for which consideration had been received either in part initially or in full eventually.

The AAR Bench, comprising D.P. Gojamgunde, Joint Commissioner of State Tax, and Priya Jadhav, Joint Commissioner of Central Tax concurred with the view of the Department.

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The Bench observed that GST is a tax on supply, and the time of supply under Section 13 of the CGST Act determines when GST becomes payable. In this case, the additional amount recovered from the end user post-completion was deemed part of the total consideration for the supply of service and therefore liable to GST.

The Bench ruled that such payments, although received at a later stage are in lieu of consideration for a taxable supply and must be subjected to GST. The bench further clarified that the time of supply in such cases shall be the date of receipt of the additional deposit or the date of invoice, whichever may be earlier, as per the provisions of the CGST Act.

Accordingly, the AAR concluded that MSETCL is liable to pay GST on additional deposits received from dedicated consumers after project completion to cover any cost shortfall in respect of works undertaken.