AAR Affirms GST Liability on Advance Payments Received for Construction Services

The applicant, PC Snehal Construction Private Limited, is engaged in providing works contract services, specifically construction and infrastructure projects for government and local authorities. They receive “mobilisation advances” from their clients upon the commencement of a project. These advances are later adjusted or recovered from the Running Account (RA) bills as the work progresses.

The applicant sought an advance ruling to clarify whether GST is payable upon receipt of the advance payment, or whether the tax liability can be deferred until the issuance of the actual invoices (RA bills), when the advance is adjusted. They said that since the advance is in the end recovered from bills on which GST is paid, immediate payment may cause procedural complexities.

Main Issue: Whether GST is applicable on the advance payment received for construction services at the time of receipt, or if the liability arises only at the time of issuance of the running account bills.

Advance Authority Rules: The Gujarat Authority for Advance Ruling (GAAR) ruled that GST is indeed payable on the advance payment at the time of its receipt. The Authority referred to Section 12(2) and Section 13(2) of the CGST Act, 2017, which define the “time of supply” for goods and services respectively. While the government has exempted the payment of GST on advances for the supply of goods (via Notification No. 66/2017-Central Tax), no such exemption exists for the supply of services. In the case of services, the time of supply is the earlier of the date of issuance of the invoice or the date of receipt of payment.

As construction is classified as a service, the receipt of a mobilization advance triggers the tax liability immediately. The AAR relying upon S.P. Singla Constructions, held that tax must be paid when the advance is received, and a receipt voucher must be issued as per Section 31(3)(d) of the Act.

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