Money received as result of Arbitration Award regarding a contract prior to introduction of GST is exigible to Tax : Telangana AAR

In Re-M/S Continental Engineering Corporation; Telangana State Authority for Advance Ruling; Hyderabad;08.10.2021

The Applicant through application sought clarification that regarding exigibility of the money received in an arbitration regarding a contract executed by them prior to introduction of GST.

Facts:

• M/s. Continental Engineering Corporation, filed an application in FORM GST ARA-01 under Section 97(1) of TGST Act, 2017 read with Rule 104 of CGST/TGST Rules.
• The applicant M/s. Continental Engineering Corporation has executed works contract for M/s. Hyderabad Growth Corridor Ltd (HGCL). The work was completed in pre-GST era and the applicant raised certain claims regarding compensation for delay in execution, payment of difference in rates and other contractual breaches which was referred to a dispute resolution board on 16- 06-2017.
• The applicant after notifying to contractee on 25.09.2017, approached an arbitration tribunal which initiated proceedings on 20.11.2017 and passed an order on 09.05.2019 for Rs.169,58,22,197/- to be paid to the applicant.

Advance ruling sought on following issues:

a. Whether GST is applicable on the proposed receipt of money in case of Arbitration claims awarded for works contract completed in the Pre-GST regime?

b. If the answer to the above question is Yes then under what HSN Code and GST rate the liability is to be discharged by the applicant?

Grounds submitted & Personal Hearing:

• The works were completed in the Pre-GST regime and that only money was receivable after introduction of GST due to arbitration award. They have asserted that the receipt of money is not taxable under the provisions of CGST/ SGST as it doesn’t amount to supply of goods as money is excluded from the definition goods.
• The applicant contended that where the contract for supply is made prior to introduction of GST but the goods/services are supplied on the appointed day or after the introduction of GST then CGST / SGST is payable under Section 142(10).
• And if a price revision is made after introduction of GST then tax is payable under CGST / SGST under Section 142(2)(a). However as the works were executed by the applicant are prior to the appointed day these provisions are not applicable to them.
• If tax was leviable under VAT or service tax on goods or services then CGST/ SGST cannot be levied as enumerated under Section 142(11).
• On the basis of aforesaid, the Applicant contended that the amount received on arbitration for execution of work in pre-GST period cannot be taxed under CGST / SGST Act.

Discussions and Findings:

• At the outset, it was stated that the provisions of both the CGST Act and the TGST Act are the same except for certain provisions.
• Unpaid amounts including escalation of price for works executed in pre-GST period are not covered by Section 13(2) of the CGST/SGST Acts since the supply was made prior to introduction of GST. Hence the amounts claimed pertaining to the works executed earlier to introduction of GST are not taxable under CGST/SGST Acts.
• The refund of excess deductions both statutory and non-statutory made against the bills raised for the works completed in pre-GST period do not constitute consideration for supplies made under GST period. Therefore these amounts are not taxable under CGST/SGST Acts.
• The consideration received by arbitral tribunal is taxable on reverse charge basis under CGST & SGST Act @9% each. In the present case, Arbitration as service was supplied independently after the introduction of GST and therefore this supply is liable to tax on reverse charge basis under GST.
• The Liquidated damages are claimed by the applicant from the contractee due to the delays in making available possession of site, drawings & other schedules by the contractee beyond the milestones fixed for completion of project. These damages are consideration for tolerating an act or a situation arising out of the contractual obligation. Therefore such a toleration of an act or a situation under an agreement constitutes supply of service and the consideration or monetary value is exigible to tax.
• The interest on amounts exigible to tax under CGST/SGST forms part of value of taxable supply.

Held:

In view of the aforesaid explanation, GST is applicable on receipt of money in case of Arbitration claims awarded for works contract completed in the Pre-GST regime

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