No GST on interest and cost awarded under arbitration: AAR

The Gujarat Authority for Advance Ruling (GAAR) issued Advance Ruling No. GUJ/GAAAR/APR/2025/123 on June 26, 2025. This ruling was on the basis of an application filed by M/s. Shoft Shipyard Pvt. Ltd located at Bharuch-Dahej Road, Kaladhara Road, Bharuch, Gujarat – 392130.

This application was filed on September 23, 2024 under Sections 97(2)(c) and 97(2)(d) of the CGST Act, 2017. Shoft Shipyard asked the authority for clarity on whether GST is applicable to amounts received through arbitration or not.

The company raised two main questions:

• Whether the GST is payable on the interest amount or not and the costs awarded to them under an arbitration ruling?
• What kind of supply is involved, what will be the time of supply and what GST rate will be apply, if the GST is applicable?

A personal hearing took place on April 8, 2025, where Shri M.P.S. Sengar, Shri Rajesh Desai, Shri Sudhir Chavan, and Shri S.K.K. Krishnan appeared on behalf of Shoft Shipyard and presented the facts mentioned in the application.

After that, another personal hearing was held on May 22, 2025 due to the transfer of the Member (Centre).  Shri M.P.S. Sengar, Shri Rajesh Desai, Ms. Pranati Prabhu, and Shri Sudhir Chavan again appeared and repeated their submission.

According to them, the interest amount they have received is linked to a supply which was already completed and such interest should not be taxed under GST. They also referred to the Continental AAR ruling to support this point. As for the arbitration costs, they said that GST is not applicable according to Circular No. 178. They also mentioned a similar appellate ruling by GAAR in the case of GSPC (Gujarat State Petroleum Corporation).

This case will be helpful in understanding whether interest and cost amounts received through arbitration need to be taxed under GST and how such cases should be treated under the GST law.