2020 (9) TMI 1228 - AAR - GST

GST Ruling: Upfront Payment to State Govt Deemed as Advance Payment, Liability for Service Tax

The ruling determined that the upfront payment made by the applicant to the State Government is considered an advance from the date of mines' allotment ... Determination of time of supply - upfront payment made by the applicant to the State Government is in the nature of Deposit in terms of Section 2(31) of the MP GST Act, 2017 or is in the nature of advance paid? - section 13(3) of the MP GST - HELD THAT:- Section 2(31) of MP GST Act is in respect of definition of “consideration” and Section 13(3) of MP GST Act is in respect of time of supply of service. The definition of consideration is speaks about the value of service and proviso to section 2(31) of CGST Act, is about the deposit not about advance. The liability to pay GST on services shall arise on the basis of time of supply of service not from the definition of consideration given in Section 2(31) of MP GST Act. In this case, the applicant is liable to pay GST on the amount of revenue share under reverse charge mechanism as applicable in terms Si.No.5 of of Notification No.13/ 20017-CT(rate) DATED 28.06.2017 and there is specific section 13(3) of MP GST Act in respect of time of supply of service for the person who are paying GST under the reverse charge mechanism. Hence, as per Section 13(3) of MP GST, the time of supply is date of payment as entered in the books of account of the recipient i.e. Government or the date on which the payment is debited in his(Applicant) bank account whichever is earlier. There is a difference between advance money and deposit amount. The advance is received toward goods or services to be supplied in future. On the other hand deposit money is received only as a security. It is generally not used by the supplier in the course of supply of goods or services. The upfront payment made by the applicant is adjusted toward the services to be supplied in future after commencement of excavating minerals which clearly shows that the said payment is and advances against the future payment, hence the section 2(31) of MP GST Act which speaks about the deposit is not applicable in the case of applicant. In this case the upfront payment is payable in three installments and after payment of third installment, the State Government shall grant the mining lease to the successful bidder - there is no clause of refund of that amount after allotment of mines on lease, hence the payment made to the state government is no more deposit after allotment of mines but is advance which will be adjusted against the future payment of revenue share amount. In this case, the mining lease is granted after the payment of third installment. The upfront payment made to the state government is treated as advance against the revenue share from the date of allotment of mines and the GST is payable on this advance from the date of allotment of mines to the applicant. As per the proviso to 2(31), a deposit would be consideration if the supplier applies the deposit as consideration. This is not same as application of the deposit towards consideration. Thus, an amount would attain the character of “Deposit not attracting tax” where the amount is not to be adjusted against the consideration unless an event occurs or does not occur. In this case, the upfront payment is to be adjusted against consideration at the first available opportunity. Thus the supplier, i.e. GoMP is applying the deposit as consideration - dominion over an amount of payment or liability to refund back a sum received in case of cancellation of a contract does not alter the nature of the money given. As per the terms of a contract, both the security deposit and advance may have to be paid back. Therefore, dominion over moneys advanced does not change the character of the amount paid upfront. There is clear provision in law for liability of GST in case of supplies in respect of which tax is paid or liable to be paid on reverse charge basis in case of applicant under the provision of Section 13(3) of MP GST Act, 2017 - the applicant is liable to pay service tax from the date of allotment of mines on lease by the government as the payment made by the Applicant to state Government is an advance. Issues Involved:1. Nature of upfront payment under GST Act.2. Time of supply determination for GST purposes.3. Difference between deposit and advance payment.4. Applicability of GST on advance payments.Issue-wise Detailed Analysis:1. Nature of upfront payment under GST Act:The applicant, engaged in mining and minerals, questioned whether the upfront payment made to the State Government is a deposit or an advance to determine the time of supply under Section 13(3) of the MP GST Act, 2017. The applicant argued that the upfront payment is a deposit, not consideration for supply, and thus GST liability should arise only when the deposit is adjusted against revenue share. The applicant cited Section 2(31) of the MP GST Act, which states that a deposit is not considered payment for supply unless applied as consideration.2. Time of supply determination for GST purposes:The authority examined Section 13(3) of the MP GST Act, which stipulates that for services taxable under reverse charge, the time of supply is the earlier of the date of payment or 60 days from the invoice date. The applicant contended that since the upfront payment is a deposit, GST should not be payable until it is adjusted against revenue share. The department, however, maintained that the nature of the upfront payment depends on the contract terms and cited a ruling from the Appellate Authority for Advance Ruling, West Bengal.3. Difference between deposit and advance payment:The authority distinguished between advance and deposit payments, noting that advances are payments for future supply of goods or services, while deposits are security payments not used in the course of supply. The upfront payment, being adjusted towards future services, was deemed an advance rather than a deposit. The authority found no refund clause in the tender documents after the mines' allotment, reinforcing that the upfront payment is an advance.4. Applicability of GST on advance payments:The authority concluded that the upfront payment is an advance from the date of mines' allotment, making the applicant liable to pay GST from that date. The ruling emphasized that dominion over the payment by the State Government does not alter its nature as an advance. The authority also clarified that the upfront payment is not a surety, as it is adjusted at the earliest opportunity.Conclusion:The ruling determined that the upfront payment made by the applicant to the State Government is an advance from the date of mines' allotment for the purpose of determining the time of supply under GST law. Consequently, the applicant is liable to pay service tax from the date of mines' allotment as the upfront payment is considered an advance.Ruling:The upfront payment made to the State Government is in the nature of advance from the date of mines' allotment for determining the time of supply under Section 13(3) of the MP GST Act, 2017. The applicant is liable to pay service tax from the date of mines' allotment as the upfront payment is an advance. The ruling is valid subject to Section 103(2) until declared void under Section 104(1) of the GST Act.