GST applies on arbitration payments including sitting fees under reverse charge and delay compensation under Chapter Head 9997

The AAAR-Telangana ruled that GST is payable on arbitration-related payments. For Rs. 2,20,00,000 claimed as HGCL's share of arbitrator sitting fees and expenses, GST applies under reverse charge mechanism at 9% each CGST/SGST per Notification 13/2017, using SAC code 998215. For Rs. 1,15,80,62,000 claimed as compensation for delays in drawings, site handover, and taking-over certificate refusal, the authority held this constitutes taxable consideration for tolerating delay-related situations, attracting 9% each CGST/SGST under Chapter Head 9997. The applicant's argument that their activities don't attract GST was rejected as lacking legal basis. Appeal disposed.

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Issues Involved:
1. GST liability on arbitration costs.
2. GST liability on liquidated damages.
3. GST liability on interest on arbitration amounts.
4. Timeliness of the appeal filing.

Issue-wise Detailed Analysis:

1. GST Liability on Arbitration Costs:
The appellant sought clarification on whether GST is payable on the claim of INR 2,20,00,000 for the HGCL share of sitting fees and other expenses paid by the applicant on the directions of the Arbitrators. The lower authority held that arbitration services supplied independently after the introduction of GST are taxable on a reverse charge basis. The tribunal was conclusively constituted on 20.11.2017 and rendered its orders on 09.05.2019, thus making this supply liable to tax under GST. The Government, vide Sl.No.3 of Notification No.13/2017, dated 28.6.2017, levied tax on services provided by Arbitrary Tribunals to be paid by any business entity located in the taxable territory under the reverse charge mechanism. The relevant tariff provides SAC code 998215 for such services at 9% each under CGST and SGST. The appellant's argument that their activity does not attract GST was found to have no legal backing.

2. GST Liability on Liquidated Damages:
The appellant sought clarification on whether GST is payable on the claim of INR 1,15,80,62,000 (including interest amount) on account of compensation for additional costs incurred due to delays in the issue of drawings and failure to hand over the site on time. The lower authority observed that these damages are claimed due to delays beyond the milestones fixed for project completion and are considered as consideration for tolerating an act or situation arising out of contractual obligations. As per clauses 6.4 and 42.2 of the General Conditions of Contract (GCC), in case of delays, the engineer shall determine the extension of time and the amount of cost in consultation with the employer and the contractor. The time of supply of this service is when such determination takes place, which was determined by the arbitration award on 09.05.2019. The consideration received for such forbearance is taxable under CGST and SGST at 9% each under chapter head 9997 at serial no. 35 of Notification No.11/2017-Central/State tax rate. The appellant's argument that the amounts claimed are towards reimbursement of additional costs incurred and not consideration towards the supply of goods and services was found unconvincing.

3. GST Liability on Interest on Arbitration Amounts:
The appellant claimed interest on amounts determined by the arbitration tribunal under various heads. Under Section 15(2)(d) of the CGST/SGST Acts, interest for delayed payment against a supply is considered taxable under CGST/SGST Acts. Therefore, the interest on amounts exigible to tax under CGST/SGST forms part of the value of taxable supply.

4. Timeliness of the Appeal Filing:
The appeal against the Advance Ruling must be filed within thirty (30) days from the date of communication thereof to the applicant. The impugned Order dated 08.10.2021 was received by the appellant on 01.11.2021, and the appeal was filed on 15.3.2022, beyond the prescribed time-limit. The appellant sought condonation of delay citing limited staff due to Covid-19 and referred to the circular No. 157/13/2021-GST, dated 20.7.2020, regarding the extension of limitation under GST law in terms of the Hon'ble Supreme Court order dated 27.04.2021. The delay was condoned, and the appeal was addressed on merits.

Order:
The order passed by the lower authority is upheld, and the subject appeal is disposed of accordingly.

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