Escrow deposit against bank guarantee pending arbitral award challenge not consideration under section 2(31) CGST Act 2017

The AAR Gujarat held that 75% amount deposited in escrow account against bank guarantee pending challenge to arbitral award does not constitute consideration under section 2(31) of CGST Act, 2017, as it was not paid to the contractor but held in escrow requiring explicit approval for withdrawal. The deposit was deemed outside GST liability scope since the applicant disputed the decision and amount could only be withdrawn upon furnishing bank guarantee. The ruling remains valid only until final dispute resolution, with department retaining rights to recover interest on delayed GST payments if applicable.

---

---

Issues Involved:
1. GST liability on the amount deposited in escrow.
2. Time of supply for GST purposes.
3. Eligibility for Input Tax Credit (ITC).

Summary:

Issue 1: GST Liability on Escrow Deposit

The primary question was whether the 75% amount deposited by the applicant in an escrow account, pending the outcome of further challenges against an Arbitral Award or dissatisfaction against a Dispute Adjudication Board (DAB) decision, is liable to GST under the CGST Act, 2017.

The applicant argued that the amount deposited in the escrow account is not a 'consideration' as per Section 2(31) of the CGST Act, 2017, since it is not paid to the contractor but deposited in an escrow account and cannot be withdrawn without the applicant's approval. The applicant maintained control over the amount, and it was subject to the contractor providing a bank guarantee (BG) for the same amount. The applicant cited various legal precedents to support this argument.

The Revenue's submission was that GST should be applicable on the amount deposited into the escrow account, considering it within the scope of 'supply' under Section 7 of the CGST Act, 2017.

Findings:

The Authority for Advance Ruling (AAR) examined the definitions of 'consideration' and 'supply' under Sections 2(31) and 7 of the CGST Act, 2017. It found that the 75% amount deposited in the escrow account is not 'consideration' because it is not paid to the contractor but deposited in an escrow account, and it cannot be withdrawn without the applicant's explicit approval. Consequently, this amount does not fall within the ambit of 'supply' under Section 7.

The AAR ruled that the 75% amount deposited in the escrow account is not liable to GST under the provisions of the CGST Act, 2017.

Issue 2: Time of Supply

Since the first question was answered in the negative, the second question regarding the 'time of supply' for GST purposes was rendered infructuous.

Issue 3: Eligibility for Input Tax Credit (ITC)

Similarly, the third question regarding the eligibility for ITC was also rendered infructuous due to the negative ruling on the first question.

Ruling:

1. The amount deposited by the applicant (75%) in the escrow account against a bank guarantee, pending the outcome of further challenges against an Arbitral Award or dissatisfaction against a DAB decision, is not liable to GST under the provisions of the CGST Act, 2017.
2. Since the answer to the first question is negative, the second and third questions are rendered infructuous.

---