Fate of services tax paid on advance received from customer under GST

[Prakash Gupta]

Dear Expert,

Need your help on below mentioned issued under GST. Brief facts and query is as under:

The company is in business of project construction since year 2015. It has received mobilization advance of Rs. say 10 Crore in January 2017 ( before GST regime) and on which it paid service tax as per the applicable rate.

Now under GST regime the company will raise invoice and willing to set off its GST liability with earlier service tax, which has been paid advance received.

With the above mentioned background, my query is as under:

“whether service tax paid on advance received from clients can be set off with GST liability ? if yes, then how and where this advance amount need to show in Trans-01 ?

[KASTURI SETHI]

Here TRANS-1 is not applicable. It stands for forwarding of credit only. The element or component of cash is not the part of TRANS-1. Further in my view, point of taxation will decide the fate of ST deposited/paid by you. As per Rule 3POTRs, 2011 as amended point of taxation for the completion stage is the date of receipt of advance. This has also been clarified in FAQS issued by Board. So it is stage wise. Being continuous supply, GST has to be paid on balance amount depending upon completion stage and balance left. In other words, there will be no loss of the amount of ST already deposited. Other experts may also pl. Intervene.

[Prakash Gupta]

Thank You Sir,

For your reply.

[Vamsi Krishna]

Agree with Kasthuri sir,

Would like to add further if the contract is a EPC contract where you would just have paid Mobilisation advance along with Service tax on that.

And if the actual services are started and billing started in GST regime, your contractor has to file Tran-1under section 142(11)(c) claiming the ST paid to the dept and should return back the same to you.

Since original supply (services) taken place in GST regime, he will raise GST bills and you will get full credit of same.

Pls make sure that your contractor filed Tran-1under Sec. 142(11)(c) and refunded the ST received through Tran-1 to you.

And on receipt of that, you should reverse the Service tax credit taken earlier (this can be reduced from your Tran-1 carried forwarded ST credit if any).

Pls refer 142(11)(c).

Pls note that this applies only when just pure advance was paid before GST regime and actual work and billing takes place in GST regime.

I request other experts to intervene for any modification.

[KASTURI SETHI]

Sh.Vamsi Krishna, Sir,. Will you clarify what do you mean by "pure advance" ? Thanks.

[Vamsi Krishna]

Sir

Pure advance meaning here is that no work has been taken place and Mobilisation advance should have been paid against the whole contract work.

As i mentioned it is applicable to big projects (EPC/Turnkey) where contractor will be paid 10% of the total work as Advance for site mobilisation and adjusts the advance each Running Bills (RA Bills) which will be normally for 3-4 years.

[KASTURI SETHI]

O.K. Sir. But here fate is to be decided by the POTRs as per latest FAQs.

[Prakash Gupta]

Dear Experts,

Thanks for your response. Mentioning herewith a link, containing an article and discussion of this forum. Need your comment on below queries :

1. Can we treat mobilization advance under section 142(11)(b) of the CGST Act or It is need to show u/s 142(11)(C) only, as it is construction service, even we have not paid any VAT at the time of receipt of the Advance.

2. If answer to query 1 is Yes, then how i need to show mobilization advance in GST invoice ?

Thanks.

https://www.taxtmi.com/article/detailed?id=7496

AI Summary

Service tax transition: prior service tax on mobilisation advance recoverable through transitional claim and adjustment under GST. Service tax paid on a pre-GST mobilisation advance is governed by point-of-taxation rules and transitional mechanisms. For a pure mobilisation advance where services commence under GST, the contractor should use the transitional claim under section 142(11)(c) to account for or return the service tax collected/paid; the recipient must ensure refund or adjustment and reverse any pre-GST service tax credit accordingly. TRANS-1 does not apply to the cash component of mobilisation advances and transitional filing should follow the prescribed claim and adjustment process.