re GST on amount recovery

[Madhavan iyengar]

A company has recovered Certain sums basic amount and interest from vendor these amounts are certain taxes of earlier law which was not paid by the vendor to the company and in companys assessment the ITC of earlier law was disallowed

query is gst applicable on the recovery of basic amount of taxes and the interest

[PAWAN KUMAR]

Dear Sir,

As per my view, the same will be subject to GST. As per valuation section 15 of CGST act, any tax, duty, cess fee and any other charges of any law other than SGST, UTGST, GST(Compensation to states) Act shall be liable to be includible in value of supply of goods or services or both. Interest, late fee , penalty in respect of supply of goods or services shall also be laible to be include in value for charging GST.

[SHARAD ANADA]

First of all GST Is charged only on supply of goods or services or both. In your case there is no supply. Recovery of tax and duties of existing law i.e. excise,vat etc in GST resigme is payable as arrear of tax and paid as GST. This payment is to be made through DRC 03. please refer circular 58CGST And para 6 of circular 88 of CGST.

Insuch case Intere received can not be considered as addition in value under sec 15. As there is no value of supply.

Para 6 of circular 88 is reproduce here under for your ready reference

6. Circular No. 58/32/2018 dated 04.09.2018

This circular is revised in order to streamline the modes of recovery. Accordingly, the original and the amended relevant para of the circular are detailed hereunder.

6.1 Original Para 3.

Currently, the functionality to record this liability in the electronic liability register is not available on the common portal. Therefore, it is clarified that as an alternative method, taxpayers may reverse the wrongly availed CENVAT credit under the existing law and inadmissible transitional credit through Table 4(B)(2) of FORM GSTR-3B. The applicable interest and penalty shall apply on all such reversals which shall be paid through entry in column 9 of Table 6.1 of FORM GST-3B.

6.2 Amended Para 3.

It may be noted that all such liabilities may be discharged by the taxpayers, either voluntarily in FORM GST DRC-03or may be recovered vide order uploaded in FORM GST DRC-07, and payment against the said order shall be made in FORM GST DRC-03. It is further clarified that the alternative method of reversing the wrongly availed CENVAT credit under the existing law and inadmissible transitional credit through Table 4(B)(2) of FORM GSTR-3Bwould no longer be available to taxpayers. The applicable interest and penalty shall apply in respect of all such amounts, which shall also be paid in FORM GST DRC-03.

[Madhavan iyengar]

Dear Sirs sharadji and pawanji thanks for the detailed analysis but iam once again retiterating the issue

The Company has discharged all its obligations under earlier law, now what company is recovering is certain amounts which were disallowed in its assessment by the department under earlier law

So it is recovery of sums from vendor cannot be linked to any supply but amount is being received you are right there is no corresponding supply of goods/ services but issues is how to account and show it as it will show as extra sum recovery so we need to have a tenable explanation that it is not liable to tax.

Can it be held as a tolerance of act by the company as it has tolerated the act of the vendor not complying with provisions of law and a consequent recovery made.

[Pavan Mahulkar]

As per schedule II Para 5, clause 2(e) of CGST Act

The following to be treated as supply of service

(e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act

[KASTURI SETHI]

I agree with Sh. Pavan Mahulkar. GST is payable.

[Spudarjunan S]

Dear Sir,

Reply to your Query + explanation provided:-

I'm on the view that there is no supply in this transaction as the same is transaction in money. No requirement to pay GST on the same.

Grounds for opinion :-

W.e.f from 01.02.2019 - Schedule II of CGST Act can't be used for determining the transaction whether it is supply or not. It is only to classify whether the supply is supply of goods or services.

The clause (e) of Sl.no.5 of Schedule II of CGST Act sounds like a residuary clause as it mentions agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act which can be interpreted in a way to cover even transaction in monies. Before classifying a supply under this head a detailed analysis and great care has to be taken.

I'm re-iterating your case in some other manner for better understanding - you made payment to vendor for purchase of 100 units but he delivered only 75 units and your receiving back the amount relating to 25 units, will you treat it as a transaction in money or tolerating an act for non-supplying of 25 units by the supplier.

AI Summary

Supply characterization: recovered taxes and interest may attract GST if treated as a supply of service, otherwise not. Applicability of GST to recovery of earlier-law taxes and interest depends on whether the recovery constitutes a supply. One view treats recoveries as includible in value and as a supply of service under Schedule II Para 5(e), with discharge via DRC-03/DRC-07 and interest/penalty per Circulars 58/88. The opposing view holds there is no supply where the receipt is a monetary reimbursement of amounts disallowed earlier, so section 15 valuation and inclusion of interest do not apply.