Writing off advances from Clients

[ROHIT GOEL]

Dear Sirs,

In case an advance was received by the company(a service enterprise) from a client in 2010 but no service tax was paid on the same. Now, the company as well as the auditors believe that the amount is not payable and neither billable as client in question has shut operations and should be written off, whether GST on such write off will be applicable and if yes under which section or provision of law?

[KASTURI SETHI]

Position under GST : Such advance (or deposit) is Not taxable. Such transaction or activity does not qualify to the definition of 'consideration' under Section 2(31) of CGST Act.

As per Section 2(31) of CGST Act "consideration” in relation to the supply of goods or services or both includes -

(a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government;

(b) the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government :

Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply;

Position under Service Tax era : Not taxable

2017 (52) S.T.R. 313 (Tri. - Chennai) = 2017 (1) TMI 1674 - CESTAT CHENNAI GB ENGINEERING ENTERPRISES PVT. LTD. Versus C.C.E., TIRUCHIRAPPALLI

In both ways advance is not liable to GST or service tax.

Moreover, Point of Taxation Rules, 2011 came into effect w.e.f. 1.4.11 (Advance was received in 2010)

[Prudhvi Jakkula]

Kasturi ji,

Whether this stand of "not applying deposit as consideration by supplier" can be taken for construction of flats also.

In that case the supplier may not pay GST at the time of receipt of advance.

Please enlighten me .

[KASTURI SETHI]

Definition of 'deposit' cannot be read in isolation. Also legally there is a thin difference between both words i.e. Deposit and advance.

AI Summary

Advance from 2010 not taxable under GST as it's not 'consideration' per CGST Act. Query on construction advances remains. A service enterprise received an advance from a client in 2010, but the client has since ceased operations, and the company considers the amount non-payable and non-billable. The query concerns whether Goods and Services Tax (GST) applies to writing off this advance. One response clarified that under the Central Goods and Services Tax (CGST) Act, such an advance does not qualify as 'consideration' and is not taxable under GST or the previous service tax regime. Another participant questioned if this principle applies to advances in construction, highlighting the nuanced legal distinction between 'deposit' and 'advance.'