GST applicability on settlement price

[KARAN VERMA]

Sir, i have booked contract for sale of wheat (exempt from GST) ₹ 100 in which my profit margin is ₹ 15.

Now, buyer asked me that he is not willing to buy wheat, although he paid me ₹ 15 my profit margin.

Now, whether I am liable to charge GST on ₹ 15 while raising invoice to buyer.

Suppose the above example is for taxable item, then what will be situation ?

[Ganeshan Kalyani]

Settlement amount is collect to compensate your loss. You are tolerating an act of your buyer from not purchasing the goods. Tolerating an act is a supply of service and GST @18% is applicable.

Tolerating an act is a separate supply, so taxability of goods is not applicable to this.

[KARAN VERMA]

Thank you Sir. Now, let/s see situation-2

I had made an agreement with buyer that we fix certain price for wheat today and in future if price of wheat increase, you will pay me difference amount and if price in future decrease, I will pay you difference amount without actual delivery of goods.

Now, at present the price increase and I have to receive difference money. Whether I am required to raise tax invoice with 18% GST.

[Ganeshan Kalyani]

There is a provision for credit note and debit note in GST. If the price of the goods was charged more then thru credit note the adjustment is allowed. And, if the price was charged less then thru debit note the differential value of the goods can be charged.

[KASTURI SETHI]

Nature of supply of service has changed. The amount of ₹ 15/- (whatever you may call), is a consideration against taxable supply of service i.e. tolerating an act. It is in no way commission on account of sale of wheat (exempt supply).

I fully support the views of Sh.Ganeshan Kalyani Ji.

[KARAN VERMA]

A forward contract is an agreement , executed, to purchase or sell a
predetermined amount of a commodity or currency at a pre-determined future date at a pre-determined price. The settlement could be by way of actual delivery of underlying commodity/ currency or by way of net settlement of differential of the forward rate over the prevailing market rate on the settlement date.

Where the settlement takes place by way of actual delivery of underlying commodity currency, then such forward contracts would be treated as normal supply of goods and liable to GST.

Where the settlement takes place by way of net settlement of differential of the forward rate over the Act, 2017, future contracts are not chargeable to GST.

[KASTURI SETHI]

Dear Querist,

You have deviated from the original query. It is your prerogative to agree or not. All the experts in this forum always guide in the interest of the querist irrespective of the aspect whether it is anti-revenue or pro-revenue.

AI Summary

Tolerating an act as supply of service may attract GST on compensation received for non delivery of goods. Settlement payments received for a buyer's failure to take delivery are consideration for tolerating an act and constitute a supply of service, attracting GST at the applicable rate even if the underlying goods are exempt. For pre agreed forward contracts, physical delivery is taxable as supply of goods, while net differential settlement may not attract GST; adjustments to invoiced consideration should be made through credit or debit notes under GST provisions.