Advances as on July 1 2017

[Ashish Diwedi]

We are doing job work for textile industry. As on July 1st 2017 we had opening balance in advances received from principal of ₹ 50 lakhs. The advances were received by us in the service tax regime. We did not pay service tax on the same as our services were exempt vide Mega Notifi No. 25/2012 - ST. Are we liable to pay GST on the opening advances on July 2017?

[KASTURI SETHI]

Advance amount is always subject to final adjustment at the time of issuance of invoice/completion of service irrespective of the fact whether it is service tax era or GST era. Advance itself cannot be treated as consideration without providing service/supply of service. See definition of 'consideration' under Section 2(31) of CGST Act.

"(31) “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;

Liability of GST arises on this advance amount but this advance will become consideration only at the time of supply of service/issuance of invoice.

[Shilpi Jain]

Section 142(11)(b) would be relevant in this case - no tax under GST to the extent tax was leviable under ST.

Leviable does not mean only where tax is liable, It also includes a case where PoT attracts under ST and the same is exempt. So in the give case if the amount received is not in the nature of deposit then the levy has attracted under ST where it was exempt and thereby in my vew no further GST liability on adjustment.

[KASTURI SETHI]

Let us wait for the outcome of Internal Audit by the department or A.G Office (CAG).

[Ganeshan Kalyani]

Sir, a small note on "Difference between deposit and advance amount in GST". May please be read.

Read: Difference between deposit and advance amount in GST

 

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji,

Yes, there is a slim difference between the two. Deposit may or may not be refundable but advance is refundable. Accordingly, it may impact GST.

[KASTURI SETHI]

Relevant extract from the decision of AAR Karnataka reported as 2020 (9) TMI-737 -AAR Karnataka Issue ID TMI-398617

"It is also seen that the applicant is bound to refund to its members the amount unutilised at the time of transfer of the entire property to the civic authorities. Therefore, going by the nature of the money collected, it is only in the form of deposit and does not take the character of advance for the services provided. Hence, mere collection and deposit of money does not qualify either as supply of goods as per section 2(52) or as supply of service as per section 2(102) of the CGST Act, 2017 and taxability of the goods or services or both arises only at the time of supply of goods or supply of service or both. Thus the extent of amount utilized by the applicant towards the payment at the time of supply of service by the third person, such amount is liable for GST as per subsection (1) of section 9 of the CGST Act, 2017."

[Himansu Sekhar]

In my view, if we go through sec 142(11)(c) , tax is leviable under GST

AI Summary

Advance payments and deposits: GST liability on opening balances depends on whether receipts are treated as consideration or refundable deposit.
Characterisation of pre-GST receipts as advance or deposit determines GST liability on opening balances: advances constitute potential consideration and attract GST on supply/invoice issuance, whereas deposits are not consideration unless applied as such. Transitional provisions preserving earlier levy may preclude fresh GST where sums were leviable under the prior regime, but refundable collections retaining deposit character do not qualify as supply and draw GST only when utilised for a supply.