Export of Service

[Kaustubh Karandikar]

XYZ (India) supplied goods for export and taken advance payment against it. The foreign customer at the last minute cancelled the order and therefore XYZ had not returned back the advance to the customer.

1) If the foreign customer is a related party / parent company, is XYZ liable to pay GST on the advance forfeited?

2) If the foreign customer is an independent buyer and not related, is XYZ liable to pay GST on the advance forfeited?

[MUKUND THAKKAR]

Forfeited amount covered under LD. so need to Pay GST as per my view. other experts comments are welcome.

[Shilpi Jain]

Even if considered as LD it would be an export of service and no GST liability as the customer is abroad.

[Alkesh Jani]

The query needs more elaboration.

Export of goods had taken place i.e. Shipping bill is filed and LEO is given?

What is the position of goods, i.e. where it is lying?

When advance payment is received?

[Abhishek Jadaun]

As per my view,

GST applicable on forfeited advance, if you have applied for LUT then it will be zero rated supply otherwise pay GST and go for refund.

In your case transaction value (consideration) is advance forfeited so no matter it is related party or not GST is applicable in both case.

[KASTURI SETHI]

This service (LD) is integrally related to goods meant for export and goods have not left India. As per the query, order for export was cancelled at the eleventh hour. It appears that goods have not left India. These have not been supplied outside India. It appears to me that goods are lying in India. Hence it cannot be export of service.

However, the query needs to be elaborated for correct and fool proof reply.

[ABHISHEK TRIPATHI]

Dear Kaustubh Ji,

Agree with Shilpi Ma'am.

If the department asks you to discharge GST liability under Sl. no. 5(e) of Schedule II as supply of services(as not returning the advance), then also, it may be called as 'export of service' and hence, no GST liability.

[YAGAY and SUN]

In addition to above replies the procedure of Back to Town will be required to be complied with in case of export return after LEO Date.

AI Summary

GST on forfeited advance may be payable unless treated as zero rated export of service or covered by LUT.
GST liability on a forfeited advance depends on characterisation and export status: if treated as liquidated damages constituting an export of service to a non resident, it may be zero rated (and covered by LUT); absent zero rating or LUT, GST is payable with refund routes available. If goods have not left India or the service is integrally linked to domestic goods, the forfeiture is not an export and attracts GST. Related party status was not treated as determinative; procedural rules like Schedule II classification and back to town compliance may apply.