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?

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.