Tax on Advancein the case of contractor

[VENU K]

An audit is happening in the case of a contractor. In audit the only issue is that they have not paid GST on advance received. They have properly paid taxes and reported the bills as and when  they were raised in their monthly returns. Basically they were not aware of the need to pay tax on advances received in case of services.

The department is now saying that for each advance received, they have to pay full tax along with interest. They are not willing to consider the tax paid at the time of raising bills.

Our submission is that only interest needs to be paid for delay and no tax can be demanded.

To take an example

Advance 1,00,000/- received in April

Invoice given in March and tax paid on 1,00,000 in June.

The departments stand is Tax of Rs. 18,000/- plus interest till the date of payment after audit plus penalty should be paid. No credit will be given for Tax paid in June. We can claim it as refund if available.

is this stand justified?

AI Summary

GST on Advances Must Be Paid Immediately Under Section 13; Only Interest, Not Twice Tax, Applies for Delays A contractor undergoing audit was found to have not paid Goods and Services Tax (GST) on advances received prior to invoicing, though GST was later paid when invoices were raised and reported in returns. The tax department demanded GST on the advances plus interest and penalty, refusing credit for the subsequently paid tax. Legal opinions cite Section 13 of the CGST Act requiring immediate tax payment on advances and Section 50(1) providing for interest on delayed payments. It was noted that tax already paid belatedly cannot be demanded again, only interest applies. The department's stance lacks provision for charging tax twice. Consideration under Section 2(31) includes advances unless treated as deposits not applied as consideration. Interest may apply, but penalty and re-demand of tax are questionable. Input tax credit availability could mitigate interest burden. The key consensus is that only interest on delayed payment should be applicable, not additional tax.