GST implication on forfeiture of advance received

[Shambhavi Nayak]

One of our party received Rs 250000 amount as Advance. The goods was not lifted and the rate of goods suddenly went down and the amount was forfeited and shown as Income in Profit and loss.

Whether GST is applicable on this transaction.

[Sadanand Bulbule]

In terms of CBIC Circular No.178/10/2022-GST dated 03/08/2022, forfeiture of advance on account of non-lifting of goods is treated as a consequence of breach of contract and not as "consideration" under Section 2[31] for any independent "supply" under Section 7. Hence, such amount is not liable to GST.

AI Summary

Forfeiture of advance not treated as consideration for supply and not subject to GST under CBIC guidance. Forfeiture of an advance due to non lifting of goods is a consequence of breach of contract and not consideration for an independent supply under GST; therefore such forfeited amounts are not liable to GST.