With the implementation of GST (Goods and Services Tax), many businesses in India have been facing confusion and uncertainty regarding the tax implications on mobilisation advances received in the pre-GST period. Recently, the Authority of Advance Ruling (AAR) in Maharashtra has clarified that no GST is payable on mobilisation advances received in the pre-GST period.
The ruling came in response to a query by a Mumbai-based construction company, which had received mobilisation advances from their clients before the implementation of GST. The company wanted to know whether it was liable to pay GST on these advances, as the clients were insisting on the same.
The AAR examined the provisions of the GST law in detail and concluded that mobilisation advances received in the pre-GST period were not liable to GST. The ruling was based on the fact that the mobilisation advances were received before the GST law came into force and, therefore, were not covered under the GST regime.
It is important to note that the AAR's ruling is binding only on the applicant and the tax authorities in the state of Maharashtra. However, it can be used as a reference point in similar cases across the country.
Mobilisation advances are payments made by clients to contractors or suppliers before the commencement of work. These advances are typically made to help the contractor or supplier mobilise resources such as manpower, equipment, and materials required to start the project.
In the construction industry, mobilisation advances are a common practice. They are usually a percentage of the total contract value and are paid upfront to the contractor to facilitate the commencement of the project.
The GST law provides for the treatment of advances received by a registered person. According to the law, any advance received by a registered person for the supply of goods or services is liable to GST. However, there are certain exceptions to this rule.
One such exception is for advances received for the supply of goods or services that are not liable to GST. In such cases, the advance amount is not subject to GST, and no tax is payable on the same.
Another exception is for advances received for the supply of goods or services that are to be provided in the future. In such cases, the advance amount is not subject to GST until the supply is made. Once the supply is made, GST is applicable on the total amount, including the advance amount.
The recent ruling by the AAR in Maharashtra provides clarity on the tax implications of mobilisation advances received in the pre-GST period. Businesses should take note of this ruling and ensure that they comply with the GST law while dealing with mobilisation advances.
It is also important to note that the ruling applies only to mobilisation advances received before the implementation of GST. Any advances received after the implementation of GST are subject to GST, as per the provisions of the GST law.
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