AAR Haryana – Applicability of GST on certain recoveries made by the Applicant

• RITES Ltd. (‘the Applicant’), a Government of India enterprise is engaged in the business of multi-disciplinary consultancy organisation in the field of transport, infrastructure, and related technologies
• The Applicant sought an advance ruling in respect of whether Goods and Services Tax (‘GST’) would be applicable on the following:

1. Recoveries made from the employees on account of leaving employment without serving the notice period and leaving without serving the period as agreed in the bond, nominal recovery for food services and Identity card lost charges
2. Recoveries on account of liquidated damages for non-performance by the either party and amount forfeited pertaining to earnest money
3. Creditors balance unclaimed/untraceable and written off by way of crediting Profit and Loss  Account

Notice Period Recovery and surety bond forfeiture

• •   The amount received as notice pay recovery by the Applicant from the employees who leave the Company without serving mandatory notice period and leaving employment without serving the minimum period as agreed in the employment contract is not a consideration for any supply or services
  •  These amounts are covered under entry No. (1) of Schedule III of the Central Goods and Services Tax Act, 2017 (‘CGST Act’) i.e., services from employee to employer and not covered under entry 5(e) of Schedule II of the CGST Act i.e., toleration of an act
  • Notice pay recovery does not result into the provision of service by either party, it is sort of compensation either to employee or employer and not a consideration

Recovery for food services and Identity card lost charges

• The facility of food under canteen is being provided by the companies to its employees under the Factory Act, 1948 wherein it is mandatory to the applicant to make provisions of the canteen facility to its employees
• There is no independent contract between the Applicant and the employees for setting up the canteen facility at the Applicant’s premises
• The Id-card is reissued in case of loss of the same or the card is in non-serviceable condition. This transaction is covered under the entry (1) of schedule III of the CGST Act, 2017

Liquidated damage charges and earnest money forfeiture

•   The legal and factual position is discussed in the Circular No. 178/10/2022-GST dated 03 August .2022 issued by Central Board of Indirect Taxes and Customs which clearly states that these transactions are outside the scope of supply

Creditors balances written off in the books of accounts

•   There are no services received or provided by the Applicant in the given situations/transactions and therefore writing off unclaimed amount of the contractors/other creditors is basically an income and not a supply

In light of the above mentioned discussions, it can be said that none of the above transactions on which the Applicant has sought the advance ruling regarding the taxability under the CGS Act falls under the scope of supply and therefore not liable for GST.