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GST applicable on escalated Value of Contract: AAR

GST applicable on escalated Value of Contract AAR

GST applicable on escalated Value of Contract: Maharashtra Authority of Advance Ruling (AAR)

Maharashtra AAR – Issue on which ruling was sought :

  • M/s. B. P. Sangle Construction Pvt. Ltd apply AAR to clarify whether the escalated value shall be added to taxable value U/s 15 of the CGST Act 2017.
  • As per AAR, GST is charged on the whole of the escalated value plus the contract’s original value. The applicant works for the government on the development of public highways and also provides construction services to private parties. The applicant has been awarded a tender by the National Highways Authority of India (NHAI) for the construction of roads for a specific value. There is a condition in the tender that states that if labour, steel, cement, plant, machinery, spares, bitumen, lubricants, and other rates change, the contract price will increase or decrease according to the formula stated in the tender notice. In the event of such an increase in value, the NHAI will be compensated in addition to the tender value.

Ruling & Deliberation – Order of Maharashtra AAR

  • There was no supply during the Pre-GST period, and no invoice was also raised during that time, according to the Authority of Advance Ruling. The service was given wholly during the GST period, hence under section 13, the time of supply is during the GST period, and the applicable provisions of the CGST Act 2017 will apply to establishing the value of the service.
  • Authority of Advance Ruling also noted that U/s 15(1) of the CGST Act, 2017 says that value of supply of services or goods or both shall be transaction value &  transaction value in subject case will also include escalating value, which is being recovered from NHAI by the applicant.
  • As a result, any increase in value or price that is added to the contract price is subject to GST payment under section 15 of the CGST Act, 2017.
  • In light of the foregoing, the Coram of Sri Rajiv Magoo, Member, and Sri T. R. Ramnani concluded that

“the escalated value shall be added to the original value of the contract, and the total of the escalated value plus the original value of the contract will be the transaction/taxable value u/s 15 of the Act on which GST must be discharged by the applicant.”

  • According to Section 15 of the CGST Act, 2017, GST is applicable on the whole of the escalated value plus the initial amount of the contract, as maintained by the Maharashtra Authority of Advance Judgement in its recent ruling in the case of M/s. B. P. Sangle Construction Pvt. Ltd. It was also decided that when a contract was awarded prior to the implementation of GST but the supply was made after the implementation of GST, GST requirements would apply.

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