Compensation whether furtherence of business for input tax credit
Query (Issue) Started By: – Rakesh Chitkara Dated:- 20-6-2017 Last Reply Date:- 4-7-2017 Goods and Services Tax – GST
Got 1 Reply
GST
FACTS :A developer pays compensation to its customers to compensate for delay and default in handing over of the possession of property within the stipulated time.Compensation will be formula based (more like an interest) calculated based on amounts paid and period of delay.
QUERY ::Whether GST will be applicable on this compensation.
Whether such tax will be paid under RCM because the customer is an unregistered person ?
If yes, then whether developer can get the ITC of the same ?
First Opinion
1. This is an expense item.
2.
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e.
Crux : Whether compensation for default can be treated as an activity “used or intended to be used for the purpose of furtherance of business or commerce” for ITC purposes ? Is it expansive and enlarges the scope or is it an expression of restricting the scope ?
Also relevant case laws please.
Reply By Mehak Malhotra:
The Reply:
Dear Rakesh Chitkara,
1) Whether GST will be applicable on this compensation ?
GST will be applicble on this compensation.
Reason :
a) This is not a supply of goods.
b) It will get covered under definition of service. To qualify this definition, there have to be 2 important things. First, there has to be an ACTIVITY and second there should be a CONSIDERATION for that activity. In our case, activity is th
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ys a car for personal use and after a year sells it to a car dealer, the transaction will not be supply, because supply is not made by the individual in the course or furtherance of business. Further, no input tax credit was admissible on such car at the time of its acquisition as it was meant for non-business use.
Since, this service was taken by the developer not for the personal purpose but for the business, its input tax credit would be definitely allowed. If the developer has not taken the extension, he could not have completed the construction and could not have served the customer. So, in order to complete the transaction he took the service and paid compensation. Therefore, this is very well qualify the phrase “used or intended to
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