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Question ID : 36955

GST on advance payment received from Client

Suppose a work contract is awarded to a Company by the Client for Rs.112 crs including Rs.12 crs towards GST @ 12%. The company has awarded the same Contract to a sub-contractor for Rs.100 crs. including Rs.10.71 crs towards GST @ 12%. The Net Profit of the Company is Rs.10.71 crs. which should be remained at the end of the contract as net cash generated from the Project. Now if the Client has paid Rs.100 crs as advance payment then company has to pay immediately the GST on advance amounting to Rs.10.71 crs. On completion of Project, the company have will to Client and Sub-contractor will bill to company. At this point there is a GST Payable of Rs12 crs out of which we may adjust GST of Rs.10.71 crs already paid on advance. Net GST Payable is Rs.1.29 crs and GST Input is Rs. 10.71 crs. Hence there will be an input Claim of Rs.9.42 crs. Therefore, after the end of the project, there is a shortage of Cash of Rs.9.42 crs. instead of surplus of cash of Rs.10.71 crs. Refund of Input Claim of Rs.9.42 is not certain. Hence the conclusion is that the project is not beneficial to the company due to cash shortage. If there is any valuable guidance suggestion to sort out the above issue, please intimate the same.

posted by Sachin Aggarwal on Jan 31 2019 12:00AM

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