Order Date – 03 November 2023

Facts –

• The Applicant, Dedicated Freight Corridor Corporation of India Limited, a PSU under the ownership and control of Ministry of Railways & incorporated under the Companies Act, 1956. They entered in a contract with a third party which contains dispute resolution clause to tackle any eventuality of dispute that may arise between the contractor and the applicant.
• The petitioner deposited 75% of amount in escrow account against bank guarantee pending outcome of the further challenge against Arbitral Award or dissatisfaction against DAB decision.

Issue –

• Whether the amount deposited in escrow account against Arbitral Award or Dissatisfaction against DAB decision is liable to under the provisions of CGST Act 2017?

Order –

• The AAR observed that the proviso to the definition of Consideration states that a deposit given in respect of the goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply. Though the amount ie. 75% paid into an escrow account is towards the dispute pertaining to the supply, what brings this particular transaction out of the definition of consideration is the fact that it is not paid to the contractor [supplier] but it is deposited in an escrow account.
• Further the applicant has deposited the amount in an escrow account, also does not term this as a consideration for supply since he is agitating his case, being aggrieved by the decision rendered against him. Hence it was held that it to be outside the scope of 'consideration' as defined under section 2(31) of the CGST Act, 2017. 
• However the moment the Supplier [contractor] finally succeeds in the dispute/the applicant accepts the adverse decision, this ruling would be rendered infructuous. This finding is in operation only for a limited period when the supplier [contractor] has not succeeded in the litigation/the applicant has not accepted an adverse decision & the supplier uses the amount lying in the escrow account subject to his furnishing a BG. It also goes without saying that the department reserves every right to recover any interest due on such amount for the delay in payment of GST, if any, on account of the non-acceptance of adverse decision of the DAB/Tribunal.
• The amount deposited by the applicant (75%) in escrow account against bank guarantee pending outcome of the further challenge against Arbitral Award or dissatisfaction against DAB decision, is not liable to GST under the provisions of CGST Act, 2017.