Facts of the Case:
In this case, the applicant is an registered GST contractor, was awarded a contract by Ahmedabad Urban Development Authority (AUDA) for construction and five years’ operation and maintenance of a storm water drainage system in various newly developed areas.
As per tender conditions, AUDA grants 10% of the contract value as mobilisation advance, described as an interest-free loan for mobilisation and design, backed by an equivalent bank guarantee. This advance is adjusted progressively in the Running Account (R.A.) Bills at an amortisation rate of 25%. While AUDA pays GST @ 18% on regular R.A. bills, GST is not paid at the time of disbursement of mobilisation advance. The applicant contended that the advance is in the nature of a loan and not consideration for supply, and therefore GST should not be payable at the time of receipt of advance.
The applicant sought advance ruling on whether GST is applicable on such advance and, if yes, at what stage the tax liability arises.
Issue:
Whether mobilisation advance received under a works contract, which is subsequently adjusted against R.A. bills, constitutes “consideration” under GST and attracts tax at the time of receipt or only at the time of invoice/adjustment?
Held That:
The AAR, Gujarat held that Mobilisation advance qualifies as “consideration” under Section 2(31) of the CGST Act because it is a payment made in respect of or in response to the supply of services. Merely describing the payment as an interest-free loan and securing it by way of bank guarantee does not alter its character, since the amount is ultimately adjusted against the running account bills and forms part of the contract value.
As works contract is treated as a supply of service under GST, the provisions of Section 13 relating to time of supply of services apply. In the absence of issuance of an invoice at the time of receipt of such advance, the time of supply is the date of receipt of the mobilisation advance. Consequently, GST is payable at the time of receipt of the advance itself and not at the stage of its adjustment in subsequent bills. The Authority also relied upon its earlier ruling in Re: S.P. Singla Constructions Pvt. Ltd., which had taken a similar view.
Case Name: In Re: M/s. P.C. Snehal Construction Private Limited. dated 19.02.2026
