WBAAAR Sets Aside WBAAR Ruling on GST Applicability to Arbitral Award Claims, Citing Lack of Jurisdiction Over Completed Transactions

The West Bengal Appellate Authority for Advance Ruling (WBAAAR) has set aside the ruling of the West Bengal Authority for Advance Ruling (WBAAR) regarding the applicability of Goods and Services Tax (GST) on amounts received by Karam Chand Thapar & Bros (Coal Sales) Ltd. pursuant to arbitral awards and a subsequent settlement agreement. The appellate authority held that the advance ruling mechanism under Chapter XVII of the CGST Act is not intended for completed transactions and that the WBAAR lacked jurisdiction to entertain the application in this case.

Background

The appellant, Karam Chand Thapar & Bros (Coal Sales) Ltd., had entered into contracts with THDC India Ltd. in 1996 for the construction of hydro power plants. The work was completed by 2007/08, with final payments received in 2011. Disputes over extra expenses led to arbitration, and in 2023, arbitral awards were passed in favour of the appellant, allowing various claims for additional costs. A settlement agreement was reached in October 2024, and payments were made accordingly.

The appellant sought an advance ruling from the WBAAR on whether the amounts received under the arbitral awards and settlement agreement constituted ‘supply’ under GST, whether they were to be treated as liquidated damages, and the consequent GST liability, if any.

WBAAR Ruling

The WBAAR, in its order dated 13 February 2026, held that certain claims allowed by the arbitral tribunal—such as those for extra work, price adjustments, and deductions from final bills—were to be treated as ‘supply’ and thus taxable under GST. Other claims, such as those for reimbursement of extra expenditure due to breach of contract, were held not to constitute supply. The WBAAR also ruled on the applicable SAC codes, GST rates, and invoicing requirements for such claims.

Appeal and Core Issue Before WBAAAR

The appellant challenged the WBAAR’s ruling before the WBAAAR, arguing that the amounts received were in the nature of liquidated damages or compensation for breach of contract and not consideration for any supply. The appellant also contended that the advance ruling mechanism should apply to the questions raised.

WBAAAR’s Analysis and Findings

The WBAAAR first examined whether the application before the WBAAR was maintainable under the CGST Act. It noted that Section 95(a) of the Act defines ‘advance ruling’ as a decision in relation to a supply of goods or services being undertaken or proposed to be undertaken by the applicant. The authority emphasised that the advance ruling mechanism is intended to provide certainty for prospective or ongoing transactions, not for completed transactions where the applicant has already formed and implemented a tax position.

The appellate authority observed that the contractual work in question was completed prior to 1 July 2017, and the arbitral awards and settlement payments were received thereafter. The appellant had already filed returns treating the receipts as non-taxable before seeking an advance ruling. The WBAAAR held that the issues raised required detailed factual examination—such as scrutiny of contracts, arbitral awards, and accounting records—which falls within the jurisdiction of the proper officer under the CGST Act, not the advance ruling authority.

The WBAAAR further clarified that the distinction between the jurisdiction of the advance ruling authority and the proper officer is a deliberate legislative design. The former is meant for advance certainty, while the latter is responsible for adjudicating completed transactions through statutory procedures.

Final Ruling and Directions

The WBAAAR concluded that the WBAAR ought not to have entertained the application and set aside the impugned ruling. The appellate authority expressly refrained from expressing any opinion on the taxability of the amounts received under the arbitral award. It clarified that the jurisdictional proper officer is empowered to examine the issue independently, based on all relevant records and in accordance with law, without being influenced by the observations in the now-set-aside advance ruling.

This decision underscores the limited scope of the advance ruling mechanism under the GST regime and affirms that questions regarding the tax treatment of completed transactions must be addressed through the regular adjudicatory process by the proper officer.