Introduction
In commercial practice, contractual relationships seldom culminate with perfect mathematical accuracy. Although agreements may be formally terminated, their legal and economic implications often persist, particularly when one party is in financial distress. The current discussion arises from a situation in which the termination of a parking agreement resulted in a prolonged physical occupation of the space, thereby presenting complex questions under the CGST Act, 2017.
An infrastructure company entered into a commercial agreement with a mobility services provider to permit vehicle parking on its premises. This agreement included the assignment of a specific parking spot, the grant of exclusive-use rights, and periodic payments, which clearly constituted a land occupation licence. Due to ongoing non-payment, the agreement was terminated through a valid notice, effective at the end of the financial year.
Invoices were issued regularly until the penultimate month of the agreement, with the invoice for the final month remaining unissued. Subsequently, the mobility services provider filed for insolvency proceedings. Due to restrictions on the movement and disposal of assets, the vehicles remained physically parked at the premises for several months following the termination of the agreement. During this post-termination period, no consideration was received or agreed upon, no invoices were issued, and no income was recognised in the financial statements. Proceedings were subsequently initiated before the Hon'ble National Company Law Tribunal to recover the outstanding dues.
This factual matrix establishes the groundwork for examining the boundaries of GST liability in situations where contractual rights have expired, yet physical consequences persist.
The Legal Questions That Emerge
Question No. 1
Whether GST invoice and tax liability are required to be recognised for the final month during which the parking agreement subsisted, notwithstanding non-receipt of consideration?
Question No. 2
Whether the continued parking of vehicles after termination of the agreement, without consent or consideration, constitutes a "supply" liable to GST?
Question No. 3
Whether the filing of a claim before the Hon'ble National Company Law Tribunal as an operational creditor, by itself, creates any GST liability or invoicing obligation for the post-termination period?
Analysis of Question No. 1
The starting point of the analysis is the statutory character of the activity during the subsistence of the agreement.
Nature of Supply
Schedule II, paragraph 2(a), CGST Act, 2017
" Any lease, tenancy, easement, licence to occupy land is a supply of services."
This deeming provision definitively establishes that, when an individual is granted a legal right to occupy or utilise immovable property, such activity is regarded as a supply of services for Goods and Services Tax (GST) purposes. In a parking arrangement involving an exclusive or designated space, the supplier grants a licence to occupy land in exchange for consideration. As long as this right legally persists, the taxable supply is considered to exist by law.
The recipient's failure to fulfil payment obligations does not negate the supply already provided. The distinction between the occurrence of supply and the financial recovery of debts has been recognised by the judiciary. In Eicher Motors Ltd. v. Union of India, the Supreme Court held that tax implications arise from the legal nature of a transaction and are not contingent on its commercial outcome.
Obligation to Issue Invoice
Section 31(2), CGST Act, 2017
"A registered person supplying taxable services shall, before or after the provision of service but within a prescribed period, issue a tax invoice showing the description, value, tax charged thereon and such other particulars as may be prescribed."
Rule 47, CGST Rules, 2017
"The invoice referred to in rule 46, in the case of the taxable supply of services, shall be issued within a period of thirty days from the date of the supply of service."
These provisions establish a mandatory, time-sensitive obligation to issue a tax invoice upon the supply of a taxable service. Importantly, neither the Act nor the Rules makes invoicing conditional upon the receipt of consideration. The Goods and Services Tax (GST) is a levy based on supply, rather than on receipt. To interpret a payment condition into Section 31 would constitute legislative overreach, as Parliament has intentionally refrained from including such a condition.
Time of Supply
Section 13(1), CGST Act, 2017
"The liability to pay tax on services shall arise at the time of supply, as determined in accordance with the provisions of this section."
Section 13(2)(b), CGST Act, 2017
"The time of supply of services shall be the date of provision of service, if the invoice is not issued within the period prescribed under section 31…"
Section 13(2)(b) serves as a provision aimed at safeguarding revenue. Where the supplier fails to issue an invoice within the stipulated timeframe, the legislation automatically deems the date of provision of services as the time of supply. This mechanism ensures that liability for taxation is not deferred solely because the supplier fails to invoice, whether due to disputes or non-payment. The Supreme Court, in the case of Kedarnath Jute Manufacturing Co. Ltd. v. CIT, previously established the principle that statutory liabilities are incurred when the taxable event transpires, regardless of the process of recovery .
Illustration
If parking services are provided throughout the final month of a valid agreement, but the invoice is not raised due to payment default, GST becomes payable for that month by operation of Section 13(2)(b), even if no consideration is received.
Conclusion on Question No. 1
During the final month of the valid parking agreement, the obligation to account for GST arises under legal requirements. The supplier must issue a tax invoice and pay GST, including interest at the rate of 18% for the period of delay, regardless of whether payment has been received or income has been recorded.
Analysis of Question No. 2
The legal inquiry concerning whether parking without consent following termination constitutes a taxable supply must begin with an examination of the relevant charging provisions.
Scope of Supply
Section 7(1)(a) of the CGST Act, 2017
"Supply includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration in the course or furtherance of business."
The statutory focus on "made or agreed to be made for a consideration" is highly significant. Consideration forms the basis of taxability under GST, except in cases specifically set out in Schedule I of the CGST Act, 2017.
Upon termination of the agreement, no contract, express or implied, remained in existence, and no ongoing negotiations regarding charges were in progress. Furthermore, the supplier had no intention of continuing to provide parking services. The continued presence of the vehicles was attributable to insolvency-related constraints rather than a mutual commercial arrangement.
Deemed Supplies Without Consideration
Section 7(1)(c) read with Schedule I, CGST Act, 2017
Schedule I comprehensively enumerates circumstances under which activities are treated as supplies, even in the absence of consideration. The ongoing unauthorised parking of vehicles by an unrelated entity does not fall within any of these specified categories. Judicial precedents have uniformly affirmed that deeming provisions must be interpreted strictly and cannot be extended by implication.
The Supreme Court, in Govind Saran Ganga Saran v. CST, held that the absence of consideration is detrimental to the imposition of tax. This principle remains applicable under the Goods and Services Tax (GST).
Toleration of an Act
Schedule II, paragraph 5(e), CGST Act, 2017
Agreeing to tolerate an act or a situation, or to do an act…shall be treated as supply of service.
This provision is frequently invoked to justify the taxability of post-termination scenarios. Nonetheless, the phrase "agreeing to tolerate" is definitive. Toleration inherently implies volition, consensus, and consideration. Where occupation persists due to insolvency restrictions and the provider is unable to repossess, no agreement to tolerate exists. Coercion nullifies consent. The Supreme Court's reasoning in South Eastern Coalfields Ltd. v. State of M.P. clearly establishes that involuntary circumstances cannot be equated with contractual services.
Illustration:
If a tenant remains in the premises after the lease ends due to court orders or insolvency restrictions, the landlord may not initiate eviction proceedings. This does not constitute a taxable service unless rent or damages are expressly agreed upon.
Conclusion on Question No. 2
Post-termination parking without consent or consideration does not constitute "supply" within the meaning of Section 7 of the CGST Act. Accordingly, no GST liability or invoicing obligation arises for the post-termination period.
Analysis of Question No. 3
Whether Filing of an NCLT Claim Creates GST Liability
Statutory Position
There is no provision in the CGST Act that considers the submission of a recovery claim before the Hon'ble National Company Law Tribunal as constituting a supply of goods or services or both. Tax liability under GST must originate from a taxable event as delineated in Section 7 and the pertinent time-of-supply provisions.
The Madras High Court, in the case of D.Y. Beathel Enterprises v. State Tax Officer, issued a caution against establishing GST liability through recovery proceedings in instances where the fundamental elements of supply are lacking. Filing a claim constitutes an enforcement action; it does not constitute the creation of a new taxable transaction.
Illustration:
The inclusion of GST as part of an operational creditor's claim pertains to the quantification of existing dues; it does not, however, establish GST liability in the absence of a supply.
Conclusion on Question No. 3
The filing of a claim before the Hon'ble NCLT does not, by itself, create any GST liability or invoicing obligation for the post-termination period.
Concluding Reflections
The discussion in this article highlights a fundamental principle of GST jurisprudence that is frequently overlooked amid procedural debates and revenue concerns: GST constitutes a tax on consensual economic activity, rather than on misfortune, inertia, or commercial failure. Although contemporary business practices often result in situations in which physical possession, contractual intent, and economic benefit are misaligned, GST law requires that tax be imposed on explicitly defined legal events.
The analysis of the initial issue reinforces a long-established yet frequently debated proposition: once a taxable supply is legally rendered, the tax consequence ensues irrespective of commercial recovery. The existence of a contract, the grant of a legal right to occupy immovable property, and the actual provision of a service collectively establish a taxable event that is complete in itself. Non-payment, insolvency, or delayed invoicing may complicate enforcement; however, they do not preclude enforcement. This reflects the principles of tax law, which recognise legal incidence rather than financial capability.
GST law importantly restrains itself in post-termination cases. After a contract ends and consent is withdrawn, the law does not extend taxability just because physical factors remain. The mere presence of vehicles on-site does not constitute a restart of supply. GST clearly distinguishes between legal supply and ongoing physical presence, taxing the former and excluding the latter. Without this clear separation, GST could become a tax on helplessness instead of on actual value creation.
The discussion concerning insolvency-related continuation further clarifies this boundary. Insolvency proceedings are designed to preserve assets; they do not generate services. The lack of consent, intent, and consideration prevents the law from classifying forced occupation as a taxable activity. Jurisprudence regarding the "toleration of an act" supports this stance—toleration must be voluntary and compensated, rather than imposed by circumstances.
Finally, the analysis of recovery proceedings before the Hon'ble NCLT concludes the legal framework. F iling a claim constitutes an enforcement mechanism rather than a taxable event. The GST law aptly resists the temptation to consider recovery as a supply, thereby maintaining doctrinal clarity and systemic neutrality.
Together, these issues demonstrate that GST legislation functions with both firmness and restraint. It levies tax where supply is present and ceases to do so when supply concludes, even in cases where physical remnants remain. This equilibrium guarantees that GST remains a value-added tax grounded in consent, consideration, and continuity—rather than serving as a penalty for economic hardship or contractual failure.
" कानून की असली ताक़त वहाँ होती है ,
जहाँ वह थोपने के बजाय रुकना जानता है। "
CAclubindia
