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2018 (5) TMI 1332 - AAR - GSTLevy of GST - liquidated damages - applicant contends that these damages being towards deficiency of services and reduce the original consideration and will not be considered as separate service covered by the term 'Obligation to tolerate an act or a situation'. Whether GST is applicable on Liquidated Damages in case of: Type 1 i.e. Operation & Maintenance activities; Type 2 i.e. Construction of new power plants or renovation of old plants; Or is applicable in both cases? Held that: - the contract price and the liquidated damages are two different aspects. Deduction of one from the other is a mere facilitation towards settlement of the accounts. This manner of giving effect to the obligations under the contract should not be deceptive of the actual intent. Presence of liquidation clause in the agreement:- Applicant has argued that it was never the intention of the company to get its supplies/project delayed nor the contractors want to make delay and thereby causing company to tolerate it. - If an agreement has such a clause and if the eventuality actually happens then the GST Act has provided for such an eventuality. The activity is falling within the scope of clause(e) of para 5 of the Schedule II of GST Act, which is read as, "agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act;" In terms of the aforesaid agreement, GST would be applicable on the Liquidated Damages. Classification of service - It would fall within the Heading 9997 - Liable to be taxed @18%. Time of supply of services - Scope of agreement - In terms of the aforesaid agreement, the clauses reveal that the levy of liquidated damages is not when the delay is occurring but the liability of payment of these liquidated damages by the Contractor will be established once the delay in successful completion of trial operation is established on the part of the Contractor. This would define the time of supply. Where the part of liquidated damages pertains to per-GST, would GST be applicable - Held that:- The question is based on some incorrect presumption owing to which the applicant seems to have adopted some method of deduction of liquidated damages from the payments to be made to the contractor. We are afraid that no such strategy of deducting or of capping can be inferred from the agreement clauses. Eligibility of credit of GST on such LT in the hands of Contractor / vendor - Held that:- The above question is not answered as the proper person to ask the above question would be the contractor /Vendor and not applicant.
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