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2018 (9) TMI 1185 - AAAR - GSTLevy of GST - liquidated damages for delay in erection, testing and commissioning - independent supply or not? - construction of new power plants or renovation of old plants or for operation of maintenance activities, etc. - whether the levy of liquidated damages would be supply of services by the appellant u/s. 7(1)(d) of the CGST Act, 2017 as referred at Sr.No. 5(e) in Schedule 2 to the CGST Act? - challenge to Advance Ruling decision. Held that:- Section 3 of the contract the specific clause - 7 provides for the levy of liquidated damages if the project completion is delayed beyond the scheduled date. This clause leads us to the conclusion that the appellant is in a contractual agreement with the contractor to impose levy of liquidated damages and to accept the amount of liquidated damages in case of the completion of the project beyond the scheduled date. Thus, the appellant has tolerated an act or a situation. The purpose of payment of liquidated damages is an act of tolerance in the sense that when there is delay in the completion of the project, the appellant is put to certain hardships which he tolerates in return of the payment of liquidated damages. What entry 5(e) provides that any supply of services of tolerating an act is a supply and therefore the impugned transaction is also a 'supply' under the provisions of the CGST Act. The definition clearly provides that if the parties agree for liquidated damages, the sum fixed is a measure of damages for a breach. In the impugned case, liquidated damages are contractually stipulated for delay in the completion of the project. The agreement provides that the contractor may pay a certain percentage for the delay - the appellant was well within his rights to provide for the termination of agreement in case of delay in completion of the project. But in the instant case both the parties agreed that such will not be the effect in case of delay. The appellant agrees to tolerate the delay done by the contractor in return for payment of liquidated damages. The appellant could have opted for harsh measures like termination of contract but instead it chooses to tolerate the delay in return of payment of money - the said act falls under clause 5(e) of Schedule-II of the Act. The consideration remains unchanged and how the amount is recovered would not change the nature of the supply. Also, neither the definition of 'contract price' nor 'contract value' as given in the Agreement refers to the contingency of liquidated damages. Contract price is defined in clause 3.13 (A) as the total lump sum price plus the price variations. This is an independent clause having no relation to the eventuality of liquidated damages, for which as we have said above, a separate clause has been given. The fact that the liquidated damages are recovered from the bill is only a method of payment- the fact that there are two agreements remains unaltered. Regarding the agreement between Maharashtra State Power Generation Company Limited (Owner) and Bharat Heavy Electricals Limited (Contractor) for Erection & Commissioning of Main Plant Package at Chandrapur T.P.S. Expansion Project 2 x 500 MW, the finding of the AAR, is agreed upon that GST would be applicable on the Liquidated Damages.
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