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2023 (12) TMI 509 - AUTHORITY FOR ADVANCE RULINGS, KARNATAKAClassification of supply - rate of GST - Supply or not - damages received by the applicant from the tenant towards the termination of sub-lease before the agreed upon lock-in period as per the sub-lease deed agreements - amount received towards damages as per the settlement agreement to be construed as Consideration for the above supply or not? - HELD THAT:- Amounts paid for early termination of lease as contemplated by the contract as part of commercial terms agreed to by the parties, constitute consideration for the supply of a facility, namely, early termination of a lease agreement. Therefore, such payments, even though they may be referred to as fine or penalty, are actually payments that amount to consideration for supply, and are subject to GST, in cases where such supply is taxable. Since these supplies are ancillary to the principal supply for which the contract is signed, they shall be eligible to be assessed as the principal supply. In view of CBIC circular No. 178/ 10/2022, it is clear that amount paid for termination of lease constitute consideration for the supply of a facility and are subject to GST and they shall be eligible to be assessed as the principal supply. In the impugned case the principal supply is sub letting of a commercial property which is a taxable supply of service and is classified under chapter heading 9972 - Real Estate Services. The damages received by the applicant from the tenant towards the termination of sub-lease before the agreed upon lock-in period as per the sub-lease deed agreements tantamount to supply as per Section 7 of Central GST Act, 2017 and the amount received towards damages as per the settlement agreement is to be construed as Consideration for the above supply - The services provided by the Applicant are classifiable under Chapter heading 9972 and is liable to GST at 18% (9% CGST and 9% SGST).
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