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2024 (2) TMI 1054 - AUTHORITY FOR ADVANCE RULING, ANDHRA PRADESHLevy of GST - Supply or not - compensation amounts such as liquidated damages/trade settlement/damages collected from the customers for non-performing of contractual obligations or breach of the contract - HSN Code applicable and the rate of GST applicable - restriction of input tax Credit of common services under 42 & 43 of CGST/APGST Rules, 2017 - HELD THAT:- In the present case the customers are paying certain amount to the applicant. The amount so paid is neither ad-hoc, unconditional nor at the whims of any customer nor the appellant. There is a clear mathematical formula as to calculation of such amount and the conditions/scenarios contingent upon which the amounts are payable are clearly narrated in the agreement itself. The circular issued by CBIC vide circular No. 178/10/2022-GST Dtd. 03/08/2022 is only meant to clarify the position of law and shall be applied reasonably having regard to the facts of the case. The circular had clearly mentioned, Inter alia, vide para 7.1.6 that “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, as discussed in detail in the later paragraphs. Naturally, such payments will not be taxable if the principal supply is exempt. In the light of section 7 read with definition of consideration u/s 2(31)7 compensation amounts paid by defaulting party to the non-defaulting party for tolerating the act of non performance or breach of contract have to be treated as consideration for tolerating of an act or a situation under an agreement and hence such an activity constitutes supply of service and the compensation amounts such as liquidity damages are exigible to tax under CGST @ 9% and SGST @9% each under the chapter head 9997 at serial no. 35 of Notification No. 11/2017- Central/State tax rate.
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