Upward revision of contract price constitutes deemed outward supply and is taxable; compensatory awards are not taxable.

Amounts awarded post-contract are taxable only when they represent an upward revision of pre-GST contract price-such amounts (extra items, price adjustments, corrections, extra works) are treated as deemed outward supplies and taxable, requiring issuance of supplementary invoice/debit note and tax discharge under the prescribed SAC and rates. Awards that merely reimburse loss or compensate breach without any reciprocal obligation are liquidated damages/compensatory reimbursements and not subject to GST. Fees payable to the arbitral tribunal are taxable and attract reverse charge on payment; reimbursements of arbitration expenses received as compensation are not taxable.

---

---

Issues: (i) Whether amounts/claims allowed by the Arbitral Tribunal constitute a "supply" under GST; (ii) Whether those claims constitute liquidated damages; (iii) Whether GST is payable on claims awarded by arbitration and received under the Settlement Agreement during the GST regime; (iv) Whether GST is applicable on arbitration costs awarded to the applicant and received under the Settlement Agreement; (v) If taxable, what SAC, rate and time of tax liability apply; (vi) Whether supplementary/debit notes or tax invoices are required to recover and discharge tax; (vii) Applicability of GST where work was executed pre GST but claim is received during GST regime.

Issue (i): Whether claims allowed by the Arbitral Tribunal vide the Arbitration Awards be termed as supply or not?

Analysis: The Authority examined each category of awarded claims against contract clauses (notably Clauses 34-36 concerning variations, extra items and price adjustment), the Arbitral Tribunal findings, Section 142(2)(a) of the CGST Act, 2017 (transitional provision on upward revision of price for pre GST contracts) and CBIC Circular No.178/10/2022. Items that represent upward revision of contract price in pursuance of a pre GST contract (extra items, price adjustments, correction of underpayments, cost of materials for extra work, backfilling, excavation extra work) satisfy Section 142(2)(a) and are taxable. Items that are compensatory reimbursements arising from breach where no consideration to tolerate or do an act exists (compensation for procurement from private agencies, quarry operating costs, differential cement cost instructed by contractee, reimbursement for shifting infrastructure) are characterised as mere flow of money/liquidated damages per Circular and not supply.

Conclusion: Certain awarded claims (those representing upward price revision/extra work under the contract: e.g., change in excavation methodology claims, price adjustment on extra items, deduction/deletion corrections from final bill, extra excavation works, cost of materials for specified extra works, backfilling, and refunds of wrongly deducted rebates where not shown to have been taxed earlier) are supplies and taxable. Other awarded claims (compensation for inability to access contract quarries, reimbursement for operating private quarries, differential cost for higher grade cement instructed by the contractee, reimbursement for shifting infrastructure) are not supplies.

Issue (ii): Whether claims allowed by the Arbitration Tribunal vide the Arbitration Awards be termed as liquidated damages or not?

Analysis: Applying Section 73/74 of the Indian Contract Act, 1872 and Circular No.178/10/2022, the Authority assessed whether awarded amounts compensate loss arising from breach (and lack any agreement to tolerate or do an act) or whether they represent consideration for supplies/ancillary services. Awards that merely reimburse loss or compensate for breach without any reciprocal obligation were treated as liquidated damages/compensation. Amounts representing price adjustments or extra work under contractual mechanisms were viewed as payment for supply (not liquidated damages).

Conclusion: Awards for procurement from private agencies, quarry operation reimbursements, differential cement cost, and shifting of infrastructure are liquidated damages/compensatory reimbursements. The remaining awards are not treated as liquidated damages.

Issue (iii): Whether GST would be applicable on the claims allowed vide Arbitration Awards and payment received pursuant to Conciliation Proceedings resulting into the Settlement Agreement, both during the GST regime?

Analysis: The Authority applied Section 142(2)(a) CGST Act, 2017 to claims that represent upward revision of price pursuant to pre GST contracts: where such upward revision exists, a supplementary invoice/debit note is deemed an outward supply under GST. For compensatory awards that are mere flow of money and do not constitute consideration for supply, GST does not apply. Treatment of rebates/refunds awarded depends on whether such amounts had already borne tax in the legacy regime; absence of legacy records prevents a conclusive non taxable determination for such items.

Conclusion: GST applies to those awarded amounts that are upward revisions of pre GST contract price (taxable under Section 142(2)(a)). Awards that are compensatory/liquidated damages without consideration for supply are not subject to GST. For certain rebate/refund items the taxability depends on whether they had been taxed earlier; lacking documentation, such items may be taxable.

Issue (iv): Whether GST would be applicable for the cost of arbitration allowed vide Arbitration Award and received vide the Settlement Agreement, both during the GST regime?

Analysis: Distinguishing two aspects: (a) fees payable to the arbitral tribunal for arbitration services - service provided by tribunal to the business entity is taxable and falls under legal/accounting services (service code and notifications cited) and is subject to reverse charge (Notifications covering arbitral tribunal services); (b) the awarded reimbursement of arbitration expenses paid by the contractee to the applicant as compensation - that reimbursement is a flow of money/compensatory and not consideration for supply between the parties and thus not GST able.

Conclusion: GST is not chargeable on the arbitration cost amounts received as compensation by the applicant from THDC; however, the applicant (recipient) is liable to discharge GST under reverse charge on fees actually paid to the arbitral tribunal (taxable @ 9% CGST + 9% SGST per applicable notification) at the time of payment per Section 13(3) (reverse charge time of supply rules).

Issue (v): If taxable, under what SAC and GST rate is the said liability to be discharged by the applicant and at what time?

Analysis: For works contract/related construction services the Authority applied the SAC 995422 (general construction services for dams, water works etc.) and Notification No.11/2017 (residual construction entry) to taxable awarded amounts that are price revisions for extra work. Rate applied in ruling: 9% CGST + 9% SGST (per serial entry cited). Time of supply for reverse charge services follows Section 13(3): earlier of payment date (or bank debit) or specified invoice deadlines; for supplementary upward revision supplies under Section 142(2)(a) deemed as outward supply when supplementary invoice/debit note issued within prescribed period.

Conclusion: Taxable awarded amounts representing price revisions/extra work are to be discharged under SAC 995422 and taxed at 9% CGST + 9% SGST. Time of tax liability follows the statutory time of supply rules: for reverse charge services the earlier of payment date or bank debit or sixty days rule; for deemed supplies under Section 142(2)(a) time of supply is when supplementary invoice/debit note is issued as prescribed.

Issue (vi): Whether debit note / supplementary invoices or tax invoice need to be issued by the applicant to the contractor in order to recover and discharge the tax liability?

Analysis: Where the Authority characterises the awarded amount as a taxable upward revision of contract price (supply), the statutory mechanism under Section 142(2)(a) requires issue of supplementary invoice/debit note within prescribed period to effect deemed outward supply under GST; issuance is necessary to recover and discharge tax on such amounts. For compensatory awards (non supply), no supplementary invoice is required.

Conclusion: Yes - where an awarded claim is held to be a supply (upward revision of price), the applicant must issue supplementary invoice/debit note/tax invoice as applicable to recover and discharge GST; where the award is compensatory/liquidated damages (not supply), no such invoicing is required.

Issue (vii): The work got executed prior to GST Regime however the claim is received during the GST Regime. Under such circumstances what is the applicability of GST on the same?

Analysis: The Authority applied transitional provisions (Section 142(2)(a) and Section 142(11)) to determine that receipt of amounts during GST era does not automatically create GST liability. Only where there is an upward revision of price in pursuance of a pre GST contract (leading to supplementary invoice/debit note) does GST apply under Section 142(2)(a). Conversely, payments that are compensatory for breach arising from pre GST performance and not arising out of contractual price revision remain non taxable under GST; amounts already taxed in legacy regime should not be taxed again under GST.

Conclusion: Receipt during GST era does not per se attract GST. GST applies only to upward price revisions pursuant to pre GST contracts under Section 142(2)(a). Compensatory/liquidated damages received for breaches of pre GST contracts are not taxable in the GST regime.

Final Conclusion: The Authority rules that the arbitration awards contain both taxable and non taxable components: amounts that constitute upward revision of contract price/consideration for extra work under pre GST contracts are taxable under GST (issue of supplementary invoice/debit note and tax discharge required under prescribed provisions, at SAC 995422, 9% CGST + 9% SGST); amounts that are compensatory/liquidated damages or mere flow of money compensating breach without any reciprocal obligation are not taxable. Arbitration fees payable to the tribunal are taxable and subject to reverse charge; reimbursement of arbitration costs received as compensation is not taxable. The ruling is therefore partly in favour of the applicant and partly in favour of the Revenue, as per the issue wise delineation above.

Ratio Decidendi: Where an amount awarded post GST under a contract entered into prior to 01.07.2017 represents an upward revision of the contract price in pursuance of contractual provisions (e.g., extra items, price adjustment), Section 142(2)(a) CGST Act, 2017 deems issue of supplementary invoice/debit note as an outward supply subject to GST; whereas payments that merely compensate loss or damage from breach (liquidated damages/mere flow of money) without any agreement to tolerate or perform an act do not constitute consideration for supply and are not taxable under GST (as clarified in Circular No.178/10/2022-GST).

---