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of <h1>Karnataka GST: Liquidated Damages and Penalties Not Taxable as Supply Under GST Act.</h1> The circular from the Karnataka Department of Commercial Taxes addresses the applicability of GST on payments related to liquidated damages, compensation, and penalties arising from contract breaches or legal provisions. It clarifies that such payments, including liquidated damages, cheque dishonor penalties, and fines for legal violations, do not constitute a 'supply' under the Karnataka GST Act, as they are not consideration for tolerating an act or situation. These payments are viewed as compensatory rather than service-related. The circular provides specific examples and guidelines to determine taxability, emphasizing that each case's facts will dictate GST applicability.
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