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of <h1>GST Circular Clarifies Liquidated Damages, Penalties, and Compensation Not Taxable as Service Consideration Under GST Framework.</h1> The circular addresses the applicability of GST on liquidated damages, compensation, and penalties arising from contract breaches or legal provisions. It clarifies that such payments are not taxable as they do not constitute consideration for a service. Liquidated damages, penalties, and compensations are seen as deterrents or compensations for losses, rather than payments for tolerating an act. Examples include penalties for contract breaches, cheque dishonour fines, and compensation for cancelled coal blocks. The circular emphasizes that these payments are not for any independent contractual activity and thus do not qualify as taxable supplies under the GST framework.
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