GST on Penalty on foreign bills

[Arti Gupta]

Company B is importing various goods . In purchase order there is the clause of penalty deduction for late delivery of goods. When goods are delivered late, penalty is deducted from vendor bill which is in foreign currency. Question is whether GST is applicable on deduction of penalty based on tolerating of an act of the foreign vendor which falls under the definition of service under GST law.

Here Company B as provider of service is located in India, recipient of service is located outside India . So if we go by Section 13(2) , place of supply of service is outside India. But whether reduction in liability of by company B after adjusting penalty amount from the bill of vendor will amount to consideration receipt in FC to qualify export of service .

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[DR.MARIAPPAN GOVINDARAJAN]

In my view yes.

[BRIJMOHAN GOYAL]

But sir,what will be the taxable value of Import transaction. Is it (Import value - Penalty charges) or is it Full Import Value.

AI Summary

GST on penalty deductions may affect place of supply and whether such deduction qualifies as export consideration. Whether GST applies where an Indian importer deducts a penalty from a foreign vendor's invoice for late delivery and whether that deduction, paid in foreign currency, constitutes consideration so that the place of supply falls outside India under the place-of-supply rule. Also questioned is whether the taxable value of the import transaction should be reduced by the penalty deduction or remain the full import value for GST and import valuation purposes.