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 Applicability on Penalties for Delayed Delivery Under Section 13(2) Raises Questions on Taxable Import Value A company in India, referred to as Company B, imports goods and includes a penalty clause for late delivery in its purchase orders. The query concerns whether the Goods and Services Tax (GST) applies to penalties deducted from foreign vendors' bills due to delayed delivery. The discussion revolves around whether this penalty deduction qualifies as a service under GST law, considering the place of supply is outside India as per Section 13(2). Two responses were received: one affirming GST applicability and another questioning the taxable value of the import transaction, whether it should be based on the full import value or adjusted for penalty charges.