GST on Liquidated Damages

[SARAVANAN RENGACHARY]

Dear Experts,

As per recent Maharastra Advance Ruling, GST is applicable on Liquidated Damages.

Generally, Invoices are raised for full value with applicable GST as per the PO. Though the delivery is delayed and i.e. 10% LD is applicable, as accounting practice, invoice is raised for full value and GST on such full value is paid.

Customer will release the payment after deducting 10% LD. Such deducted amount will be treated as expenses in the books of supplier.

Scenario after Advance ruling:

It seems that the supplier has to raise the invoice for full value with GST and the customer has to release the payment for full and separately raise a invoice on the supplier for 10% LD with GST. Not sure whether input credit is eligible for such services.

If the LD is deducted by Government Customer, will it fall under reverse charge mechanism?.

Please share your valuable views.....

Saravanan.

AI Summary

Advance Ruling: GST Applicable on Liquidated Damages; Impacts Invoicing and Input Credit Eligibility. Reverse Charge Mechanism May Apply. A discussion on the applicability of GST on liquidated damages highlights a recent Maharashtra Advance Ruling indicating GST is applicable. Typically, invoices are issued for the full amount with GST, and customers deduct 10% for liquidated damages (LD). Post-ruling, suppliers might need to invoice the full amount with GST, while customers separately invoice the supplier for 10% LD with GST. There is uncertainty about input credit eligibility. If a government customer deducts LD, the reverse charge mechanism may apply. Various contributors discuss relevant notifications and potential exemptions, expressing differing views on the GST implications.