GST on Liquidated Damages

[sunilkumar bhageria]

LD applied on supply bills raised and supply made before GST implementation but payment made by the customer after GST implementation and applied GST on such LD . Wether GST applicable on such LD where supply made in pre GST era. Though the LD was applicable as per contract term only thing is wether GST also applicalbe on the same when the supply made before GST era.

Further in some cases where supply made after GST implementation and GST charged on supply bill. Customer deducted LD on full invoice value including GST and again applied GST on such LD hence cascading effect i.e GST on GST. Customer not entitled to take GST input.

[KASTURI SETHI]

Dear Querist,

Query-wise reply is as under : (All queries are covered in the decisions of AAR and AAAR given below. Read carefully.)

Time of supply is to be decided in terms of Section 14 of CGST Act, 2017. Section 14(a) & (b) both are relevant in the situation explained by you.

(i) In the first scenario, invoice has been issued and service has been supplied before the date of implementation of GST but the payment is received after the date of implementation of GST; Time of supply will be date of issue of invoice as per Section 14 (a)(i) is applicable. The date of issue of invoice is earlier than the date of payment.

(ii) In second scenario, Section 14 (b) (i) is applicable as service has been supplied after the date of implementation of GST and payment has also been received after the date of implementation of GST. Time of supply is the date of receipt of payment i..e. GST rate in force on the date of receipt of payment. is applicable.

(iii) No double taxation is permitted whether it is pre-GST era or post-GST era.

In order to make the concept clearer, read my views together with the following decisions of AAR and AAAR, Maharashtra:-

2018 (13) G.S.T.L. 177 (A.A.R. - GST) = 2018 (5) TMI 1332 - AUTHORITY FOR ADVANCE RULING - MAHARASHTRA IN RE : MAHARASHTRA STATE POWER GENERATION COMPANY LIMITED

This decision has been upheld by AAAR, Maharashtra

2018 (17) G.S.T.L. 451 (App. A.A.R. - GST) = 2018 (9) TMI 1185 - APPELLATE AUTHORITY FOR ADVANCE RULING MAHARASHTRAIN RE : MAHARASHTRA STATE POWER GENERATION COMPANY LIMITED

 

[sunilkumar bhageria]

Dear Katuri sir

Many-2 thanks for your expert views. In reply no. 3 i.e. double taxation not allowed in this respect i would like to elaborate my query. The customer is providing exempt services- distribution of electricity hence not availing input credit of GST. AS per agreement the LD will be applicable on total invoice value that includes GST also. So as per agreement customer is deducting LD on full invoice value. as he is not taking input credit of GST hence GST is also cost for him. But on LD he has to charge GST as per the ruling of AAR. So how this double taxation can be avoided. Can he take proportionate credit of GST on the taxable services of LD provided by him. How we can satisfy the customer not to deduct LD on GSt amount.

Sunil Bhageria

[KASTURI SETHI]

Dear Sh.Sunil Ji,

(1) GST (CGST & SGST ) cannot form part of transaction value/taxable value in terms of Section 15 (2)(a) of CGST Act, 2017 for the purpose of payment of GST. It is clearly mentioned therein.

Section 15(2)(a) of CGST Act reads as follows:-

(2) The value of supply shall include -

(a) any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than this Act, the State Goods and Services Tax Act, the Union Territory Goods and Services Tax Act and the Goods and Services Tax (Compensation to States) Act, if charged separately by the supplier.

(2) Any agreement or contract cannot be executed in violation of CGST Act. Here CGST Act will prevail over Indian Contract Act. Notwithstanding the agreement/contract executed between the supplier and receiver, GST has to be excluded from taxable value for computation of GST. not to be paid on gross invoice value. There is no dispute about. It is free from any doubt.

(3) As per AAR Maharashtra (Applicant : North American Coal corporation India Pvt.) reported as2018 (18) G.S.T.L. 525 (A.A.R. - GST) = 2018 (10) TMI 1339 - AUTHORITY FOR ADVANCE RULING - MAHARASHTRA decided on 11.7.18

: "The value of supply will be the actual amount of damages received"

(4) Regarding the admissibility of ITC, it is a supply of service under Schedule-II Serial no.5 clause (e) provided Section 7 of CGST Act. the person availing ITC has to conform to the parameters laid down under Sections 16 & 17 of CGST Act.

2018 (18) G.S.T.L. 525 (A.A.R. - GST) = 2018 (10) TMI 1339 - AUTHORITY FOR ADVANCE RULING - MAHARASHTRA IN RE : NORTH AMERICAN COAL CORPORATION INDIA PVT. LTD.

 

 

AI Summary

GST on liquidated damages: time of supply and taxable value determined by statutory rules, not contract terms. Time of supply for liquidated damages is the invoice date if invoice and supply predate GST implementation but payment follows; where supply and payment occur after GST implementation, time of supply is date of receipt of payment. GST cannot be included in taxable value by contract; the value of damages is the actual amount received and input tax credit eligibility must follow statutory conditions.