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12 May 2020
5 Answers
9583 Views We have taken some goods and services from vendor did not completed the contract within the time period whether supply of goods and service. we have deducted the proportionate amount for delay supply or delay completion of service . The vendor has charged GST on thier bill. and we have taken full ITC on thier bills.
Kindly advise whether GST has to charged or reversed when debit note issue to vendor for above reason and effectlvely we have to reverse the ITC proportionately.
Old Query - New Comments are closed.
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On liquidity damages/penalty deduction for non fulfillment of contract/agreement terms and conditions etc. GST will be applicable on the value/amount so dedcuted by you.
The Maharashtra Authority for Advance Ruling (“AAR”) in the case of Maharashtra State Power Generation Company Limited (“Applicant”) held that Goods and Services Tax (“GST”) at the rate of 18% would be payable on liquidated damages (“LD”) received by the Applicant for delayed supply under a contract.
The AAR has considered LD to be a consideration for agreeing to the obligation to tolerate an act or a situation, which is treated as a supply of service under para 5(e) of Schedule II of the Central Goods and Services Act, 2017 (“CGST Act”) / Maharashtra Goods and Services Act, 2017 (“MGST”)
Similar Ruling are made in the following AARs
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GST is not applicable on the damages claimed for breach of contract (delayed performance in your case). Refer the Hon'ble CESTAT Decision in case of Amit Metaliks Limited vs. C.G.S.T 2019 (11) TMI 183 - CESTAT KOLKATA wherein it was held that the liquidated damages for non-supply of agreed quantity cannot be treated as service. In my view, the Advance rulings are not well reasoned to fasten the GST liability.
Hence you need not pay GST.
As far as ITC, if your supplier gives credit note u/s. 34 of CGST Act, 2017 then you may have to reverse ITC to the extent mentioned in Credit note.
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Dear Querist,
GST is applicable without taking AAR crutches. We cannot over-trust AARs. Brain storming is required to arrive at correct and concrete decision. I support the views of M/s.Yagay and Sun Sir.
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Dear sanjay
As I understood that your vendor supposed to supply the goods and\ or services with in the time also.
The fact that the vendor has not done supply with in time calls for deficiency. The amount deducted by you will treated as if you have not received the proportionate service. And hence you are not entitled to take credit in full as per sec.16 of CGST Act.
Hence reverse credit with interest.
Your vendor can give credit note under sec.34 to reduce his tax liabilities.
Please note the fact that the deficiency of service is known on the date of availment of credit. Hence it is erroronius credit availed.
What falls under deficiency of service can not fall under liquidated damages.
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The querist has mentioned vendor did not completed the contract within the time period whether supply of goods and service. we have deducted the proportionate amount for delay supply or delay completion of service . This falls unders entry 5(e) of Sch. II of CGST Act, agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; and....
So, GST is applicable.
Old Query - New Comments are closed.
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