export order canceled compensation received gst treatment

[suresh sathyamurthy]

Dear Sir

We had received export order, against the order we procured the raw material and started processing the raw material, now the buyer wants to cancel the order because of covid and ready to compensate the loss on material procured. we have availed ITC credit, we will be receiving the compensation in foreign currency. kindly advice how to treat under GST

a) compensation received for cancellation of export order

b) ITC credit availed till date

c) the final product can be exported to third party in future

please advice

AI Summary

Taxability of compensation depends on whether it constitutes a supply; taxable if treated as toleration of non performance.
Taxability of compensation for cancellation hinges on whether the receipt is a supply (taxable when it represents toleration of non performance or pre agreed consideration) or true compensatory damages outside the supply doctrine; if raw materials remain with the taxpayer and are kept for future exports, no reversal of Input Tax Credit is generally indicated, and the finished goods can later be exported under IGST or under LUT without IGST, subject to procedural compliance.