GST on Compensation Received

[Ethirajan Parthasarathy]

“A” supplies Raw material to “B”. It so happens that ouput of “B” by using “A”s supply turns out to bad / nonsaleable. To maintain good relationship and keeping commercial expediency in view, “A” agrees to pay compensation to “B” calculated at sale value of defective output. It is proven that “B” output has become non-saleable because of raw material supplied by “A”.

Question :-

Whether “B” is liable to pay GST on Compensation amount received from “A”

[YAGAY and SUN]

Please refer following article in connection with your query: -

https://www.taxtmi.com/article/detailed?id=9223

[Ganeshan Kalyani]

Sir, the compensation amount is taxable in the hand of "B".

[DR.MARIAPPAN GOVINDARAJAN]

B is liable to pay GST on compensation amount received from A

AI Summary

GST on compensation: compensation received for defective goods constitutes taxable consideration, making recipient liable to pay GST.
Compensation received by the buyer for unsaleable output caused by defective raw material is treated as taxable receipts and the buyer is liable to account for GST on that compensation.