APPLICABILITY OF GST ON CANCELLATION OF CONTRACT

[Mehul Pandya]

DEAR EXPERTS,

WE ARE ENTERED INTO AN AGREEMENT WITH OUR DEBTOR TO SELL HIM SOYA PRODUCT. THEREFORE WE HAVE IMPORTED THE SAME PRODUCT TO FULFILL HIS REQUIREMENT AND PAID 5% IGST ON IT. NOW HE DENIED TO PURCHASE THE SAME. THEREFORE WE HAVE FILLED CASE AGAINST HIM IN RELATION TO BREACH OF THE CONTRACT AND RAISED DEBIT NOTE DEMANDING 30 LAKS FOR THE SAME (LIQUIDATED DAMAGES). WE DO NOT KNOW WHETHER HE WILL PAY OR NOT, ITS DEPEND UPON JUDGEMENT/LITIGATION.

NOW, MY QUERY IS WHETHER GST WILL BE APPLICABLE ON THIS DEBIT NOTE ?

IF YES, WHAT WILL BE THE GST RATE ?? AND

IF HE WILL NOT PAY TO US THEN WHAT ABOUT GST PAID TO THE GOVERNMENT ?

AI Summary

Dispute Over GST Applicability on 30 Lakh Liquidated Damages for Breach of Soya Product Contract Under IGST Provisions A party entered into a contract to sell soya products, imported with a 5% IGST, but the buyer refused to purchase, leading to a breach of contract and a claim for liquidated damages of 30 lakhs. The query concerns the applicability of GST on the debit note for damages. Responses varied: one view suggests GST may apply at 18% if the amount is collected, while another argues no GST is due as no service was provided. Legal precedents indicate GST is not payable on damages lacking reciprocity, but departmental disputes may arise.