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

GST on Liquidated Damages: taxability hinges on characterization as supply; alternate views and case law affect liability.
Applicability of GST on a debit note for liquidated damages turns on whether the payment is consideration for a supply; administrative practice may treat recoveries as taxable when realised, while judicial authority has held that compensation for legal injury lacks the reciprocity required to be a supply and thus is not subject to GST.