TaxTMI 
TaxTMI 
XYZ is recovering amount from supplier as penalty towards late delivery of goods. Is XYZ required to pay GST on the amount recovered in view of the clarification issued by CBIC vide its Circular No. 178/10/2022-GST [F. NO. 190354/176/2022-TRU], DATED 3-8-2022. My view is not required to pay as per the clarification given in para 7 of the circular under ‘liquidated damages’. Views of the experts please.
GST on penalty for late delivery of goods
04 Jun 2023 
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GST on penalty: penalty for late delivery may not be taxable if it constitutes compensation, not consideration.
Whether GST applies to a penalty recovered by a recipient from a supplier for late delivery depends on characterization: amounts that constitute consideration for an ancillary facility bundled with the principal supply (e.g., acceptance of late payment or similar commercial terms) are taxable as part of the principal supply, whereas recipient levied liquidated damages treated as compensation for breach, where the recipient supplies nothing in return, do not constitute consideration and therefore fall outside valuation under Section 15. (AI Summary)
Whether GST applies to a penalty recovered by a recipient from a supplier for late delivery depends on characterization: amounts that constitute consideration for an ancillary facility bundled with the principal supply (e.g., acceptance of late payment or similar commercial terms) are taxable as part of the principal supply, whereas recipient levied liquidated damages treated as compensation for breach, where the recipient supplies nothing in return, do not constitute consideration and therefore fall outside valuation under Section 15. (AI Summary)