DEMURRAGE CHARGES & GST IMPLICATIONS

[Sadanand Bulbule]

Dear experts

Demurrage charges in sea transportation are incidental charges that arise when the consignee delays clearance/return of containers beyond the free period. Such charges are to be treated as additional consideration for the principal supply of transportation service. Accordingly, in my opinion, they are taxable at the same rate as freight in terms of Section 15(2)(c) of the CGST Act, 2017.

Many are under the misconception that such chrages are for 'tolerating an act' falling under Sl. No. Entry 5(e) of Second Schedule to the CGST Act.

Plz validate.

[KALLESHAMURTHY MURTHY K.N.]

Dear Sir, 

Demurrage charges are a sort of penalty at a fixed rate charged to the supplier or importer for the containers left at ports beyond the scheduled time. That is not includable in the valuation for customs duty. So can also not be treated as a composite supply to be considered along with the transportation charges and accordingly, not liable to GST in my opinion.  If this view is incorrect, the same can be elaborated by the experts

[KASTURI SETHI]

Sh.Sadanand Bulbule Ji,

Sir, I wholly concur with the views of Sh. Kalleshamurthy Murthy, Sir. These are compensation charges and can never be treated as income. So no consideration. Moreover, such charges are covered under the category of NOT tolerating an act and NOT under the category of tolerating an act. Hence out of the scope of Schedule-II. NOT taxable. Most of the case laws are in favour of the assessees.

[Sadanand Bulbule]

Considering the above comments and keeping in mind the CBIC Circular No.178/10/2022-GST dated 03/08/2022, I fully endorse that, demurrage is purely compensation and not consideration for any supply of service. Hence it lies outside the scope of GST levy.

Such discussion pays enough dividents in affirming the settled position on demurrage as not consideration as defined under Section 2[31] of the CGST Act.

Let the stakeholders derive benefit, if need be.

[Sadanand Bulbule]

Here I wish to tag in the context of demurrage, one may lose the battle of departmental contention, but the war is won by the overarching legal position that such charges are compensatory and not taxable under GST Act. 

 

[Sadanand Bulbule]

Dear all

The Honble Karnataka High Coourt in its judgement dated 10/09/2024 rendered in the case of Smt. Asha, Bengaluru Vs. The Assistant Commissioner of Commercial Taxes [Enforcement] South Zone Bengaluru - 2025 (4) TMI 548 - KARNATAKA HIGH COURT and in bunched writ petitions has held that, solatium being comensation in nature is outside the GST domain.

The ratio of the judgement [supra] can also be applied to demurrage /compensation to treat it as outside the GST domain.

[Shilpi Jain]

These demurrage charges are levied by whom?

Is it by the same person who is providing transportation or someone else?

Factual aspects to be checked to reply to this appropriately.

AI Summary

Demurrage charges may be treated as compensation and fall outside GST scope, though valuation arguments assert inclusion. Demurrage charges may be classified either as additional consideration for transportation, includible in taxable value and taxed at the freight rate, or as compensatory penalties outside the GST net. Administrative guidance and judicial reasoning treating solatium/compensation as non taxable support the exclusionary view, but factual elements such as the identity of the levying party and contractual nexus are critical to the taxable treatment.