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.

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.