GST Implication on Payment under ICC Arbitration Award for Breach of Non-Solicitation Clause

[Abhijeet Mane]

A is required to pay C (Located outside India) under an ICC arbitration award for breach of a non-solicitation/non-circumvention clause in their Term Sheet. The breach occurred because A directly engaged with B (Customer of C) and secured brand rights for India during the exclusivity period, triggering liquidated damages of INR 1 Lacs to be paid by A to C.

Does GST under Reverse Charge apply on this payment to C? 

[Sadanand Bulbule]

Payment of liquidated damages to a non-resident pursuant to an arbitral award for breach of contract is compensatory in nature and not consideration for any supply; hence, it is outside the scope of GST and no reverse charge applies.

AI Summary

GST reverse charge on INR payment under ICC arbitration award for breach of non-solicitation/non-circumvention clause whether taxable consideration or damages Whether GST reverse charge is triggered on an INR payment made to a non-resident under an ICC arbitration award for breach of a non-solicitation/non-circumvention clause. The legal issue is whether the award payment constitutes 'consideration' for a taxable supply of services by the non-resident to the Indian payer; if so, the recipient would be liable to discharge GST under reverse charge. Conversely, if the payment is characterized as a penal compensation or pure damages not made in return for any supply, it would not constitute consideration and GST would not be attracted.