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AAR held that Minimum Guaranteed Off-take (MGO) charges constitute liquidated damages and do not amount to a "supply" or "consideration" under the CGST framework. Applying the definition of declared services in Schedule II(5)(e) and the Contract Act principles, the Authority found no requisite nexus between the payment and any obligational supply (i.e., agreeing to do, refrain or tolerate an act). MGO payments merely compensate for breach and are a monetary flow for loss, not the object of a contract; consequently they fall outside Section 7(1A)/Schedule II coverage and are not taxable under GST, particularly where the principal product supplied is outside GST ambit.
AAR held that Minimum Guaranteed Off-take (MGO) charges constitute liquidated damages and do not amount to a "supply" or "consideration" under the CGST framework. Applying the definition of declared services in Schedule II(5)(e) and the Contract Act principles, the Authority found no requisite nexus between the payment and any obligational supply (i.e., agreeing to do, refrain or tolerate an act). MGO payments merely compensate for breach and are a monetary flow for loss, not the object of a contract; consequently they fall outside Section 7(1A)/Schedule II coverage and are not taxable under GST, particularly where the principal product supplied is outside GST ambit.
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