TaxTMI 
TaxTMI 
2018 (10) TMI 1339
X X X X Extracts X X X X
X X X X Extracts X X X X
....he affirmative, what should be the time of supply, that is to say, the point of time in which NACC's liability to pay GST arises ? 3. If the answer to Question No. 1 is in the affirmative, what should be the value of supply on which GST is payable, that is to say, whether the Applicant is liable to pay GST on amount of liquidated damages claimed and awarded to the Applicant under the arbitral award or the amount which is actually received by the Applicant after conclusion of the matter before the final Appellate authority. At the outset, we would like to make it clear that the provisions of both the CGST Act and the GST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST Act / MGST Act would be mentioned as being under the "GST Act". 02. FACTS AND CONTENTION - AS PER THE APPLICANT The submission (Brief facts of the case), as reproduced verbatim, could be seen thus - ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and overall mine management methodology were provided by expert teams from the United States of America. 5. The Association Agreement was first amended vide the First amendment to Association Agreement dated September 30, 2009 for amending the payment mechanics thereunder (Refer Annexure B). 6. Subsequently, in March 2011, NACC US incorporated a subsidiary, NACC India, being the Applicant, and through the Assignment and Assumption Agreement, Consent, and Second Amendment to the Association Agreement dated April 1, 2011 (Refer Annexure C), the rights and obligations of NACC US as per the original Association Agreement were transferred and assigned to the Applicant, with the consent of SPL. 7. Further, the Applicant has entered into an Intellectual Property License and US Service Agreement ("IP & Services Agreement") with NACC US dated 1st April 2011 (Refer Annexure D), for receiving services and a non-exclusive license of Intellectual Right from NACC US. The terms of the IP & Services Agreement includes the following scope for the years under consideration: • Grant by NACC US to the Applicant of non-exclusive, non-transferable, non assignable, non-sub licensabl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y consecutive days once the annualized rate of coal production at the Sasan mine has equalled the rate of seven million tonnes per year for such thirty days. As per the Association Agreement, SPL was required to pay a production phase royalty of an amount equivalent to higher of a) USD 250,000 per annum or b) USD 0.1125 for each ton of coal produced from the mine each quarter. 9. In terms of the Association Agreement, SPL was obligated to remunerate NACC US/Applicant in the following manner: "Section 5.4 Automatic Payments/Invoicing. (a) Pre-Effective Date U.S. Services. Within five (5) days after the Effective Date, NAC shall invoice Reliance for (i) any unpaid amounts described in Section 5.7 (a) that were incurred prior to the Effective Date and (ii) the amount described in Section 5.1(b). The invoice shall be accompanied by reasonable supporting documentation in respect of any unpaid amounts described in Section 5.1(a). Payment by Reliance shall be due within thirty (30) days of Reliance's receipt of such invoice. (b) Post-Effective Date Services. Within fifteen (15) days after the end of each calendar quarter, NAC shall invoice Reliance for (i) the amounts d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....4 2014/15-002 Q1 2014 exp. 11-Apr-14 30 days 11-May-14 6,628,189 2014/15-003 Q1 2014 exp. 11-Apr-14 30 days 11-May-14 71,235.97 2014/15-004 Interest 23-May-14 Receipt 23-May-14 44,320.42 2014/15-005 Interest 23-May-14 Receipt 23-May-14 212,646 2014/15-007 Interest 01-Ju 1-14 Receipt Ol-Jul-14 14,626.54 2014/15-008 Interest Ol-Jul-14 Receipt Ol-Jul-14 169,050 2014/15-009 Q2 2014 exp. 10-Jul-14 Receipt 10-Jul-14 4,949,343 2014/15-010 Q2 2014 exp. 10-Jul-14 Receipt 10-Jul-14 104,303.95 2014/15-11 Interest 23-Jul-14 Receipt 23-Jul-14 8,227.81 2014/15-12 Interest 23-Jul-14 Receipt 23-Jul-14 95,095 2014/15-13 Q3 2014 Dev Fee upto July 23, 2014 23-Jul-14 Receipt Z3-Jul-14 78,900.59 Total Amounts due 1,259,310.16 17,087,113 11. The Applicant has charged Service tax on the invoices raised by it for the services rendered under t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....xtent to exceed U.S. $ 1,000,000 in the aggregate. (c) If NAC terminates this Agreement pursuant to Section 6.2(c), Reliance shall pay to NAC, as liquidated damages and not as a penalty or other punitive amount, the amount specified below: If Termination Occurs During: Then the Termination Payment is U.S.: Year 1 of the Development Phase $11 million Year 2 of the Development Phase $13 million Year 3 of the Development Phase $15 million Year 4 or later of the Development $17 million phase Any year in the production phase $17 million, less the aggregate amount of the Production Phase Royalties received by NAC prior to the termination date" ARTICLE VIII EVENTS OF DEFAULT Section 8.1 Default by Reliance. If Reliance shall at any time be in breach of its (a) payment obligations, (b) other obligations pursuant to this Agreement, including failure to provide reasonable access to the Mine, the Preparation Plant or any Mining Project that are relevant to the duties and obligations of NAC hereunder and the failure to timely provide presentations in section 13.2(1, NAC may give written notice of such default to Reliance, in which case Reliance shall have twenty-one (21) days wi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e SPL to cure its default and avoid termination of agreement. However, SPL failed to make the due payments and continued the default. 15. Following the completion of 60 days from the notice of default, the Applicant sent a notice for termination of the Association Agreement on July 23, 2014 for continued breach of the terms of the aforesaid Agreement for SPL's failure to pay the Applicant for services it performed for the period after October 1, 2013 in terms of default mentioned in section 8.1 (a) of Article VIII of the Association Agreement. 16. The termination affected by the Applicant under the terms of Association Agreement resulted in the Applicant claiming from SPL the past due and amounting to USD 1,259,310 for development fee and INR 17,087,113 for reimbursement of expenses (including interest thereon) and of liquidated damages to the tune of USD 17 million as per Section 6.3 of the Association Agreement. A copy of the said notice for termination of the Association Agreement is attached as Annexure E. 17.Upon SPL's refusal to pay the aforesaid claims due to Applicant under the Association Agreement, the Applicant filed a request for arbitration on August 8....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l for no more than an additional six (6) months for reasons that are just and equitable. (c) Except as otherwise required by Applicable Laws of India, the arbitration proceedings and the Award shall not be made public without the joint consent of each party and each party shall maintain the confidentiality of such proceedings and the Award. (d) Each party shall bear its own arbitration expenses and Reliance on the one hand, and NAC, on the other hand, shall pay one-half of the ICCs and the chairperson's fees and expenses, unless the arbitrators determine that it would be equitable if all or a portion of the prevailing party's expenses should be borne by the other party. Unless the Award provides for nonmonetary remedies, any such Award shall be made and shall be promptly payable in (i) U.S. Dollars if payable to NAC or (ii) Rupees if paid to Reliance net of any tax or other deduction. The Award shall include interest from the date of any breach or other violation of this Agreement and the rate of such interest shall be specified by the arbitral tribunal and shall be calculated from the date of any such breach or other violation to the date when the Award is paid in fu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ration proceedings outside India despite being companies incorporated under Companies Act, 1956, in India. 23. Pursuant to the aforesaid Order of the Hon'ble Supreme Court, the parties have initiated the arbitration proceedings before ICC. ICC has fixed the date of hearing in the matter from 3 April 2018 to 8 April 2018. 24. The Applicant mentions that, when the Applicant had approached the Hon'ble Authority for Advance Ruling ("Authority") that functioned under the erstwhile service tax regime, the Authority had rejected the Application of the Applicant vide its Ruling dated 6 May 2017 observing, inter alia, as follows: • The question of whether or not the Applicant ought to pay service tax on liquidated damages is not liable to be entertained as it is not certain today whether the liquidated damages would be granted at all in the arbitration proceedings. • The question posed to Authority is not a valid question since it depends on uncertain event of the Applicant succeeding in arbitration proceedings. • It may happen that after the Authority gives its ruling, the Applicant may eventually fail in its attempt to earn liquidated d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ices as referred to in Schedule II. 3. Section 7 of the CGST Act, 2017 defines the term 'supply' to include all forms of supply of goods or services or both and it expressly seeks to include all activities treated as supply of goods or supply of services as referred to schedule II of the CGST Act, 2017. In this regard, clause 5(e) provides that agreeing to the obligation to refrain from an act, or to tolerate act or a situation, or to act shall be treated as a supply of services. The relevant portion in Sch II is as below: SCHEDULE II (Section 7) 5. Supply of services The following shall be treated as supply of services, namely:- (a) ........... (b).............. (e) Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; and " 4. Detailed submissions in respect of the aforesaid are presented below. Applicant's obligation under the Association Agreement doesn't constitute as supply of service: 5. As submitted in its application, the Applicant would like to reiterate that the claim of liquidated damages doesn't qualify as a 'service' itself, as it lacks the element of recip....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of certain consideration. 9. In order to examine the provisions under Clause 5(e) of Schedule II to the CGST Act, 2017, it should first be relevant to understand as to what should qualify as an "Obligation" 10. GST law does not contain any definition of the term "Obligation". Therefore, it would be relevant to examine the definition of the said term under other legislations/ judicial pronouncements and understand its dictionary meaning. 11. The term "Obligation" has been defined under Section 2(a) of the Specific Relief Act, 1963 as follows: "2. Definitions. (a) "Obligation" includes every duty enforceable by law; 12. The Andhra Pradesh High Court in case of Hyderabad Stock Exchange Ltd vs Rangnath Rathi & CO (AIR (1958) AP 431 has held that 'An obligation is a tie or a bond which constraints a person to do or suffer something'. 13. As per the Black's law dictionary, the term "Obligation" has been defined as: "A legal or a moral duty to do or not do something." 14. As per Wharton's law lexicon, the term "Obligation" has been defined as: "An act, which binds a person to some performance; or for the performance of a covenant etc." 15.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ligations thereunder to supply services to the service recipient. The claim of liquidated damages is an act subsequent to the act of termination of the Association Agreement. 23. Had there been any tolerance of an act or a situation by the Applicant in the instant case when the service recipient default in making payments, the Applicant would have continued to provide its services despite a default by the service recipient. The Applicant would not have terminated the Association Agreement had there been any tolerance on its part. The Applicant terminated the Association Agreement and sought liquidated damages only because there is no tolerance on its part of the breach effected by the service recipient. Liquidated Damages received for breach/termination of contract cannot qualify as 'consideration' 30. Under the GST law, the term consideration has been defined under Section 2(31) of the Central Goods Service Tax Act, 2017, as follows: " (31). "consideration" in relation to the supply of goods or services or both includes ,- (a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s to provide to damages for pecuniary loss, which naturally flows from the breach. The Court placed its reliance on an earlier decision of the Apex Court in Union of India v. Sugauli Sugar Works (P) Ltd v., (1976) 3 SCC 32: "Once it is established that the party was justified in terminating the contract on account of fundamental breach thereof, then the said innocent party is entitled to claim damages for the entire contract i.e.for the part which is performed and also for the part of the contract which it was prevented from performing". 34. Under the service tax law, which had identical requirements, it was settled law that mere flow of money cannot be subject matter of service tax and consideration/money should have 'nexus' with an identified supply of service. It was also equally settled that payment for damages made were not for any provision of service and were instead were made to make good the loss suffered. Reference is invited by the Applicant to the following case laws: • In the case of Cricket Club of India v. Commissioner of Service Tax [(2015) (40) STR 973], the Hon'ble CESTAT (Mumbai Bench), observed as under: "11.................... Con....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iven to them for booking a booth, when the same is subsequently cancelled by the customer and the amount is refunded to them. Admitted position, which emerges is, that no booths are ultimately rented out by the appellant to their customers. As explained, such cancellation charges are for putting the appellant into inconvenience by initially booking the booths and subsequently cancelled. Inasmuch as no service stand provided by the appellant to their customers and for which purpose no consideration was ever received by them, we are of the view that the cancellation charges recovered by the appellant cannot be held to be the Consideration for providing business exhibition services. The same are thus not liable to service tax," "In Reliance Life Insurance Company Ltd. v. Commissioner of Service Tax, Mumbai ll, Appeal No. ST/85584/2015, the Hon'ble Mumbai Tribunal had dealt with the question of payment of service tax on surrender or partial withdrawal charges under the category of 'Management of Investment under ULIP services' for the period 01.04.2009 to 30.06.2012. These charges were collected by the assessee when a policy holder dilutes the policy completely or partia....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the above definitions and the above case laws to the Applicant's case, it is submitted that the flow of money from the service recipient is not for any provision of supply of service of tolerating any default in payment by the service recipient. 37. Instead, the claim of liquidated damages is against the loss suffered by the Applicant on account of the default committed by the service recipient. Any payment received as genuine damages or loss flowing from early termination as a result of a default one party, can not be regarded as a consideration for a supply. Therefore, it is submitted that there can be no taxable supply in the instant case as the payment for genuine damages is no consideration for any earlier or current supply. 38. The submission of the Applicant that damages received by it is not consideration for any supply is also substantiated from the following foreign case laws dealing with similar issues and having provisions with identical language: • In GSTR 2003-2011, the Australian Taxation Office (ATO) had to consider the applicability of GST on payments made on an early termination of a lease of goods by a lessor on account of a lessee'....
X X X X Extracts X X X X
X X X X Extracts X X X X
....default by the lessee is not consideration for a supply....... There is no taxable supply because a payment for genuine damages, which is not consideration for any earlier or current supply, is not made in connection with any supply........... " • Financial and General Print Ltd. v. Commissioner of Customs and Excise, (1995) VAT Dec. No. 13795:- The case involved early termination of an agreement and payment of certain damages amount by the lessee to the lessor , following the appointment of a receiver to the lessee. Where the sum received by the lessor was sought to be taxed on the ground that the same amounted to supply, the UK VAT Tribunal observed as below: "In summary and looking at the entire transaction' the position is this. While the lease is running, the lessee provides consideration in the form of rent for the quarter and in return the lessor supplies or continues to supply possession of the equipment. If the lessee fails to pay his quarter's rent (or commits any other act of' default'...) the lease may be terminated and the lessor may recoup possession. If So, the lessor's obligation to provide the service is spent and any termination....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on in case of Financial and General Print Ltd (supra) holds sufficient persuasive value and ought not to be disregarded without providing explicit and sufficient reasons. Mere inclusion of specific clause for payment of damages and quantification thereof should not change the nature of transaction to transform a lawful right of termination into an 'obligation to tolerate' 43. It is a business prudence that contracting parties foresee an act of breach by the other party and take measures to safeguard themselves against any consequent loss/ injury arising out of such breach. In this regard, it is a standard practice to include specific clauses in the agreements providing aggrieved party a right to seek damages against loss/injury. These clauses act as a deterrence against breach of terms by the other party. 44. Mere fact that such a clause is included in the contract for protection of the aggrieved party would not result in creation of an obligation to tolerate a breach of the agreement. On the contrary, it gives the aggrieved party a right to suel enforce the terms and claim damages. 45. Similarly, mere quantification of liquidated damages payable to the service ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Applicant has sufficient backing under Indian law and had been constantly apperciated by Indian Courts. Amongst others, the Supreme Court, appreciating the aforesaid aspect, observed as below in Union of India v. Raman Iron Foundry and Ors., (1974) 2 SCC 231: 'Now it is true that the damages which are claimed are liquidated damages under clause 14, but so far as the law in India is concerned, there is no qualitative difference in the nature of the claim whether it be for liquidated damages or for unliquidated damages......... It, therefore, makes no difference in the present case that the claim of the Appellant is for liquidated damages. It stands on the same footing as a claim for unliquidated damages. Now the law is well settled that a claim for unliquidated damages does not give rise to a debt until the liability is adjudicated and damages assessed by a decree or order of a Court or other adjudicatory authority. When there is a breach of contract, the party who commits the breach does not eo instanti incur any pecuniary obligation, nor does the party complaining of the breach becomes entitled to a debt due from the other party. The only right which the party aggrieved ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... which is treated as supply of service and the person is deemed to have received the consideration in the form of liquidated damages and is accordingly required to pay tax on such amount. 55. In this regard, the Applicant submits that mere non-performance of a contract by the service recipient would not trigger the levy of GST on liquidated damages paid by the service recipient. The jurisdictional officer had not appreciated the true import of clause 5(e), which requires an agreement to discharge an obligation to refrain from an act or tolerate an act or a situation. The jurisdictional officer does not explain how the Association Agreement in question is for discharge of an obligation towards refraining or tolerating any act or a situation. 56. The Applicant submits that there is no agreement to discharge an obligation for tolerating any act of default by the service recipient between the parties. The payment of liquidated damages is nothing but damages for the loss suffered by the Applicant and the same does not qualify as 'consideration' for the purpose of GST law. 57. Unless it is demonstrated that there is an obligation under the agreement to refrain from an ac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....unliquidated damages..........It, therefore, makes no difference in the present case that the claim of the Appellant is for liquidated damages. It stands on the same footing as a claim for unliquidated damages. Noiv the law is well settled that a claim for unliquidated damages does not give rise to a debt until the liability is adjudicated and damages assessed by a decree or order of a Court or other adjudicatory authority. When there is a breach of contract, the party who commits the breach does not so instanti incur any pecuniary obligation, nor does the party complaining of the breach becomes entitled to a debt due from the other party. The only right which the party aggrieved by the breach of the contract has is the right to sue for damages. That is not an actionable claim and this position is made amply clear by the amendment in section 6(e) of the Transfer of Property Act, which provides that a mere right to sue for damages cannot be transferred". 63. In light of the above observations, it is clear that the question for time of supply and valuation cannot arise for adjudication till the claim of liquidated damages is finally adjudicated in the favor of the Applicant by the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... "supply" to include all forms of supply of goods or services or both. Also, it expressly seeks to include all activities treated as supply of goods or supply of services as referred to in Schedule II of the CGST Act, 2017. In this regard, Clause 5 of Schedule II provides for the list of activities that shall be treated as supply of services. Inter alia, Clause 5(e) of the Act provides that agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to an act shall be treated as a supply of services. The relevant portion of the Schedule II is extracted hereunder for your ready reference: SCHEDULE II (Section 7) 5. Supply of services The following shall be treated as supply of services, namely: (a) ....................... (e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; and " 32. Further, although there is no comprehensive definition of the term "service" (as it existed under the erstwhile service tax regime), the term "service" is defined as follows under section 2(102) of the CGST Act, 2017: "services means anything other than goods, money and securities but includes a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nce to assume an obligation to refrain from an act or tolerate an act or a situation etc. In the absence of such an obligation between the parties, it is submitted that the said clause cannot be invoked and there can be no levy of GST. 40. It is submitted that the claim of liquidated damages is made towards making good the damages, losses or injuries arising from unintended' events and does not emanate from any 'obligation' on the part of any of the parties to tolerate an act or a situation. 41. It is submitted that suffering a damage or incurring a loss cannot be equated or considered to be making a supply of taxable service falling within the ambit of the above sub-clause (e) of clause 5 of Schedule II of the CGST Act, 2017, which can possibly be invoked only when there is an 'obligation' or 'consensus' amongst the parties 'to tolerate an act or a situation. 42. In the case at hand, it is submitted that there is no obligation on part of the Applicant to tolerate any breach of payment obligations by SPL. The liquidated damages contemplated under the Association Agreement were incorporated to safeguard the interest of the Applicant against a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ly of any goods or services and hence would not be exigible to the levy of GST; and B. Since liquidated damages are not exigible to the levy of GST, the questions regarding valuation of supply and point of time of supply for the purpose of levy of GST do not arise. C. Pass any other order your good self may deem fit in the interests of justice. 03. CONTENTION - AS PER THE CONCERNED OFFICER The submission, as reproduced verbatim, could be seen thus- Comments and submission regarding above referred application as fallows. Questions asked by the applicant for advance ruling 1. Whether liquidated damages that may be awarded to the applicant by International Chamber of Commerce (ICC) qualifies as a 'supply ' under Goods and Services Tax (GST) law, thereby attracting the levy of GST? 2. If the answer to the question No. 1 is in affirmative, what should be the time of supply, that is to say, the point of time in which NACC's liability to pay GST arise? If the answer to the question No. 1 is in affirmative, what should be the value of supply on which GST is payable, that is to say, whether the applicant is liable to pay GST on the amount of liquidated....
X X X X Extracts X X X X
X X X X Extracts X X X X
....47 of CGST Rules 2017 the invoice referred to in rule 46, in the case of the taxable supply of services, invoice shall be issued within a period of thirty days from the date of the supply of service. NACC India issued an Invoice Dt. 23rd July 2014 for claiming Liquidated Damages from SPL along with notice of Termination of Association Agreement after the completion of 60 days from the date of notice of default. The issue date of invoice is before the effective date of GST Act 2017. As per section 13 Time of Supply may be the date on which Liquidated Damages will be credited in the Bank account of NACC India or the date on which NACC India will show the receipt of Liquidated damages in his books of account whichever is earlier. Or As per sub-section 5 of section 13 Where it is not possible to determine the time of supply under the provisions of subsection (2) or sub-section (3) or sub-section (4), the time of supply shall-(a) in a case where a periodical return has to be filed, be the date on which such return is to be filed; or (b) in any other case, be the date on which the tax is paid. 3) Value of Supply: As per sub-section 4 of section 15 the value of a supply of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al officer, Ms. V. M. Wadkute, State Tax Officer (PUN-VAT-C-118) Pune appeared and made written submissions. 05. OBSERVATIONS We have perused the records on file and gone through the facts of the case and the submissions made by the applicant and the department. We find that the applicant M/s North American Coal Corporation India Pvt.Ltd., (NACC India) is a Private Limited Company incorporated under the Companies Act, 1956 to carry on the business of providing Technical Consultancy relating to Coal Mining and related activities. It is a wholly owned subsidiary of M/s North American Coal Corporation, USA (NACC US). We find that NACC, US has entered into an association agreement for mine development and operations with M/s Sasan Power Ltd. (SPL or Reliance) a company which is a part of Reliance Anil Dhirubhai Ambani Group which is in the business of developing, designing, operating, maintaining owning an Ultra Mega Power Project in Sasan, Madhya Pradesh, India. The Association Agreement as referred above is effective from 1st January, 2009 in order to provide technical know how to SPL in relation to mine development and operations. We further find that later on in Marc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....estion No. 1 is in the affirmative, what should be the value of supply on which GST is payable, that is to say, whether the Applicant is liable to pay GST on amount of liquidated damages claimed and awarded to the Applicant under the arbitral award or the amount which is actually received by the Applicant after conclusion of the matter before the final Appellate authority. We find that in respect of the above, the applicant in their oral and written submissions with regard to their interpretation of the issue have made contentions as under:- (I) Firstly they have contended that their obligations under the Association Agreement do not constitute as supply of services. They contended that the claim of liquidated damages does not qualify as a 'service' itself as it lacks the element of reciprocating which forms the sine qua non for a transaction to qualify as a service. (II) Secondly they have contended that even if one were to argue that the claim of liquidated damages amounts to a service such claim cannot be regarded as being in course or furtherance of business. The termination of the Association Agreement puts an end to the business relationship of the applicant ....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., the expression "supply" includes- (a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business; (b) import of services for a consideration whether or not in the course or furtherance of business; (c) the activities specified in Schedule I, made or agreed to be made without a consideration; and (d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II. (2) Notwithstanding anything contained in sub-section (1),-- (a) activities or transactions specified in Schedule III; or (b) such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council, shall be treated neither as a supply of goods nor a supply of services. (3) Subject to the provisions of sub-sections (1) and (2), the Government may, on the recommendations of the Council, specify, by notification, the transactions that are t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....m 1st January, 2009 and with effect from March, 2011, the rights and obligations of NACC, US as per the original Association Agreement were transferred and assigned to the applicant with the consent of SPL and we clearly find that this agreement was in respect of providing technical knowhow to SPL in relation to mine development and operations. We find that as per the Association Agreement referred above, the provision of services in the Sasan project was to be carried out in three phases as per agreed terms and conditions of payment and services provided and referred as under:- (i) Pre-development phase. (ii) Development phase. (iii) Production phase. We find that there is no dispute with respect to provision of services and applicability of levy of taxes in respect of the above services provided between the applicant and the service recipient SPL as it clearly falls within the scope of supply as given in Section 7(1)(a) of the CGST Act. However we find that the Association Agreement as referred above did not last for the whole period as envisaged in the Association Agreement and the agreement is claimed to be terminated for breaches on the part of the service recip....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ated damages and not as a penalty or other punitive amount, the amount specified below: If Termination Occurs During: Then the Termination Payment is U.S.: Year 1 of the Development Phase $17 million Year 2 of the Development Phase $13 million Year 3 of the Development Phase $15 million Year 4 or later of the Development $17 million Phase Any year in the production phase $17 million, less the aggregate amount of the Production Phase Royalties received by NAC prior to the termination date" ARTICLE VIII EVENTS OF DEFAULT Section 8.1 Default by Reliance. If Reliance shall at any time be in breach of its (a) payment obligations, (b) other obligations pursuant to this Agreement, including failure to provide reasonable access to the Mine, the Preparation Plant or any o Mining Project that are relevant to the duties and obligations of NAC hereunder and the failure to timely provide presentations in Section 13.2 (1, NAC may give written notice of such default to Reliance, in which case Reliance shall have twenty-one (21) days within which to cure the default. If, at the end of the twenty-one (21) day period, Reliance has not cuired the default NAC shall have the right, (i) if t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he "ICC") in accordance with its commercial arbitration rules then in effect (the "Rules"). .The place of arbitration shall be London, England. Each party shall appoint one (1) arbitrator and the two (2) arbitrators so appointed shall together select and appoint a third arbitrator. If either Reliance, on the one hand, or NAC, on the other hand, fail to appoint their respective arbitrator within thirty (30) days after receipt by respondent(s) of the demand for arbitration or if the two 2) party-appointed arbitrators are unable to appoint the chairperson of the arbitral tribunal within thirty (30) days of the appointment of the second arbitrator, then the ICC shall appoint such arbitrator or the chairperson, as the case may be, in accordance with the listing, ranking and striking provisions of the rules. Save and except the provision under Section 9, the provisions of the Part 1 of (Indian) Arbitration and Conciliation Act, 1996, as amended (the "Arbitration Act") shall not apply to the arbitrations. The arbitrators shall not award punitive, exemplary, multiple or consequential damages. In connection with the arbitration proceedings, the parties hereby agree to cooperate in good fait....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ant and SPL to tolerate an act or situation in case such act was done by the other or such a situation arose because of default on part of one or the other during the course of the project covered under the Association agreement and in case of default of terms of the agreement by one of the parties to this Association Agreement, the defaulting party was required to compensate the other party as per the terms and conditions of the Agreement. However we find that if there was further dispute in respect of the claims to be recovered/received by the one party from the other in view of violations or termination of the Agreement then they could approach the ICC for arbitration on the issue and to receive suitable amounts as claims cum consideration in view of the violations on the part of the party violating or defaulting on the Association Agreement. Further as per the Association Agreement presented before the Authority it is very clear that the amount or consideration to be received by one party i.e. the applicant if any after arbitration from the defaulting party are suitable compensation only for tolerating the act of default or situation of default by one party on the part of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hich NACC's liability to pay GST arises ? Answer The provisions of Section 13 of the CGST ACT will determine the time of supply in cases of supply of services. In the subject case the liability of tax would arise on the applicant as per Sr.No.5(e) of Schedule II of Section 7(1) of the CGST Act and the time of supply would be determined as per the provisions of Section 13 of the CGST Act after the award of arbitration proceedings is given by the Arbitration Tribunal as administered by the ICC as per the Association Agreement by the parties to dispute, in the present proceedings. 3. If the answer to Question No. 1 is in the affirmative, what should be the value of supply on which GST is payable, that is to say, whether the Applicant is liable to pay GST on amount of liquidated damages claimed and awarded to the Applicant under the arbitral award or the amount which is actually received by the Applicant after conclusion of the matter before the final Appellate authority. Answer : In view of the facts presented before us, the value of supply of services will be actual liquidated damages cum consideration as decided and pronounced in the award administered by ICC. 06. In....