TaxTMI 
TaxTMI 
2025 (11) TMI 758
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....allied electric and civil infrastructure on Gross Cost Contracting (GCC) under the National E-Bus Program (NEBP)-Phase-I. This project for supply, operation and maintenance of 5690 e-buses was invited on a cumulative basis for pan India. M/s JBM Ecolife Mobility Private Ltd took part 2 the bid and was declared as a successful bidder. They were awarded the project for the city of Surat for 150 Nos BRTS AC Electric Buses vide LOA dtd. 24.07.2023. The said project was awarded by CESL to M/s JBM Ecolife Mobility Private Ltd on behalf of Surat Municipal Corporation (SMC for short). 4. M/s JBM Ecolife Mobility Private Ltd., being the successful bidder, incorporated the Applicant as a Special Purpose Vehicle (SPV for short) and requested CESL and SMC to accept the applicant as the entity which shall undertake and perform the execution of the project as awarded to M/s JBM Ecolife Mobility Private Ltd. A Concession Agreement dtd. 21.08.2023 was thereafter entered into between the Applicant and SMC for Supply, Operation and Maintenance of E-buses, subject to the terms and conditions set forth in the Concession Agreement. However, subsequently, the project under consideration was transferr....
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....ce of Buses in accordance with the provisions of this Agreement; (c) Develop, Equity, Operate and Maintain the Maintenance Depots n the Depot Sites specified in Schedule-A, in accordance with the provisions of this Agreement. (d) Procurement and installation of the Charging Infrastructure at the Maintenance Depots for charging of the Buses. ..................... 9.2 Appropriation of Performance Security The Authority shall, without prejudice to its other rights and remedies hereunder or in law, be entitled to encash and appropriate, from time to time and as many times as required by the Authority, from the Performance Security such amounts as may be due to it under this Agreement, including in respect of any Damages payable by the Operator for a failure to perform its obligations under this Agreement, for an operator for a failure to perform its obligations under this Agreement, for an Operator Default or for failure to meet any Condition Precedent, in accordance with the terms of this Agreement. ....................... Article-16 OPERATION OF BUSES 16.1 Operation of Buses 16.1.1 The Operator shall make a....
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....Maintain the Buses so as to minimise the occurrence of any of the Operational Infractions. An Operational Infraction may be identified by the Authority (or the Authority's Representative) either though inspections of the Buses and Maintenance Depots. User complaints or review of the data generated from the ITS. 20.8.2 The Operator agrees that upon the occurrence of any Operational Infraction, it shall pay to the Authority Damages of an amount corresponding to the breach of such Operational Infraction as set out in Schedule-T. In the event of any repeated Operational Infractions, the rate of Damages payable by the Operator shall increase in accordance with the provisions of Schedule-T. .......................... ARTICLE-30 COMPENSATION FOR BREACH OF AGREEMENT 30.1 Compensation for default by the Operator In the event of the Operator being in material default or breach of this Agreement, it shall pay to the Authority by way of compensation, all direct costs suffered or incurred by the Authority as a consequence of such material default or breach, within 30 (thirty) days of receipt of the demand supported by necessary particulars thereof: prov....
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....epairing the bus failure's (g) Accidental vehicles towing and or repairs (h) Preparation of buses periodic roadworthiness certification which includes all types of denting bodies / bus body items and operational functionality of chassis items and the buses as a whole. (i) Bus body and related items repairs/replacements etc. on the basis of periodic inspections / crew reports / general presentation aspects/operational problems reported by commuters any other stake holders, etc. (j) Major repairs/calibrations of bus aggregates such as battery, motor, rear axle etc. (K) Replacement of failed aggregates with new/serviceable ones. (k) Removal, dismantling, repairing, assembling and re-fitment of Tyres and rims to buses. (l) Repair, replacement of electrical, electronic, ITS, lighting, etc. items, subsystems etc. (m) Removal, replacement of items failing due to operational wear and tear, such as brake and clutch lining, etc. (n) Repair / replacement of seats, upholstery; cleaning, dusting and washing upholstery. (o) Denting/painting of buses as per requirement. (p) Reconditioning of Bus aggregates s....
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.... 3000 10 Driving above speed limit set by Authority 2000 11 Deliberate non adherence of the schedule timings 500 12 Driver committing fatal accident 10,000 (Operator should change the driver before next working day) 13 Insurance Policy not in force 10000 (Liable for termination of agreement) 14 Damage to the any vehicle tracking equipment or any Intelligent Transit Management System installed by Authority/Operator 2000 15 Non availability of Bus as per schedule i.e. 95% availability in both the shifts 3,000 (per Bus per shift) The Authority may add Incidents and Deficiencies as and when required with notice to the Operator. These penalties will be revised @5% after every two years ................ Penalty for defects in Buses not rectified even after giving notice for 24 hours Sr.No Incidents Penalty (In Rs.) 1 Defective or malfunctioning headlights, rear lights, brake light, turning indicators and parking lights, broken mirrors at the time of Bus Operations 500 2 Fire Extinguisher missing or beyond expiry date 500 3 Broken/Loose/Missing Passenger Seat 500 4 ....
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.... to the other party. There is no positive act of supply of services between the parties and there is no agreement between the parties to cause loss or damage by breaching the terms and conditions of an agreement for a consideration. (d) CBIC has issued Circular No. 178/10/2022-GST dtd. 03.08.2022, clarifying the applicability of taxes on liquidated damages, compensation and penalty arising out of breach of contract etc. This circular has categorically clarified that liquidated damages on account of breach of terms of contract are not subject to tax and such payments do not constitute consideration for a supply and thus not taxable. (e) Reference is also drawn to CBIC Circular No. 245/02/2025-GST dtd. 28.01.2025, wherein it has been clarified that penal charges levied by bank and NBFCs are not subject to GST. (f) SMC had inserted damage clause in the Concession Agreement in order to recover the loss or damage caused to SMC due to breach in conditions, like non-maintenance of buses by the Applicant, driver causing accident during the operation of the bus, damage caused to the bus due to any reason, operational infractions etc. These charges are not being pa....
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....for 150 E-buses and was awarded vide LoA dtd. 24.07.2023 by CESL to M/s JBM Ecolife Mobility Private Ltd. on behalf of Surat Muncipal Corporation (SMC). M/s JBM Ecolife Mobility Private Ltd. incorporated the applicant as a Special Purpose Vehicle to undertake and perform the execution of the project awarded to M/s JBM Ecolife Mobility Private Ltd. A Concession Agreement dtd. 21.08.2023 was entered into by the applicant and SMC. The project was transferred to M/s Surat Sitilink Limited (SSL) for O & M purposes by SMC under a tripartite agreement dtd. 05.08.2024 executed between the applicant, SSL and SMC. Thus, finally the engagement is between the applicant and SSL and the terms of the arrangement needs to be determined in accordance with the RFP, LoA and the Concession Agreement. 14. We find that the applicant wants a ruling as to whether GST is payable on the liquidated damages paid in the form of Compensation by the Applicant to SSL, for various material defaults, breaches or failures on the part of the applicant to perform the obligations under the Concession Agreement. 15. Before going into the issue on merits, we find that the person liable to pay GST on liquidated char....
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....d in Article 17.5, 20.8 and 30.1, which has already been reproduced earlier in this order. We also find that as per the Interpretation Clause 1.2.1 (y), the damages payable by the party, which are set forth in the Agreement, are the genuine pre-estimated loss and damage likely to be suffered and incurred by the party entitled to receive the same. We also find that the Scope of the Agreement is to design, manufacture, procure and supply the buses as per the specifications specified; operation and maintenance of buses, Develop, equip, operate and maintain the Depot sites as specified in Schedule-A and procurement and installation of the charging Infrastructure at the maintenance Depots for charging the buses. For all these aspects, the Agreement lays down certain obligations to be fulfilled by the Applicant and also lays down damages in case the Applicant fails to perform its obligations. 17. Article 4.1.3 sets out the Conditions Precedent to be satisfied by the Applicant and Article 4.4 lays down the damages to be paid by the Applicant in case of delay. The damages to be paid will be an amount calculated at the rate of 0.1% of the Performance Security for each day's delay until t....
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....ant, for various violations in the operation of buses is listed in Annexure-I. Article 17 deals with maintenance of buses and Article 17.4 deals with the maintenance requirements set forth in Schedule-I, which has also been reproduced in Para 6, supra. Article 17.5 deals with damages for breach of Maintenance Obligations, which in the event that the applicant fails to repair or rectify within the period specified therein, they would be liable for Damages at the rate of 5% of the Performance security per bus. Article 20 deals with Key Performance Indicators and Article 20.2 deals with Reliability of the Buses. As per Article 20.2.4, in case the Reliability of the bus, as calculated by a specific formula, is more than 1 (the assured liability), damages at the rate of 1 % of the Performance security would be payable. Further, as per Article 20.3.5, for every 1% reduction in the Availability as compared to the Guaranteed Availability, damages at the rate of 5% of Monthly fees would be leviable. As per Article 20.4.5, damages would be payable for a failure to achieve the Guaranteed Start Punctuality or the Guaranteed Arrival Punctuality. Similarly, there are damages for a failure to ach....
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....act for breach of non-performance of the contract or parties of the contract is referred to as liquidated damages. Black's Law Dictionary defines 'Liquidated Damages' as cash compensation agreed to by a signed, written contract for breach of contract, payable to the aggrieved party. 7.1.2 Section 74 of the Contract Act, 1972 provides that when a contract is broken, if a sum has been named or a penalty stipulated in the contract as the amount or penalty to be paid in case of breach, the aggrieved party shall be entitled to receive reasonable compensation not exceeding the amount so named or the penalty so stipulated. 7.1.3 It is argued that performance is the essence of a contract. Liquidated damages cannot be said to be a consideration received for tolerating the breach or non-performance of contract. They are rather payments for not tolerating the breach of contract. Payment of liquidated damages is stipulated in a contract to ensure performance and to deter non-performance, unsatisfactory performance or delayed performance. Liquidated damages are a measure of loss and damage that the parties agree would arise due to breach of contract. They do not act as a remed....
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....such cases is to consider whether the impugned payments constitute consideration for another independent contract envisaging tolerating an act or situation or refraining from doing any act or situation or simply doing an act. If the answer is yes, then it constitutes a 'supply' within the meaning of the Act, otherwise it is not a "supply". 7.1.6 If a payment constitutes a consideration for a supply, then it is taxable irrespective of by what name it is called; it must be remembered that a "consideration" cannot be considered de hors an agreement/contract between two persons wherein one person does something for another and that other pays the first in return. If the payment is merely an event in the course of the performance of the agreement and it does not represent the 'object', as such, of the contract then it cannot be considered 'consideration'. For example, a contract may provide that payment by the recipient of goods or services shall be made before a certain date and failure to make payment by the due date shall attract late fee or penalty. A contract for transport of passengers may stipulate that the ticket amount shall be partly or wholly forfeited if the passeng....
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.... only a compensation for the injury, loss or damage suffered by the SMC for the breach of the conditions mentioned in the contract be it the delay in procurement of buses or the violation of the terms in the operation and maintenance of buses. The damages payable by the party, has also been interpreted in the Concession Agreement vide Interpretation Clause 1.2.1 (y) as the genuine pre-estimated loss and damage likely to be suffered and incurred by the party entitled to receive the same. Therefore, we hold that the liquidated damages payable by the Applicant to SSL for various material defects, breaches or non-performance of the obligations as per the terms ad conditions of the Concession Agreement are not taxable. 21. We also find that in similar situations in the case of Re: GSPC ([2025] 172 taxmann.com 325), the Gujarat Appellate Authority for Advance Ruling had held that the settlement fees on termination of the contract is a consequence of breach of Production sharing Contract and not taxable. In Re: Achampet Solar (P) Ltd, ([2023] 148 TAXMANN.COM 222 (AAAR-Telangana)), the Telangana Appellate Authority for Advance Ruling held that the recovery of liquidated damages for dela....