TaxTMI 
TaxTMI 
2026 (1) TMI 45
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....the LSP to the Petitioner is in the form of 'liquidated damages' and is not taxable under the provisions of the CGST Act in terms of Circular No. 178/10/2022 (F.No.190354/176/2022-TRU] dated 03.08.2022 at Annexure-T; c. To issue an order or direction in the nature of Mandamus directing the Respondent No.1 to refund the amount of Rs. 5,00,00,000/- paid under protest along with interest; d. To issue an order or direction in the nature of Mandamus holding that no interest and penalty is payable by the Petitioner. e. To issue order(s), directions or any other relief as this Hon'ble Court deems it fit and proper in the facts and circumstances of the case in the interest of justice." 2. Heard learned Senior counsel for the petitioner and learned counsel for the respondents-revenue and perused the material on record. 3. In addition to reiterating the various contentions urged in the petition and referring to the material on record, learned Senior counsel for the petitioner invited my attention to the Framework Agreement dated 16.03.2020 entered into between the petitioner, which is the non-banking financial company and one Finnovation Tech Solutions Privat....
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....nsation from the other party towards such loss or damage caused to him by such breach or non-performance of the contract by either party in terms of Sections 73 and 74 of the Indian Contract Act, 1872. 8. Paragraph No. 7.1 to 7.1.6 of the said Circular dated 03.08.2022 under the head 'liquidated damages' reads as under:- "7.1 Breach or non-performance of contract by one party results in loss and damages to the other party. Therefore, the law provides in Section 73 of the Contract Act, 1972 that when a contract has been broken, the party which suffers by such breach is entitled to receive from the other party compensation for any loss or damage caused to him by such breach. The compensation is not by way of consideration for any other independent activity; it is just an event in the course of performance of that contract. 7.1.1 It is common for the parties entering into a contract, to specify in the contract itself, the compensation that would be payable in the event of the breach of the contract. Such compensation specified in a written contract for breach of non-performance of the contract or parties of the contract is referred to as liquidated damages. Black&....
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....rrangements for the intended supply by the tour operator respectively. Therefore, such payments, even though they may be referred to as fine or penalty, are actually payments that amount to consideration for supply, and are subject to GST, in cases where such supply is taxable. Since these supplies are ancillary to the principal supply for which the contract is signed, they shall be eligible to be assessed as the principal supply, as discussed in detail in the later paragraphs. Naturally, such payments will not be taxable if the principal supply is exempt." 9. In the instant case, a perusal of the impugned show cause notice will clearly indicate that the 1st respondent has imposed / levied GST on the petitioner in relation to the liquidated damages received by the petitioner and the same is clearly covered by Paragraph No. 7.1 and 7.1.6 to the aforesaid Circular and such payments are not taxable as wrongly contended by the respondents. 10. Learned Senior counsel for the petitioner is also correct in his submission that while Paragraphs No. 7.1 to 7.1.6 of the said Circular are specific and would be applicable to the petitioner's case, while Paragraph Nos. 6 and 7 are generic ....
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....ertainment as contended by the respondents for the following reasons:- (i) It is an undisputed fact that prior to the search and inspection conducted by the respondents on 24.03.2023, they did not issue any notice to the petitioner nor were any proceedings to ascertain, adjudicate or determine the tax, interest and penalty payable by the petitioner which indicates that there was no occasion for the petitioner to pay the said sum voluntarily by way of self-ascertainment to the respondents, thereby indicating that the said amount was not paid voluntarily by the petitioner. (ii) Rule 142(2) of the CGST Rules, 2017, contemplates that upon the petitioner making payment in Form GST DRC-03, the respondents are bound to issue an acknowledgment in Form GST DRC-04 to the petitioner; undisputedly, respondents did not issue any such acknowledgment to the petitioner which is a circumstance to clearly indicate that the said amount was not a voluntary payment made by the petitioner. (iii) Prior to the search and inspection made by the respondents, there was no demand made by the respondents in relation to the amount paid by the petitioner under any of the provisions of ....
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....ich adjudicated or quantified or ascertained the amount payable by the petitioner nor any such quantification or ascertainment done / made by the petitioner for the purpose of arriving at the sum of Rs.10 crores paid by the petitioner, which was not preceded by any order or basis so as to arrive at the said figure; to put it differently, in the absence of any material to establish as to how the petitioner or quantified or arrived at a sum of Rs.10 crores paid by him and in the absence of requisite / necessary material particulars / details in this regard, it cannot be said that the said sum paid by the petitioner was voluntary and by way of self-ascertainment as contended by the respondents whose contention in this regard deserves to be rejected. (vii) A perusal of the material pertaining to search, inspection and seizure proceedings comprising of mahazar, seizure order etc., will indicate that on 23.03.2023 itself, the residence of the petitioner was inspected by the respondents who seized one laptop from the petitioner; on the very next day i.e., on 24.03.2023, the respondents seized various movable, articles comprising of account books, desktops, server disks, mobile ph....
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....t upto 18% / 24% p.a. and thirdly, to calculate the penalty at 15% on the tax payable by him; in other words, this process of self-ascertainment calls for and demands verification / scrutiny of accounts and calculation of discretionary rate of interest up to 18% / 24% which is not a fixed rate of interest and penalty, all of which is highly improbable and physically / humanly impossible to be done by a tax payer / assessee who is already under immense pressure on account of search, inspection and seizure operation being conducted, particularly when all equipment which would be required / necessary for such self-ascertainment was not available with the petitioner and as such, even on this ground also, I am of the view that the payment made by the petitioner was clearly not voluntary and at the behest / instance of the respondents during the course of their proceedings. (x) A perusal of the payment made by the petitioner in Form GST DRC-03 will indicate that the same is made under Section 74(5) of the CGST Act which mandates that such voluntary payment of tax should have been made by the petitioner along with interest under Section 50 of the CGST Act and penalty; in this con....