TaxTMI 
TaxTMI 
2026 (2) TMI 992
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....ling Regulations, 2018. 1.1 At the outset, we would like to make it clear that the provisions of the Central Goods and Services Tax Act, 2017 (the CGST Act, for short) and the West Bengal Goods and Services Tax Act, 2017 (the WBGST Act, for short) have the same provisions in like matter except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean reference to the corresponding similar provisions in the WBGST Act. Further to the earlier, henceforth for the purposes of these proceedings, the expression "GST Act" would mean the CGST Act and the WBGST Act both. 1.2 The applicant entered into three agreements with THDC India Ltd (formerly known as Tehri Hydro Development Corporation Limited) in the year 1996 for execution of work for the construction of Hydro Power Plants which was completed in the year 2007/08 and the final payment was received by the applicant in the year 2011. During the execution of the work, dispute arose over the extra expenses incurred by the applicant for the project which led to several litigations. Accordingly the Arbitral Tribunal was constituted by Supreme Cou....
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....raised no objection to the admission of the application. 1.7 The application is, therefore, admitted. 2. Submission of the Applicant 2.1. The applicant Company was engaged in the business inter alia of Construction, tunnelling, Civil works, and other allied works pertaining to Hydro Electric Projects. THDC India Limited (in short THDC) is a joint venture company formed to develop and maintain the Tehri Hydro Power Complex and other Hydro Projects. THDC is having its office at Bhagirathi Bhawan (Top Terrace) Bhagirath Puram, Tehri Distt. Tehri, Tehri Garhwal-249001. 2.2 THDC took over implementation of Tehri Dam Project from erstwhile Uttar Pradesh Irrigation Department (UPID) in the year 1988 at Tehri Garhwal in the State of Uttarakhand. The stage-I works of said project consisted of a 260.05m high Earth & Rock Fill Dam, spillways structures and Hydro power Plant (4x250MW). The work for the construction of Hydro Power Plant (HPP) was envisaged to be executed in three separate contracts viz. Package-I, Package-II & Package-III. The reason for splitting said work into three packages was to invite three tenders by way of augmentation of deployment of resources viz manpower....
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....ring the execution of the work pertaining to PKG I, PKG II and PKG III and as per the Clause 60 (Settlement of Disputes) of all the three Agreements, a four-tier system for settlement of disputes between the parties is prescribed. Disputes are to be referred to the Engineer-In-Charge, as defined under the Contract. If the Contractor is dissatisfied with the decision of the Engineer, appeal against the same shall be referred to the Chairman and Managing Director (CMD) of the THDC. The decision of CMD shall be given in writing and within 30 days after the decision of the CMD, the Contractor shall indicate to the CMD its intention to refer the matter to Dispute Resolution Board (DRB), and further if even after recommendation / decision by the DRB, the parties still failed to resolve the dispute, either party may resort to arbitration. THDC defaulted in performing its obligation for constitution of the DRB and despite the applicant nominating its nominee (Mr. N.N. Singhal) on 12.09.1996, THDC appointed its nominee (Mr. V.V. Badreenarayana) only on 23.11.2001, i.e., more than five years later. The DRB was finally constituted only on 10.05.2002 2.7 Out of twenty disputes referred t....
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.... 31.18 375.04 406.22 From 01.11.1999 to 30.04.2015 7 Claim for idle machineries kept for removal of muck from dam area 82.51 1434.23 1516.74 From 01.10.1999 to 30.04.2015 8 Claim for excess recovery made towards 2% & 1.5% rebates from RA Bill and less paid Price Adjustment. 844.63 5299.47 6144.1 From 31.12.1996 to 30.04.2015 9 Claim for reimbursing the wrongful deduction towards 0.5% rebate from price adjustment payment. 53.86 261.46 315.32 From 21.01.2004 to 30.04.2015 10 Claim for payment of additional expenditure incurred pursuant to enactment of "Payment of Bonus" (Amendment) Act, 2007 (No 45 of 2007) by Govt of India entitling Bonus w.e.f.01.04.2006 to employees employed by the Contractor on building operations and getting salary or wages up to Rs. 10000/- per month. 16.22 41.53 57.75 From 01.04.2007 to 30.04.2015 11 Claim for reimbursement of expenditure incurred consequent to increase in Employees provident fund contribution during execution of contract agreement. 104.44 677.62 782.06 From 21.09.1997 to 30.04.2015 12 Claim for payment for the differential of cost for actu....
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....gitation / dharna (under Clause 45.0 & 45.1 of GCC) 7.65 122.02 129.67 From 28.03.1998 to 30.04.2015 6 Claim for refund of excess recovery towards interest on mobilization advance. 143.49 1,108.95 1,252.44 From 01.11.1999 to 30.04.2015 7 Claim for extra expenditure incurred by the Claimant for excavation of Compressors and Receiver Room at the end wall of Machine Hall 16.79 204.87 221.66 From 01.10.1999 to 30.04.2015 8 Claim for excess recovery made towards 2% & 1.5% rebates from RA Bill and less paid Price Adjustment. 336.06 2,002.88 2,338.94 From 31.12.1996 to 30.04.2015 9 Claim for reimbursing the wrongful deduction towards 0.5% rebate from price adjustment payment. 33.89 163.2 197.09 From 21.01.2004 to 30.04.2015 10 Claim for payment of additional expenditure incurred pursuant to enactment of "Payment of Bonus" (Amendment) Act, 2007 (No 45 of 2007) by Govt of India entitling Bonus w.e.f 01.04.2006 to employees employed by contractor on building operations and getting salary or wages up to Rs 10000/- per month 22.74 58.2 80.94 From 01.04.2007 to 30.04.2015 11 Claim for rei....
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....oncreting work. 1.39 23.66 25.05 From 15.11.1997 to 30.04.2015 5 Claim for Reimbursement of losses suffered due to suspension of work/public agitation/ dharna (under Clause 45.0 & 45.1 of the GCC) 7.65 122.02 129.67 From 28.03.1998 to 30.04.2015 6 Claim for refund of excess recovery towards interest on mobilisation advance. 16.39 206.17 222.56 From 01.11.1999 to 30.04.2015 7 Claim for extra expenditure incurred in back Filling behind Walls of TRT Exit Structure at TRT Outlet 285.45 3814.99 4100.44 From 28.03.1999 to 30.04.2015 8 Claim for excess recovery made towards 2% & 1.5% rebates from RA Bill and less paid Price Adjustment. 279.33 1734.52 2013.85 From 31.12.1996 to 30.04.2015 9 Claim for reimbursing the wrongful deduction towards 0.5% rebate from price adjustment payment. 25.74 114.66 140.4 From 21.01.2004 to 30.04.2015 10 Claim for payment of additional expenditure incurred pursuant to enactment of "Payment of Bonus" (Amendment) Act, 2007 (No 45 of 2007) by Govt of India entitling Bonus w.e.f. 01.04.2006 to employees employed by contractor on building operations and get....
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....e cement in place of 33 grade of cement as per the contract specifications. 256.27 5 Claims for Reimbursement of extra expenditure incurred in shifting of residential accommodation and infrastructure facilities from Simlasu and Ranibagh to the land allotted by THDC near Koti/ Gajna. 326.84 6 Claim for Price Adjustment of extra item. 6937.94 7 Claim for extra expenditure incurred due to change in the methodology for excavation of Compressor and Reciever room at the end wall of Machine Hall. 12.15 8 Claim for payment of coast of material for work of pre-stressed anchor blind holes and through holes 30.01 9 Claim for Extra Expenditure in back filling behind walls of TRT Exit structure at TRT Outlet. 208.67 II Refund of excess deductions 10 Claim for excess recovery towards 2 % & 1.5 % rebates from RA Bill and less paid Price Adjustment. 1460.02 11 Claim for reimbursing the wrongful deduction towards 0.5 % rebate from price adjustment payment. 113.49 12 Claim for certain deduction/deletion of items, from Final Bill for P-I and P-II 367.34 Total 9827.39 III Arbitration Costs Cost of Arbitrati....
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.... the applicant is against the claim under arbitral award and such claim under arbitral award is merely a flow of money from the party who causes breach of the contract to the party who suffered such loss or breach. Hence, such flow of money should be considered as liquidated damages. However, it is understood that department may consider the payments received under arbitral awards otherwise. Hence the applicant prefers to move this application before Advance Ruling Authority. 2.16 Payment against Arbitration Agreement u/s 7 of the Arbitration and Reconciliation Act, 1996: It is the understanding of the applicant that the payment received by the applicant is as per the Arbitration agreement entered into by the applicant and the THDC, and this Arbitration Agreement is distinct in law and in existence from the underlying substantive contract in which it is embedded. Clause 60 (common for all the three packages) of the general conditions of the contract agreement entered into between the applicant and the THDC dated 03.01.1996 states that in case the parties decide to go for Arbitration, then the disputes arising, shall be in accordance with the provisions of Indian Arbitratio....
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.... embedded. It is considered to be autonomous and juridically independent from the substantive contract. The effect of this doctrine is that the arbitration agreement will ordinarily remain valid and binding, notwithstanding the invalidity, illegality, termination or repudiation of the underlying contract. The substantive contract contains the commercial terms of the contract between the parties, which stipulate the rights and obligations of the parties whereas the arbitration clause is the agreement between the parties regarding the mode of dispute resolution. Moreover, Section 16(1) provides that the arbitral tribunal is empowered to rule on its own jurisdiction, including any objection with respect to the existence or validity of the arbitration agreement. Section 16(1) is an inclusive provision which would comprehend all jurisdictional issues, including limitation, res judicata, etc. Section 16 (1) of the Arbitration and Conciliation Act, 1996 is reproduced below- 16. Competence of arbitral tribunal to rule on its jurisdiction. - (1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or....
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....itment Committee made recommendation for issuing clarification in relation to services of liquidated damages, breach of contract, etc., The same is extracted here under: Proposal Details of Request Discussion in Fitment Committee & its recommendation To clarify applicability of GST on payments in the nature of liquidated damages, compensation, penalty, cancellation charges, late payment surcharge etc. arising out of breach of contract or otherwise. A number of cases have been brought to the notice of the Board where question has been raised regarding taxability of an activity or transaction as the supply of service of agreeing to the obligation to refrain from an act or to tolerate an act or a situation, or to do an act. Agreeing to the obligation to refrain from an act or to tolerate an act or a situation, or to do an act" has been declared to be a supply in para 5 (e) of Schedule I of CGST Act. Various transactions have been sought to be classified by the tax authorities under the said description and in many cases this has led to disputes and litigation. The issues arising out of taxation of activities by way of "agreeing to the obligation to refrain from....
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....ion. c) Agreeing to the obligation to do an act. The primary theme of the Circular revolves around the necessity of a "contractual relationship" for an activity to constitute a 'supply' under GST, to be exigible to tax. Under such a contractual relationship, an individual is required to undertake an activity at the desire of another person for whom the activity is undertaken, in exchange for a consideration. This Circular has discussed at length the illustrations which will be covered by the entry-5(e) of schedule-II as follows: i. non-compete agreements, where one party agrees not to compete with the other party in a product, service or geographical area against a consideration paid by the other party. ii. A builder refraining from constructing more than a certain number of floors, even though permitted to do so by the municipal authorities, against a compensation paid by the neighbouring housing project, which wants to protect its sun light. iii. An industrial unit refraining from manufacturing activity during certain hours against an agreed compensation paid by a neighbouring school which wants to avoid noise during those hours. vi....
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....ct. 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 remedy for the breach of contract. They do not restitute the aggrieved person. It is further argued that a contract is entered into for execution and not for its breach. The liquidated damages or penalty are not the desired outcome of the contract. By accepting the liquidated damages, the party aggrieved by breach of contract cannot be said to have permitted or tolerated the deviation or non-fulfilment of the promise by the other party. Para-7.1.4: In this background a reasonable view that can be taken with regard to taxability of liquidated damages is that where the amount paid as 'liquidated damages' is an amount paid only to compensate for injury, loss or damage suffered by the aggrieved party due to breach of the contract and there is no agreement, express or implied, by the aggrieved party receiving the liq....
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....e 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 passenger does not show up. A contract for package tour may stipulate forfeiture of security deposit in the event of cancellation of tour by the customer. Similarly, a contract for lease of movable or immovable property may stipulate that the lessee shall not terminate the lease before a certain period and if he does so he will have to pay certain amount as early termination fee or penalty. Some banks similarly charge pre-payment penalty if the borrower wishes to repay the loan before the maturity of the loan period. Such amounts paid for acceptance of late payment, early termination of lease or for pre-payment of loan or the amounts forfeited on cancellation of service by the customer as contemplated by the contract as part of commercial terms agreed to by the parties, constitute consideration for the supply o....
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....ied promise by the recipient of money to agree to do or abstain from doing something or to tolerate something in return for the money paid to him. The Circular states that these amounts received are for not tolerating an act or situation and to deter such acts; such amounts are for preventing a breach of contract or non-performance and thus, are mere 'events' in a contract. • Payment for non-fulfilling the terms of the contract- The compensation received by the applicant does not fall within the scope of Entry 5(e) of Schedule II to CGST Act, as no consideration passed on for any of the act mentioned therein. Further the compensation awarded to the applicant are not towards agreeing to the obligations to refrain THDC from an act, or to tolerate an act or situation of THDC, or to do an act by THDC, but solely in due compliance with the arbitral award. In other words, the applicant has not sought any obligation or refrained THDC from doing any act. The amount payable as the Arbitral Award is purely in the form of compensation payable for additional expenditure incurred in the completion of the contracts by the applicant in the pre-GST era and does not involve an....
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....red person who had removed or provided such goods or services or both shall issue to the recipient a supplementary invoice or debit note, containing such particulars as may be prescribed, within thirty days of such price revision and for the purposes of this Act such supplementary invoice or debit note shall be deemed to have been issued in respect of an outward supply made under this Act; 2.20 In view of the above facts and provisions of the Act, the applicant would like to summarize the instant matter as follows: Section 142(11)(b) states that, notwithstanding anything contained in Section 13, no tax is required to be paid under the CGST Act 2017, to the extent that the tax was leviable on the said services under the provisions of service tax law. Section 142(11)(c) states that, where any tax was paid on a supply both under VAT and service tax law, tax shall be leviable under the provisions of CGST Act 2017 to the extent of supplies made after the appointed day and the taxable person is entitled to take credit of taxes that were paid under the earlier regime. On a combined reading of Section 142(11)(a) and Section 142(11)(b), the following scenarios are evident: ....
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....t had to obtain the additional payment by way of compensation through award by Hon'ble Tribunal for Arbitration. Thus, in view of above discussion on transitional provisions it is clear that in the instant case, as no supply has happened during the GST regime, no GST shall be payable. Further the additional payment received by way of compensation through award by Hon'ble Tribunal for Arbitration is not falling under Section 142(2)(a) and hence not chargeable to GST. 2.21 Mere flow of money from the party who causes breach of the contract to the party who suffers loss or damage due to such breach should not constitute "consideration" for a supply and hence are not taxable In Service Tax law, 'service' was defined as any activity carried out by a person for another for consideration. In service tax education guide, the concept 'activity for a consideration' involves an element of contractual relationship wherein the person doing an activity does so at the desire of the person for whom the activity is done in exchange for a consideration. An activity done without such a relationship i.e., without the express or implied contractual reciprocity of a consideration would not be a....
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....thers Vs. Suchitra [2019] where on a similar scenario, the Court in para 60 has pointed out the very characteristics of damages and their exigibility under GST as follows: 60. Damages may arise in an action in tort, or one in breach of contract as they both entail civil wrongs. Damages represent the compensation or restitution for the loss caused to the plaintiff for the violation of a legal right. It may even be the closest monetary alternative to a remedy in specific performance. The term 'Damages' may be used to include payments towards contractual obligations which are performed yet unpaid for, but the law of damages is not restricted to ordering that what ought to have been done or ought to have been paid under contract. The law recognizes and awards damages between persons who do not have privity, if there is a violation of a legal right resulting in a civil wrong which must be remedied. The Hon'ble Court, further relying on the ruling in Senairam Doongarmall Vs. Commissioner of Income Tax [1962], has held that the quality of the payment and not the method used to determine its measure determines its character namely whether it is 'consideration' or damages. The m....
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....payments are in the form of liquidated damages. ii) Claim for Reimbursement of monthly expenditure being incurred for operating private quarry: Facts of the case- This claim is linked to Claim No. 1. The applicant was unable to mine boulders from the quarry allotted by THDC due to local agitations over rehabilitation and compensation. As a result, the applicant had to lease a quarry from a third party for 23 months to continue work without disruption. Thus, the applicant seeks reimbursement of the monthly rent paid for the leased quarry, applicable to all three Packages. Arbitral Tribunal's verdict- The applicant informed THDC about the lack of a suitable quarry and submitted evidence, including receipts. The Tribunal found the apportionment of the claim across three packages reasonable and awarded the amount accordingly. Nature- The payment has been made to compensate for injury, loss or damage suffered by the applicant due to breach of the contract by THDC as suitable conditions for the execution of the contract was not provided. There is no agreement to tolerate the act. The payment is for non-fulfilling the contract. Moreover, the payment is ....
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....for reimbursement of the additional cost of using 43-grade cement for the updated quantities, including price adjustments for all packages. Arbitral Tribunal's Verdict- The Tribunal concluded that THDC instructed the applicant to use 43-grade cement, as evidenced by multiple communications. The Tribunal found the applicant's claim for the rate difference justified and supported by the evidence presented, with no valid objection raised by THDC. Nature- The payment has been made to compensate for injury, loss or damage suffered by the applicant due to breach of the contract by THDC as suitable conditions for the execution of the contract was not provided. There is no agreement to tolerate the act. The payment is for non-fulfilling the contract. Moreover, the payment is 'de hors' contract and hence such payment cannot be considered as consideration instead such payments are in the form of liquidated damages. v) Claims for Reimbursement of extra expenditure incurred in shifting of residential accommodation and infrastructure facilities from Simlasu and Ranibagh to the land allotted by THDC near Koti/Gajna: Facts of the case- The applicant-built infra....
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....l's verdict- The arbitral Tribunal noted that the CMD of the Respondent, in a letter, acknowledged the Claimant's claim as admissible but accepted only one of the proposed methods for determining the rate of extra items. This method, under Clause 35(ii) of the GCC, involved periodic analysis of rates with supporting documents for the relevant period. The Tribunal found no evidence from the Respondent to prove that the calculations and quantifications were inconsistent with Clause 36 of the GCC. It rejected the Respondent's contention that the claim was prohibited under the clause. Based on the sufficient evidence provided by the Claimant, the Tribunal upheld the claim and awarded amounts corresponding to the respective packages. Nature- The payment has been made to compensate for injury, loss or damage suffered by the applicant due to breach of the contract by THDC as suitable conditions for the execution of the contract was not provided. There is no agreement to tolerate the act. The payment is for non-fulfilling the contract. Moreover, the payment is 'de hors' contract and hence such payment cannot be considered as consideration instead such payments are in the form of l....
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.... Arbitral tribunal's verdict- The entire contract, including BOQ items 13 and 14 and Clause 5.11 of the Technical Specifications, was drafted by THDC. Even after removing the phrase "from materials supplied by THDC," ambiguity remained about whether the rates for BOQ items 13 and 14 included the cost of materials to be provided by the Claimant. The Delhi High Court in Flowmore Ltd. v. Skipper Ltd. (2023) held that any ambiguity in a contract must be interpreted against the party that drafted it. Applying this principle, the Tribunal finds that the Claimant reasonably believed that the rates for BOQ items 13 and 14 did not include the cost of materials. Therefore, the Tribunal awards the Claimant an amount under this claim. Nature- The payment has been made to compensate for injury, loss or damage suffered by the applicant due to breach of the contract by THDC as suitable conditions for the execution of the contract was not provided. There is no agreement to tolerate the act. The payment is for non-fulfilling the contract. Moreover, the payment is 'de hors' contract and hence such payment cannot be considered as consideration instead such payments are in the form of ....
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....alue of work done. Arbitral tribunal's verdict- The Tribunal held that price adjustments should be based on the value of work done at the BOQ rates specified in the contract, not on the rebated value. The applicant's application of the rebate to price adjustments was not considered binding, as the terms of the contract govern the parties' rights and obligations. The Tribunal found that THDC had deducted excess amounts from the applicant's bills for rebates and ruled in favour of the applicant. Nature- This is clearly towards deductions which were made earlier from the applicant's invoice as rebates and the said amounts are now claimed by the applicant in lieu thereof. It is understood that since the earlier amounts were deducted by THDC, Service Tax/VAT/ CST/ Other erstwhile taxes were also not devolved on these amounts. Now this payment has been made to compensate for injury, loss or damage suffered by the applicant due to breach of the contract by THDC as suitable conditions for the execution of the contract was not provided. There is no agreement to tolerate the act. The payment is for non-fulfilling the contract. Moreover, the payment is 'de hors' contract and....
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....onsider the claim for non-payment of amounts due under the Final Bill on its merits. However, the Tribunal will take into account THDC's argument that KCT had signed the measurements of quantities in the Measurement Books at the relevant time. The Tribunal has awarded a reduced amount compared to the amount originally claimed. Nature- This is clearly towards deductions which were made earlier from the applicant's invoice as rebates and the said amounts are now claimed by the applicant in lieu thereof. It is understood that since the earlier amounts were deducted by THDC, Service Tax/VAT/ CST/ Other erstwhile taxes were also not devolved on these amounts. Now this payment has been made to compensate for injury, loss or damage suffered by the applicant due to breach of the contract by THDC as suitable conditions for the execution of the contract was not provided. There is no agreement to tolerate the act. The payment is for non-fulfilling the contract. Moreover, the payment is 'de hors' contract and hence such payment cannot be considered as consideration instead such payments are in the form of liquidated damages. 2.23 Thus, relying on the various provisions of the GST a....
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....rmance of a contract, reflecting the agreed exchange of value between the parties. In contrast, compensation is received in connection with the breach or non-performance of a contract, as recognized under Section 73 of the Indian Contract Act, 1872. Such compensation is not linked to any independent activity or service rendered but is a legal remedy for the loss or damage suffered due to breach, and hence does not constitute consideration under GST. Point 6: Performance vs Non-Performance (Page-29) : Liquidated damages are compensation for non-performance of a contract, not for any service rendered. They arise when one party fails to fulfil contractual obligations, triggering a pre-agreed penalty. As clarified in GST Circular No. 178/10/2022-GST, such payments are not consideration for supply. Any amount received due to such breach of contract it would not tantamount to supply since it would be a compensation for non performance of a contract and would not attract GST. Point 7 : Desired Outcome (Page-29) : The liquidated damages or penalty are not the desired outcome of the contract. The compensation is for not tolerating the breach of Contract. ....
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.... value in terms of time/point of sales/ services in Pre-GST period, on the billing made Further the applicant would like to rely on the provisions of section 142(11)(a) and (b) of the CGST Act, 2017. On a combined reading of Section 142(11)(a) and Section 142(11)(b), which read as follows: Section 142 (11) (a) notwithstanding anything contained in section 12, no tax shall be payable on goods under this Act to the extent the tax was leviable on the said goods under the Value Added Tax Act of the State; (b) notwithstanding anything contained in section 13, no tax shall be payable on services under this Act to the extent the tax was leviable on the said services under Chapter V of the Finance Act, 1994; (32 of 1994.) Further the applicant would like to rely on the case of National Tobacco Co Ltd [ 1978 (2) ELT 416(SC) - 1972-VIL-04-SC-SE ] ; Vazir Sultan Tobacco Ltd [1996 (83) ELT 3 (SC) - 1996 - VIL- 28-SC-CE]. With respect to the contention that since bill/invoice was raised on the Pre - GST regime, in terms of section 13(2) of the CGST Act,2017, no GST is applicable irrespective of whether the payment is received under GST. ....
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....m for Extra Expenditure in back filling behind walls of TRT Exit structure at TRT Outlet (Page-51): Misrepresentation of scope of work Point 28 : Refund of excess deductions (Page-52) : Wrongful deduction of refund on which tax paid earlier. Point 29: Claim for reimbursing the wrongful deduction towards 0.5% rebate from price adjustment payment ( Page-54) : Refund of wrong deduction Point 30: Claim for certain deduction/deletion of items, from Final Bill (Page-55) : Wrongful deduction refund. 3.Submission of the Revenue 3.1 The concerned officer from the revenue has not expressed any view on the merit of the issue raised by the applicant. 4. Observations & Findings of the Authority 4.1 We have gone through the records of the issue as well as submissions made by the authorized representatives of the applicant during personal hearing. The Revenue has not given any view in this regard. 4.2 According to the facts narrated by the applicant, he has been engaged in the business inter alia of construction, tunneling, civil works and other allied works pertaining to Hydro Electric projects. In the year 1988 THDC (....
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....erent heads. The following table will show the arbitration awards in combined form for all the three packages: Sl. No. Category Claim No. Claim Amount allowed by the Arbitral Tribunal (in lakh rupees) I Unpaid Amounts on Extra expenditure incurred 1 Claim for extra expenditure incurred in purchasing Boulder, Aggregates and sand from private agencies. 33.2 2 Claim for reimbursement of monthly expenditure being incurred for operating private quarry. 13.8 3 Claim for extra expenditure incurred due to change in methodology for excavation of Control Gate Shafts. 67.66 4 Claim for payment for the differential of cost for actually using 43 grade cement in place of 33 grade of cement as per the contract specifications. 256.27 5 Claims for Reimbursement of extra expenditure incurred in shifting of residential accommodation and infrastructure facilities from Simlasu and Ranibagh to the land allotted by THDC near Koti/ Gajna. 326.84 6 Claim for Price Adjustment of extra item. 6937.94 7 Claim for extra expenditure incurred due to change in the methodology for excavation of Compressor and Receiver room at the end w....
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....assed its award thereby directing THDC to pay Rs 94,55,80,409.00 (i.e., 94.56 crores) within 45 days from the order. Then, finally on 24.10.2024, Settlement Agreement was signed and the payment of Rs 94,55,80,409/- (i.e., Rs 94.56 crores) was being received by the applicant. 4.3 In the above context, the following questions have been raised by the applicant: i) Whether claims allowed by the Arbitral Tribunal vide the Arbitration Awards be termed as supply or not? ii) Whether claims allowed by the Arbitration Tribunal vide the Arbitration Awards be termed as liquidated damages or not? iii) Whether GST would be applicable, on the claims allowed vide Arbitration Awards and payment received pursuant to Conciliation Proceedings resulting into the Settlement Agreement, both during the GST regime? iv) Whether GST would be applicable for the cost of arbitration allowed vide Arbitration Award and received vide the Settlement Agreement, both during the GST regime? v) If the answer to the above (iii), (iv) and /or (v) are in affirmative, then under what SAC and GST rate is the said liability to be discharged by the applicant and at what time? ....
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....ntract and there is no agreement, express or implied, by the applicant receiving such compensation, to perform an activity. As the recipient of money the applicant has not agreed to do or to abstain from doing something or to tolerate something in return for the money paid to him. The amount received as the Arbitral Award is purely in the form of compensation payable for additional expenditure incurred in the completion of the contracts by the applicant in the pre-GST era and does not involve any additional supply. The applicant opines that a combined reading of Section 142(11)(a) and 142(11)(b) is required to understand the issues raised in Question no. (vi) and (vii). From a conjoint reading of the provisions, according to the applicant, it is clear that in the instant case, as no supply has happened during the GST regime, no GST shall be payable. Further the additional payment received by way of compensation through award by Hon'ble Tribunal for Arbitration is not falling under Section 142(2)(a) and hence not chargeable to GST. 4.5 Before going into the details of the discussion, we should enlighten ourselves with the concept of Liquidated Damages. In a contract, whe....
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....ven for any remote and indirect loss or damage sustained by reason of the breach.' It is clear from the legal provision that Liquidated Damage is a compensation for a breach of contract by a party for which another party suffers any loss or damage. This compensation is included within the contract itself. 4.7 Liquidated Damage or for that matter the taxability of liquidated damage has been a matter of discussion in the GST era since long. The Circular No. 178/10/2022-GST Dated 03.08.2022 has dealt with the issue elaborately and comprehensively. Any issue related to the taxability of Liquidated Damage must be examined with reference to the analyses provided in the circular. The relevant portions of the said circular are reproduced here: Liquidated Damages 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 fo....
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....e an act or to do anything for the party paying the liquidated damages, in such cases liquidated damages are mere a flow of money from the party who causes breach of the contract to the party who suffers loss or damage due to such breach. Such payments do not constitute consideration for a supply and are not taxable. 7.1.5 Examples of such cases are damages resulting from damage to property, negligence, piracy, unauthorized use of trade name, copyright, etc. Other examples that may be covered here are the penalty stipulated in a contract for delayed construction of houses. It is a penalty paid by the builder to the buyers to compensate them for the loss that they suffer due to such delayed construction and not for getting anything in return from the buyers. Similarly, forfeiture of earnest money by a seller in case of breach of 'an agreement to sell' an immovable property by the buyer or by Government or local authority in the event of a successful bidder failing to act after winning the bid, for allotment of natural resources, is a mere flow of money, as the buyer or the successful bidder does not get anything in return for such forfeiture of earnest money. Forfeiture of ....
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....rly termination of a lease agreement, of pre-payment of loan and of making arrangements 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. Clause 7.1.3 and 7.1.4 are the essence of the above circular for treatment of Liquidated Damage in the GST era. If we analyse the clauses the following points emerge: 1. Performance is the essence of any contract. 2. Liquidated Damages are not consideration received for tolerating the breach or non-performance of contract. Rather, they are payments for not tolerating the breach or non performance of contract. 3. Liquidated Damages are measure of loss and damages that the parties agree would arise due to breach of contract. ....
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.... this Act such credit note shall be deemed to have been issued in respect of an outward supply made under this Act: Provided that the registered person shall be allowed to reduce his tax liability on account of issue of the credit note only if the recipient of the credit note has reduced his input tax credit corresponding to such reduction of tax liability." [emphasis supplied] 4.9 Section 142(2)(a) provides that when the price of any goods or services is revised upwards after the implementation of GST in pursuance of a contract entered into during the legacy tax regime, the person who provided such goods or services shall issue a supplementary invoice/debit note and such supplementary invoice/debit note shall be deemed to have been issued in respect of an outward supply made under the CGST Act. In brief, the following elements should come together for such price revision to be deemed as a supply under GST - there should be an upward price revision; and such price revision should be in pursuance of a contract entered into prior to the appointed day, i.e. 01.07.2017. 4.10 In the matter under consideration, there is no doubt that the contract was entered prior....
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.... directed by the Engineer-in-Charge. The rate(s) of any additional, altered, or substituted items shall be determined by the Corporation ...[...]" Further sub-clauses of Clause 35.0 lays down the guidelines in determining the rates of such extra items. "Clause 36.0: PRICE ADJUSTMENT Contract price as awarded shall be adjusted for increase or decrease in rates and price for labour, materials, fuel and lubricants in accordance with the following principles and procedures:-" The clause then proceeds to lay down in detail how such adjustment is to be calculated, separately for labour, for construction material, and for petrol diesel, oil and lubricants. 4.12 From the above, it is clear that the Contract Agreement contains clear and unequivocal terms governing any additional work to be done, and any adjustment in the contract price which may result from such additional work. In the light of these terms, as well as the law on Liquidated Damages and their tax treatment in GST as detailed above, we now proceed to examine each item of the arbitration award to arrive at its taxability under the GST regime. 4.13 It is already noted that the amounts awarded by the....
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....by the applicant due to breach of contract by the contractee by not providing proper quarry areas. 2. Claim for extra expenditure incurred for operating private quarry: This is similar to the first point, inasmuch as it stems from the breach of contractual obligation by THDC to provide to the applicant a quarry free from encumbrances. The findings of the Arbitral Tribunal on the matter as have been quoted in the discussion of point no.1 is equally applicable here. Since the start of the project the applicant was not allotted any quarry free of all hindrances by the contractee. So the contractor was forced to start quarrying boulders from the quarry owned by an individual on a monthly rental basis. The other materials were to be procured from open market. Both created additional burden on the applicant. The Arbitration Tribunal allowed claim due to this extra burden of the applicant which he would not have incurred had the contractee followed his contractual obligation. The award is in the nature of compensation. 3. Claim for extra expenditure incurred due to change in the methodology for excavation of control gate shafts: The applicant h....
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....lating rates are provided for in the Contract itself, which has been reproduced supra in this Ruling. It is also clear that this amount, which is consideration for works contract services provided by the applicant, has not suffered taxation in the legacy tax regime since the amount was not paid by THDC till 2024. From the above, we are of the considered view that this amount is a result of upward revision of prices for work carried out in the previous tax regime in pursuance of a Contract entered into prior to 01.07.2017. Thus, all the ingredients of Section 142(2)(a) of the CGST Act, 2017 are satisfied, and it has to be necessarily held that this amount is taxable under the GST statute. 4. Refund of rebate wrongfully recovered / deducted by the contractee: The applicant had offered the contractee, THDC (Tehri Hydro Development Corporation) India Limited 2% rebate on the contract value in lieu of interest free equipment advance equal to 5% of the contract price and 1.5% rebate on the contract value for award of all the three packages to the applicant. An additional rebate of 0.5% was offered if the payment of interim bills was made within 15 days of the submission....
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....ngfully deducted from price adjustment by the contractee: An additional rebate of 0.5% was offered by the applicant if the payment of interim bills was made within 15 days of the submission of bills. This offer was categorical and applicable for interim R.A. bills only. The contractee, however, deducted the rebate from price adjustment bills as well in violation of agreement. The tribunal awarded the entire claim of the alleged wrongful recovery of rebate. The award is similar to one referred to in the preceding paragraph except that this pertains to such rebate deducted from price adjustment. It has already been stated above that Price Adjustment is part and parcel of the contract, as provided for in Clause 36.0. Since the reasoning is identical to point 4, we hold the same view taken in the subject matter discussed in Point 4 ibid. 6. Claim for cost difference for actual use of higher grade of cement: The applicant by the terms of contract was supposed to use 33 Grade cement for construction works. But it was found by the experts of the contractee that desired target strength was not being achieved by using this grade of cement. So it was instructed tha....
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....re infrastructural facility from Simlasu to Koti village on the argument that the facility at Simlasu would be submerged after the closure of the Diversion Tunnels 1 and 2. The applicant failed to shift infrastructure facility at Koti since the land of the village was not vacant. The applicant was further instructed to shift infrastructure facility to village Gajna. The shifting of all mechanical workshops, fabrication shops, stores, offices and accommodation for labours created huge extra burden on the contractor. The Arbitral Tribunal found that "No provision of the Contract has been shown to demonstrate that in any eventuality, the infrastructure facilities once established were required to be shifted to another place during the period of the Contract.". The Tribunal has also recorded that THDC is liable to reimburse the cost of shifting of infrastructure facilities incurred by the applicant. This amount is in the nature of reimbursement of expenses incurred by the applicant due to the breach of contractual terms by THDC. Since this is awarded as a reimbursement of expenses and not for any goods/services provided and since this is of the nature of a compensatory a....
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.....2017 and is therefore, taxable under GST. 10. Claim for extra expenditure incurred for excavation of compressors and receiver's room at the end wall of machine hall: In the findings on this issue, the arbitral Tribunal has recorded that "The excavation of CR and RR definitely required extra efforts and qualifies to be an extra item whose rate should have been determined in accordance with the parameter prescribed under Clause 35 of GCC". From the description as well as the unequivocal finding of the Tribunal, it is clear that this is nothing but extra work, which was covered under the contractual terms for which payment was not made by THDC. This is nothing but price revision made in terms of an existing contract entered into prior to 01.07.2017, and is therefore, taxable under GST. 11. Claim for payment of cost of materials for work of pre-stressed anchor in the blind holes and through holes: The contractor was supposed to install pre-stressed anchors in through holes exceeding 18 mtrs. but not exceeding 30 mtrs. and also to install pre-stressed anchors in through holes exceeding 10 mtrs. but not exceeding 18 mtrs. As per the agreement....
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.... GST statutes in terms of Section 142(2)(a) of the CGST Act, 2017, being in effect price revision in pursuance of a contract entered into prior to 01.07.2017. The other amounts for serial no. 1, 2, 6, 7, being in the nature of liquidated damages/reimbursements are not taxable. For serial no. 4 and 5 the treatment should be as per the discussions made in respect of the said serial numbers, depending on whether these amounts have suffered tax in the legacy tax regime. 4.14 In addition to all the above noted awards of claims, the Arbitration Tribunal has also awarded cost of arbitration for all the three projects as under: Project Cost of arbitration awarded (in Rupees) Project I 1,00,00,000.00 Project II 50,00,000.00 Project III 40,00,000.00 Total 1,90,00,000.00 The arbitration as service has been provided by the Arbitration Tribunal to the applicant. The tribunal has been constituted in the pre-GST era (by an order dated 31.03.2015 by the Supreme Court of India) and it has delivered its order of arbitration in the GST era vide order dated 01.11.2023. Therefore, the service is taxable. Arbitration service will fall under Legal and Accounting ser....
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....ere invoice is required to be issued by the supplier; or] (c) the date of issue of invoice by the recipient, in cases where invoice is to be issued by the recipient: Provided that where it is not possible to determine the time of supply under clause a) or clause (b) or clause (c), the time of supply shall be the date of entry in the books of account of the recipient of supply: Here in our case the applicant is the recipient of supply of arbitration service supplier being the Arbitration Tribunal formed for this purpose. So clause (a) will be applicable here and the time of supply will be the date on which payment for arbitration fees is debited from the bank account of the applicant. The value of supply in this case will be the amount of fees paid to the arbitrators. The applicant being recipient of service is liable to pay tax as above under reverse charge. However, the amount awarded as the cost of arbitration will not come under the purview of GST. This is an amount to be paid to the applicant by THDC India Limited as part of compensation in respect of the expense of arbitration that the applicant had to bear. There is no supply of service between the ....
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....licable, on the claims allowed vide Arbitration Awards and payment received pursuant to Conciliation Proceedings resulting into the Settlement Agreement, both during the GST regime? Answer: The answer will follow the answer given to question no. (i) as above. iv) Whether GST would be applicable for the cost of arbitration allowed vide Arbitration Award and received vide the Settlement Agreement, both during the GST regime? Answer: The answer is in the negative. However, the applicant is liable to discharge tax liability on the fees paid to the arbitrators under serial no. 20 vide Notification No. 11/2017-Central Tax (Rate) Dated 28.06.2017, as amended @ 9% CGST + 9% SGST as discussed in Paragraph 4.10 supra. v) If the answer to the above (iii), (iv) and /or (v) are in affirmative, then under what SAC and GST rate is the said liability to be discharged by the applicant and at what time? Answer: The SAC for the services under this application is 995422, the description being 'general construction services of harbours, waterways, dams, water mains and lines, irrigation and other water works'. It is covered by Entry No. 3(xii) of Notification No. 11/2017 - Central tax....