TaxTMI 
TaxTMI 
2026 (7) TMI 1177
X X X X Extracts X X X X
X X X X Extracts X X X X
....rom each other only on a few specific provisions. Therefore, unless a mention is particularly made to such dissimilar provisions, a reference to the CGST Act, 2017 would also mean reference to the corresponding similar provisions in the WBGST Act, 2017. 1. This appeal has been filed by M/s. Karam Chand Thapar & Bros (Coal Sales) Limited [GSTIN: 19AABCK1281H1ZL] (hereinafter referred to as the appellant) in Form GST ARA-02 [vide Ref No. AD190426010112M] against the Ruling passed by the West Bengal Authority for Advance Ruling (hereinafter referred to as, the WBAAR) vide Order No. 31/WBAAR/2025-26 dated 13.02.2026 in respect of the application for Advance Ruling filed by him. 2. The appellant 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 co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y THDC India Limited (hereinafter referred to as THDC) at Tehri Hydro Power Complex and other Hydro Projects under three separate contracts viz. Package-I, Package-II & Package-III. ii. The Letter of Intent (LOI) for each of these Packages was issued separately to the appellant in 1995 and THDC entered into contract agreements in 1996 with the appellant separately for each of the said Packages at a value of Rs. 69,08,01,017.55 Rs. 96,81,23,502.50 and Rs. 44,95,32,487.60 respectively with complete period of 54 months, 60 months & 45 months respectively. iii. After raising the Final Bills for the three separate packages in the time span of April 2010 to June 2011, THDC made the payment against the Final Bill towards work done and also the Final Bill towards Price Adjustment in 20.11.2011. However, several disputes arising between the two parties during the execution of the works, the appellant filed a claim before the Dispute Resolution Board (hereinafter referred to as DRB) as per the Clause 60 (Settlement of Disputes) of all the three Agreements. iv. Out of twenty disputes referred to the DRB, the DRB was able to decide only four disputes between November....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n 34 of the Arbitration and Conciliation Act, 1996, before the Hon'ble Delhi High Court and sought to set aside all the three final awards issued by the Arbitration Tribunal for the respective packages. Further on 17.04.2024 THDC invited the applicant to avail conciliation process to resolve the contractual disputes arising from Package I, II and III through Disputes Resolution Committee (DRC). On 25.09.2024, DRC passed 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 was received by the appellant. vii. As per understanding of the appellant, the payment received 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 as per Section 7 of the Arbitration and Reconciliation Act, 1996 read with Section 73 of the Contract Act, 1872, section 142(2)(a), Section 142(11)(a) and Section 142(11)(b) of the CGST Act, and CBIC Circular No 178/10/2022 dated 03.08.2022. Hence, such flow of money should be consid....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ates that 'Compensation for loss or damage caused by breach of contract.-When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it. Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach.' v. 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. vi. So far as Circular no. 178/10/2022- GST Dated 03.08.2022 is concerned, Clause 7.1.3 and 7.1.4 are the essence of the above circular for treatment of Liquidated Damage in the GST era. Upon analysis of such clauses, it is observed that: a. Performance is the essence of any contract. b. Liquidated Damages are not consideration received for tolerating the breach or non-perform....
X X X X Extracts X X X X
X X X X Extracts X X X X
....urchasing Boulder, Aggregates and sand from private agencies. The award is in the nature of compensation of loss suffered by the applicant due to breach of contract by the contractee by not providing proper quarry areas. 2 Claim for reimbursement of monthly expenditure being incurred for operating private quarry. The award is in the nature of compensation. 3 Claim for extra expenditure incurred due to change in methodology for excavation of Control Gate Shafts. The Tribunal has recorded a clear finding (vide Para 55 of order) that this Award is due to the extra work being carried out by the applicant, due to peculiar geological conditions and non-provision of equipment. 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 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. The ap....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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. 8 Claim for payment of cost of material for work of pre-stressed anchor blind holes and through holes This claim arises from the cost of such materials which were used by the applicant to execute this work. The Tribunal has awarded the claim based on the cost of material. This is again a case where the cost of materials required for doing extra work was claimed by the applicant. The Arbitral award has resulted in a price revision, which has ultimately resulted from the terms of the contract and was not based on any breach of contractual obligations. Since this is a price revision covered under the contractual terms, this amount is also leviable to tax under GST by virtue of Section 142(2)(a) of the CGST Act, 2017. 9 Claim for Extra Expenditure in back filling behind walls of TRT Exit structure at TRT Outlet. This is nothing but a new work not envisaged in the original contract. Any amount awarded due to this should be considered as consideration for the respective new work and hence is taxable under the GST Act. 10 Claim ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er Reverse Charge under the provisions of Section 9(3) of the CGST Act and is taxable under reverse charge @ 9% CGST + 9% SGST under serial no. 20 vide Notification No. 11/2017-Central Tax (Rate) Dated 28.06.2017, as amended. Ruling of the WBAAR 7. Accordingly, the WBAAR, in its Order No. 31/WBAAR/2025-26 dated 13.02.2026 ruled that: A. The claims allowed for extra expenditure due to change in the methodology for excavation of control gate shafts, claims allowed due to payment of price adjustment on extra items, claims allowed for deduction or deletion from final bill, for extra expenditure incurred for excavation of compressors and receiver's room at the end wall of machine hall, for payment of cost of materials for work of pre-stressed anchor in the blind holes, for extra expenditure for backfilling the behind walls of TRT outlet and claims allowed as refund of rebate wrongfully recovered or deducted and rebate wrongfully deducted from price adjustment are to be considered as supply. B. On the other hand, the claims allowed for extra expenditure incurred in purchasing boulder, aggregates and sand from private agencies, for operating private quarries, for c....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 01.07.2017. Grounds of Appeal before the WBAAAR 8. Aggrieved by the said ruling given by the WBAAR vide Advance Ruling Order No. 31/WBAAR/2025-26 dated 13.02.2026, the appellant filed the instant appeal in Form GST ARA-02 [vide Ref No. AD190426010112M] before the West Bengal Appellate Authority for Advance Ruling (hereinafter referred to as the WBAAAR). 9. The appellant submitted the following points/grounds while preferring the instant appeal before the WBAAAR authority: A. The payment received by 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. B. Appellant relies on Doctrine of separability/severability according to which, the arbitration agreement is distinct in law and in existence from the underlying substantive contract in which it is 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 rem....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ract Act, 1972 that when a contract has been broken, the party which suffer by such breach is entitled to receive from the other party compensation for any loss or damage caused to him by such breach. This compensation is not by way of consideration for any other independent activity; it is just an event in the course of performance of the contract. Such compensation specified in a written contract for breach of non-performance of the contract or the parties of the contract is referred to as the liquidated damages. (ii) Mere flow of money- The compensation awarded to the applicant is an amount paid only to compensate for injury, loss or damage suffered by the applicant due to the breach of the contract and there is no agreement, express or implied, by the applicant receiving such compensation, to perform an activity. In such cases the compensation is a mere flow of money from the party who causes breach of the contract (here THDC) to the party who suffers loss or damage due to such breach (here the applicant). Such compensation does not constitute consideration for supply and are not taxable. (iii) No Agreement to tolerate- Applying the aforementioned principles t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... J. In the instant case the applicant had issued Purchase Orders in the pre-GST period and all the work allocated was completed in the Pre-GST Period and the payments were also settled in the Pre-GST period itself. The Applicant and the Sub-Contractor have duly remitted VAT and Service Tax on the entire contract value. Thus, it is pertinent here that the supply/work was completed during Pre-GST period. However, though the execution of the contract was over in Pre-GST period, the Arbitration Award was announced only in the GST period. Accordingly the award/amount received under the said arbitration requires to be examined in terms of transitional provisions Section 142(11) of the CGST Act, 2017. Thus, 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. K. 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 a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aring reiterating the submissions as already stated in his grounds of appeal. Submission of the Respondent before the WBAAAR 12. None was present from the respondent side at the time of personal hearing. Further submissions made by the Appellant 13. During the course of the hearing, the WBAAAR questioned the maintainability of the Advance Ruling application itself and observed that although the application had been filed seeking a ruling on a question falling within the scope of Section 97(2)(e) and/or (g) of the CGST Act, 2017. The maintainability of the application would thus require examination in light of the provisions of Section 95(a) of the CGST Act, 2017, which defines the expression "advance ruling" as a decision provided in relation to the supply of goods or services or both being undertaken or proposed to be undertaken by the applicant. The WBAAAR accordingly called upon the Appellant to address the issue of maintainability of the application with reference to the aforesaid statutory provisions. 14. In this context, the appellant has made an additional submission thereby stating that: A. The definition of "Advance Ruling" in Section 95(a) of CGST ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the appeal, introduce new questions, or modify the ruling to further aggrieve an appellant unless the department has also filed an appeal. Section 101(1) allows the AAAR to "confirm or modify" the ruling. However, this power is constrained by the principles of natural justice and the scope of the appeal. An appellate authority cannot place the appellant in a worse position than they were before filing the appeal, unless the other party (the Revenue) has also filed an appeal or cross-objection on that specific point. If only the taxpayer has appealed, the AAAR's jurisdiction is limited to providing relief on the grounds raised by the appellant. In Parag Vinimay Pvt. Ltd. vs Assitant Commissioner, State Tax, Bureau of Investigation, South Bengal (Head Quarters) &Ors. [WPA4901 of 2025 dated 03-02-2026], the Hon'ble Calcutta High Court has observed that "The appellate authority has tried to upset the petitioner's case on certain grounds which were never raised against the petitioner in the notice to show cause. It is settled that any adjudicating authority whether original or appellate cannot travel beyond the confines of the notice to show cause and an order passed on grounds extrane....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ntracts executed during the period 1996-2008 are no longer statutorily required to be maintained. Discussions and Findings 15. The submissions of the appellant before the WBAAR, the observations and Ruling of the WBAAR and the submissions of the appellant before the WBAAAR having been recorded already, we now proceed to make our observations in this case. 16. We have carefully considered the records of the case, the submissions advanced by the appellant, the impugned ruling passed by the WBAAR and the provisions of the CGST Act. 17. Before examining the merits of the questions answered by the WBAAR, we consider it necessary to examine whether the application itself was maintainable under the scheme of Chapter XVII of the Act. It is observed that the application was admitted by the WBAAR, being of the opinion that the questions on which the advance ruling has been sought fall within the scope of clause (e) of sub-section (2) of section 97 of the GST Act. However, it appears that while admitting the application, the WBAAR did not examine the aspect towards maintainability of the application itself which goes to the very foundation of the proceedings. A question relating t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rmination of the issues raised by the applicant necessarily requires an elaborate examination of facts. The controversy cannot be resolved merely by interpreting statutory provisions in the abstract. It requires examination of the terms of the original contract, the pleadings before the arbitral tribunal, the arbitral award, the nature of each individual claim, the evidence led by the parties, the books of account, statutory returns, relevant documents and such other records as may be necessary to determine the true character of each amount awarded. 23. Such an enquiry falls squarely within the adjudicatory jurisdiction conferred upon the jurisdictional proper officer under the Act. The proper officer is vested with statutory powers to scrutinise returns, call for records, verify documents, appreciate evidence and determine the correct tax liability after following the procedure prescribed under the CGST Act. 24. The jurisdiction exercised by the WBAAR is materially different. The Authority is intended to provide advance certainty and not to substitute the statutory process of adjudication in respect of completed transactions requiring detailed factual investigation. If appli....
X X X X Extracts X X X X
X X X X Extracts X X X X
....its. 31. The Authority has proceeded on the premise that in respect of certain claims allowed by the arbitral tribunal, GST becomes payable because service tax had not been discharged under the erstwhile law and the provisions of Section 142 of the CGST Act stood attracted. 32. In our considered opinion, such an approach does not correctly reflect the scheme of the transitional provisions. 33. Section 142(2)(a) of the CGST Act applies where the price of goods or services supplied under a pre-GST contract is revised upwards after the appointed day. An arbitral award cannot, merely by reason of its existence, be equated with an upward revision of contractual consideration. The applicability of the provision necessarily depends upon the true nature of the claim allowed by the arbitral tribunal. 34. Similarly, Section 142(11)(a) of the CGST Act is intended to obviate double taxation during the transition from the existing law to GST. The relevant statutory test is whether tax was leviable under the existing law and not whether such tax was actually paid. The mere non-payment of service tax under the erstwhile regime cannot, by itself, constitute the basis for levy of GST. ....