Damages and toleration of act under GST are distinguished from taxable supply in arbitral settlement payments.
GST treatment of damages paid under an arbitral award and settlement terms was considered under Entry 5(e) of Schedule II of the CGST Act, on the question whether compensation for breach and suspension of enforcement proceedings could be treated as consideration for a taxable service. The analysis stresses that arbitral damages are compensatory, that a crystallised liability under an award is not converted into consideration for a service by consent terms, and that CBIC circulars distinguish breach-related compensation from a separate agreement to tolerate an act or situation. (AI Summary)