As per the terms of Purchase order placed on Foreign Supplier for import of goods, liquidated Damages (LD) shall be applicable, if delivery of Goods is not done as per delivery schedule given in Purchase Order. Since, LD is in the nature of tolerating an act (of late supply of Goods), it is to be treated as a Supply of Service.Whether, GST needs to be deposited to Govt on collection of such Liquidated damages. If yes, whether applicable GST amount can be collected/recovered from the Foreign Supplier.
It will comes under the definition of consideration as defined in section 2(31) of the CGST Act (more particularly it comes under - the monetary value of any forbearance in response to the supply of goods) and hence subject to GST. Point of taxation depends upon the treatment in books of accounts. Collection of GST anyway lies with you on forward basis. If not will have to pay out of pocket. Go through the agreement clause. Relationship with the foreign party will save you the cost.
The Maharashtra Authority for Advance Ruling (“AAR”) in the case of Maharashtra State Power Generation Company Limited (“Applicant”) held that Goods and Services Tax (“GST”) at the rate of 18% would be payable on liquidated damages (“LD”) received by the Applicant for delayed supply under a contract.
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