Compensation collected for Liquidated Damages under the Agreement will be subject to GST

Last updated: 05 April 2024

Court :
Andhra Pradesh, AAR

Brief :
The Andhra Pradesh, AAR in the matter of South India Krishna Oil & Fats (P.) Ltd. [AAR No. 12/AP/GST/2023 dated December 21, 2023] held that the compensation amounts, such as liquidated damages or trade settlement, collected by the Applicant from customers for non-performance or breach of contracts constitute a supply of service and are liable to CGST at 9% and SGST at 9% each under Heading No. 9997 at Serial No. 35 of Notification No. 11/2017-Central Tax (Rate) dated June 28, 2017. Further, the Applicant is not required to reverse the Input Tax Credit of common services under Rules 42 and 43 of the Central Goods and Services Tax Rules, 2017 ("the CGST Rules")/ Andhra Pradesh Goods and Services Tax Rules, 2017 ("the APGST Rules") on such activity.

Citation :
AAR No. 12/AP/GST/2023 dated December 21, 2023