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Corporate News *  Missing seized records must be considered while testing ITC claim; duplicate GST demands ordered corrected: Delhi High Court. *  GST appeal can’t be rejected without addressing taxpayer’s grounds: Allahabad High Court. *  Surplus IGST credit can offset CGST, SGST shortfall: GSTAT. *  GST refund can’t be denied when cancelled airfares are returned with tax: GSTAT. *  3 Hearing notices issued within 2 minutes: Gujarat High Court flags portal flaw, seeks report. *  GSTR-9, GSTR-9C filing for FY 2025-26 enabled; pending GSTR-1 and GSTR-3B must be filed first. *  Dupattas are exempt fabrics, can’t be taxed as fibres at 4%: Madras High Court. *  Full transitional credit allowed on capital goods received after GST rollout: GSTAT denies Rs. 6.99 lakh export duty credit. *  GST return mismatch alone can’t justify fraud proceedings: GSTAT orders fresh adjudication under section 73. *  Supplier found non-existent later can’t alone justify input tax credit denial: GSTAT. *  GST interest stops once tax reaches government account, can’t run until return filing: GSTAT. *  Cancelled flat booking- GST refund can’t be denied without excluding COVID period from limitation: GSTAT. *  India notifies rules of origin for India–New Zealand FTA. *  Incomplete E-bike kits classifiable as complete vehicles, but not eligible for CKD duty concession: CESTAT. *  Same GST rate on main input and output can’t by itself bar inverted duty refund: GSTAT. *  Unjust enrichment doesn’t apply to customs refunds from assessments finalised before July 13, 2006: Gujarat High Court. *  CENVAT credit can’t be denied solely because plant And machinery are embedded in earth: Karnataka High Court. *  DFIA exports ineligible for RoDTEP benefits; customs directs repayment with applicable interest. *  Second E-Way bill alone doesn’t prove another supply: GSTAT. *  Bail denied in Rs. 1.19 crore fake GST refund case over risk of accused absconding again: Punjab and Haryana High Court. *  GST registration can be restored after revocation deadline if outstanding dues are paid: Gauhati High Court. *  Multiple GST proceedings over same suppliers: Calcutta High Court directs dept. to share findings for adjudication. *  E-Governance portal services not OIDAR, fixed deposit interest not taxable: CESTAT. *  Rs. 500 Stamp duty required on authority letters for CAs, CMA and GST practitioners in Pune GST division.  *  Rs. 1.10 crore GST refund must be paid in cash after business closure: Allahabad High Court. *  Godown rent attracts 18% GST even when used exclusively for exempt agricultural warehousing: AAR. *  GST portal launches "Multi-State Registration" facility: one master TRN for registration applications across multiple States/UTs. *  RoDTEP scheme extended till 31st December, 2026.  *  Mere disagreement with order can’t override Rs. 20 lakh appeal limit: GSTAT. *  Customs interest can’t be backdated before confiscation liability is determined; nearly 8 year period excluded: Delhi High Court.
Subject News *  GST summons: anticipatory bail maintainable without arrest order, but relief denied in evasion case: Allahabad High Court. *  GST Appeal can’t be decided without hearing taxpayer’s objections to fresh evidence: Allahabad High Court. *  GST ITC can’t be reversed merely because supplier grants discount without reducing tax liability: GSTAT. *  Mere quoting of GST provision is not a valid charge: GSTAT quashes ITC denial. *  Personal hearing mandatory before adverse GST order, even without taxpayer’s request: Rajasthan High Court. *  Parallel bail pleas without full disclosure amount to abuse of process Rs. 43.08 crore GST case sent for fresh hearing: Supreme Court. *  GST refund based on unchallenged advance ruling can’t be recovered using later circular: GSTAT. *  Payment of GST alone doesn’t end interest and penalty liability when tax and interest remain unpaid beyond 30 days of notice: GSTAT. *  GST demand over builders’ 80% procurement rule requires reasoned adjudication: GSTAT. *  Eligible ITC doesn’t automatically entitle taxpayers to compensation cess refund on domestic sales: GSTAT. *  GST confiscation order passed before reply deadline invalid: GSTAT. *  GST interest can’t be retained after tax refund on delayed export receipts: Punjab & Haryana High Court. *  GST appeal can’t be dismissed over pre-deposit shortfall without opportunity To respond: Bombay High Court. *  DGGI SCN can’t be challenged before reply and adjudication:Chhattisgarh High Court. *  GST input tax credit can’t be denied solely due to supplier’s retrospective registration cancellation: GSTAT. *  GST notice must explain fraud allegations; merely repeating section 74 Is not enough:  Himachal Pradesh High Court. *  Audit detection alone can’t justify GST fraud penalty; specific suppression must be proved: GSTAT. *  GST order uploaded only under ‘Additional Notices’ tab without separate intimation set aside: Calcutta High Court. *  Service Tax appeal can’t be rejected for missing pre-deposit proof when payment is already recorded: CESTAT. *  SGST dept. can’t hear appeal against CGST order: Calcutta High Court. *  Mere dispatch of tax order can’t prove service or make appeal time-barred: CESTAT. *  Dealer incentives can’t be taxed merely on ledger entries: CESTAT. *  DGFT orders quashed for failure to supply DRI letter relied upon in SCN: Bombay High Court. *  GST penalty u/s 122(1A) can’t apply to Pre-2021 transactions; unregistered beneficiaries also covered: Delhi High Court. *  Expired E-way bill caused by wrong PIN code can’t justify GST penalty without intent to evade tax: GSTAT. *  Used railway rails can’t be taxed as track material without proof they are fit for reuse: CESTAT. *  Earlier DGGI notice doesn’t bar separate GST demand on different issue: Delhi High Court. *  ITC dispute involves no question of law: GSTAT directs appeal to Vice-President. *  Earlier DGGI notice doesn’t bar separate GST demand On different issue: Delhi High Court. *  No E-way bill required for interstate goods movement in november 2017: GSTAT quashes detention and penalty.  

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GST UPDATE ON TAXABILITY OF LIQUIDATED DAMAGES PAID TO FOREIGN BUYER - 010/2020-21

GST UPDATE ON TAXABILITY OF LIQUIDATED DAMAGES PAID TO FOREIGN BUYER - 010/2020-21

Performance is the essence of a contract and hence parties to contract generally incorporate their expectation in terms of damage caused by failure of either party to perform its obligations completely or as per the agreed terms.  The failure to perform an act can be compensated in any form like forfeiture of deposit, penalties, compensation, cancellation, demurrage or detention charges. All these can be said to be covered under the head ‘Liquidated damages’.

Under GST regime, the scope of supply is very wide and liquidated damages have also been covered in this definition in Paragraph 5 (e) of Schedule II of CGST Act 2017. The excerpt has been reproduced below

“(e) agreeing to the obligation to refrain from an act, or to tolerate an act or a

situation, or to do an act;”

A few rulings given by AAR wherein liquidated damages are treated as supply are being listed below for your reference

1.     M/s. Maharashtra State Power Generation Co. Ltd (AAR Maharashtra) No. GST-ARA- 15/2017-18/B-30; dt. 08/05/2018

2.     M/s. North American Coal Corporation India Private limited (GST AAR Maharashtra); Advance Ruling No. GST-ARA-07/2018-19/B-63; 11/07/2018

3.     Rashtriya Ispat Nigam Ltd (GST AAR Andhra Pradesh);  Advance Ruling No. AAR 01/AP/GST/2019; 11/01/2019

4.    M/s. Dholera Industrial City Development Project ltd. (GST AAR Gujarat);  Advance Ruling No. GUJ/GAAR/R/2019/06;  04/03/2019

5.     Bajaj Finance Limited (GST AAAR Maharashtra); Order No. MAH/AAAR/SS-RJ/24/2018-19; 14/03/2019

Moving a step forward, what shall be the GST implication in case where liquidated damages are being collected by the foreign buyer in case of breach of conditions of timely export?  Whether such liquidated damages will be treated as import of service? Will the exporter be required to pay tax under reverse charge mechanism?

In order to find an answer to this question, it is pertinent to refer to the definition of import of service defined in Section 2(11) of IGST Act 2017.

“ ‘import of services’ means the supply of any service, where––

(i)                the supplier of service is located outside India;

(ii)              the recipient of service is located in India; and

(iii)            the place of supply of service is in India;”

In order to qualify as import of service, all the three conditions are to be satisfied. Let us have a look at the provisions of Place of supply which is the third condition to be satisfied in order to qualify as import of service, as the first two conditions seem to be satisfied. Section 13 deals with the provisions of place of supply of service where the location of supplier or the recipient is outside India.  As per the general clause of Section 13(2) of IGST Act 2017,

“The place of supply of services except the services specified in sub-sections (3) to (13) shall be the location of the recipient of services:”

Since the location of recipient is in India, the place of supply of service shall also be within India. On satisfaction of all the three conditions, it qualifies as ‘import of service’.  Therefore, the exporter is required to pay CGST and SGST under reverse charge mechanism attracting GST rate of 18 % and having SAC Code as 9997.

 

“Right now the first and foremost priority of the entire humankind must be to plank the curve through self-isolation. Stay at home and be safe.”

 

Solely for educational purpose.

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