GST Liability On Liquidated Damages Paid As Per Term Of Contract

 

Clause 5(e) Of Schedule-II  Says “ agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act;” Therefore in Case Of Liquidated Damages Paid as Per Term Of Contract  the provider of service here agrees to refrain or tolerate or to do an act. This act of provider benefits recipient. Therefore, recipient consumes the service and pays for the same. 

 

 If The Main Contract specifically provides for the levy of liquidated damages for Delay in Completion Of Project beyond the scheduled date. Than it Means That in Term Of Clause 5(e) Of Schedule – II he has tolerated an act or a situation. The purpose of payment of liquidated damages is an act of tolerance in the sense that when there is delay in the completion of the project, the Owner is put to certain hardships which he tolerates in return of the payment of liquidated damages by the Contractor. What entry 5(e) provides that any supply of services of tolerating an act is a supply and therefore the impugned transaction is also a ‘supply’ under the provisions of the CGST Act. *Thus GST would be applicable on the Liquidated Damages*

 

 

 Rate And Heading For Liquidated Damages – Heading 9997 And Taxable @ 18%

 

 Time Of Supply in Case Of Liquidated Damages – liability of payment of these liquidated damages by the Contractor will be established *once the delay in successful completion of trial operation is established* on the part of the Contractor the said would define the time of supply.