Liquidated Damages Not Taxable Under GST for Contract Breach | AAR

Case Details: JBM Ecolife Mobility Surat (P.) Ltd., In re [2025] 180 taxmann.com 431 (AAR-GUJARAT)

Judiciary and Counsel Details

• Sushma Vora & Vishal Malani, Member
• Atul Gupta and Kavish Goyal, CAs for the Applicant.

Facts of the Case

The applicant, registered under GST and operating as a concessionaire, submitted that it had executed a Concession Agreement with the Surat Municipal Corporation and, pursuant to a later tripartite arrangement, assumed operations and maintenance obligations. It was submitted that the Concession Agreement obligated the applicant to supply buses, operate and maintain the fleet, and develop related depot and charging infrastructure, with liquidated damages prescribed for specified operational defaults. The matter was accordingly placed before the Authority for Advance Ruling (AAR).

AAR Held

The AAR held that the liquidated damages claimed constituted genuine pre-estimated loss under the agreement and were compensation for breach, and fell outside the scope of supply under Section 7 of the CGST Act and the Gujarat GST Act. It was observed that the agreement did not involve any party agreeing to tolerate any default and the charges merely enforced contractual discipline. Accordingly, it was held that the liquidated damages were not liable to GST, and therefore, no questions regarding the rate, SAC, or ITC arose.

List of Cases Reviewed

• Anmol Industries Ltd. v. West Bengal Authority for Advance Ruling, GST [2023] 150 taxmann.com 3/98 GST 546/75 GSTL 46 (Calcutta)/(2023) 6 Centax 6 (Cal.) ] (para 15.1) followed

List of Cases Referred to

• Religare Securities Ltd. v. CST 2014 (36) S.T.R. 937 (Tri.-Del.) (para 9)
• Bhartia Cutler Hammer Ltd. v. CCE 1998 taxmann.com 1519 (CEGAT- NEW DELHI) (para 9)
• M.P. Poorva Kshetra Vidyut Vitran Co. Ltd. v. Principal Commissioner CGST & CE [2021] 126 taxmann.com 182/46 GSTL 409 (New Delhi – CESTAT) (para 9)
• South Eastern Coalfields Ltd. v. CCE and Service tax [2021] 124 taxmann.com 174/55 GSTL 549 (New Delhi – CESTAT) (para 9)
• Achampet Solar (P.) Ltd., In re [2023] 148 taxmann.com 222 (AAAR-TELANGANA) (para 9)
• GSPC (JPDA) Ltd., In re [2025] 172 taxmann.com 325/96 GSTL 201 (AAAR-GUJARAT) (para 9)
• Neyveli Lignite Coporation Limited v. Commissioner 2021 (53) G.S.T.L. 401 (Tri. – Chennai) (para 9)
• Rites Ltd., In re [2023] 147 taxmann.com 416/97 GST 244 (AAR – HARYANA) (para 9)
• Anmol Industries Ltd. v. West Bengal Authority for Advance Ruling, GST [2023] 150 taxmann.com 3/98 GST 546/75 GSTL 46 (Calcutta) (para 15.1).