Liquidated damages received for delay are taxable under GST: AAR

Case Details: Authority for Advance Rulings, Telangana Achampet Solar (P.) Ltd., In re - [2022] 138 taxmann.com 520 (AAR-TELANGANA)

Judiciary and Counsel Details

• • B. Raghu Kiran & S.V. Kasi Visweswara Rao, Member

Facts of the Case

The applicant was engaged in production and distribution of electricity generated from solar energy. It filed ab application for advance ruling to determine whether liquidated damages recoverable by applicant on account of delay in commissioning of project and taking over date by contractor beyond milestones fixed for completion of project would qualify as supply and taxable under GST.

AAR Held

The Authority for Advance Ruling observed that damages are consideration for tolerating an act or a situation arising out of contractual obligation. Such toleration of an act or a situation under an agreement would constitute supply of service and consideration or monetary value of such toleration is exigible to tax. Therefore, it was held that the consideration received for such forbearance would be taxable at 18% and would fall under Heading No. 9997.