Levy of GST— In the instant case, applicant sought advance ruling on—
1) Whether “Liquidated Damages” and other penalties like milestone penalties levied on suppliers/ contractors in the nature of making good the damages for any delays in supply of service or goods in the following cases are exigible to GST or not?
2) If GST is applicable, the following may kindly be clarified
(a) Whether the GST on Liquidated Damages, and other penalties is covered under Schedule II entry No. 5(2)(e) vide HSN code 9997 - Other services, for which the rate at 18% is relevant or any other entry is applicable?
In terms of the aforesaid agreement, schedule entry No.35 of the Notification No.11/2017 -Central/State Tax (Rate) [as amended from time to time] for taxable services would cover the impugned levy of liquidated damages.
(b) Liquidated damages are determined and imposed upon the contractor after in-depth study. In such case, what would be the time of supply? Will it be the period in which delay has occurred or it is the time when decision is taken or at the time when accounting entry for recovery is passed?
GST would be applicable on the Liquidated Damages.
In terms of the agreement, the clauses reveal that the levy of liquidated damages is , not when the delay is occurring but the liability of payment of these liquidated damages by the contractor will be established once the delay in successful execution of work is established on the part of the Contractor. This would define the time of supply.
Sub-section (1) of Section 13 of the GST Act provides that the liability to pay tax on services shall arise at the time of supply. In view thereof, as discussed in the answer to the Q.2(b), the agreement clauses would have to be referred to. Since no precise facts are before us, the section 14 of the GST Act would have to be referred to by the applicant.—Rashtriya Ispat Nigam Ltd., In Re…  08 TAXLOK.COM 114 (AAR-AP)