Levy of GST- In the instant case, the applicant is entering into contracts with a host of vendors/suppliers for extraction of coal. The applicant is also recovering liquidated damages for lapses on the part of supplier of service. The applicant is desirous of ascertaining whether such liquidated damages/penalties constitute consideration exigible to tax under the scheme of GST.

Questions raised is as follows:

Whether, in the facts and circumstances of the case, liquidated damages/penalties received by the applicant can be said to be for any ‘supply’ under the Central Goods and Services Act, 2017, thereby attracting the levy of ‘GST’ or should be treated as price adjustment to the main supply?

Penalties and Liquidated damages are demanded by the applicant from their contractors on lapses in performance of the contract including delays, under performance with respect to targeted extraction and breach of terms of the contract.

When the parties to a contract specify the time for its performance, it is expected that either party will perform his obligation at the stipulated time. But if one of them fails to do so, the question arises what is the effect upon the contract.

In the present case, Liquidated damages are claimed by the applicant from the contractor due to the delay in performance of the contract, beyond the date prescribed in such contract by the contractor. Similarly, penalties are fixed for breach of the provisions of the contract. These amounts are consideration for tolerating an act or a situation arising out of the contractual obligation.

Held that- Liquidated damages and penalties received by the applicant due to breach of conditions of the contract from the contractor are exigible to tax under CGST and SGST Acts.