The Telangana Authority of Advance Ruling (AAR) has ruled that GST payable on Liquidated damages recoverable from Belectric India on account of delay in commissioning, qualify as a ‘supply’.
The applicant, M/s. Achampet Solar Private Limited is engaged in production and distribution of electricity obtained from solar energy. They have engaged M/s. Belectric India (P) Ltd for construction of solar power projects. The agreement has clauses for recovery of liquidated damages on (2) counts, one delay in delivering of the contract and the other regarding non-performance of the plant. The applicant is desirous of ascertaining exigibility of liquidated damages to GST on account of delay in commissioning and its time of supply.
The applicant has sought the advance ruling on the issue Whether liquidated damages recoverable by the applicant from Belectric India on account of delay in commissioning, qualify as a ‘supply’ under the GST law, thereby attracting the levy of GST.
The coram of S.V.Kasi Vishveswara Rao and B.Ragu Kiran has ruled that the clause (6) of the co-ordination agreement filed by the applicant specifies different liquidated damages to be paid for different periods of delay on the commissioning. This clause also specifies that the amount shall be paid within (3) days after the actual commissioning date as per the prescribed formula. The formula consists of various periods of delay i.e., delay upto (1) month, delay between (1) month to (3) months and such periods. Therefore the contract itself prescribes the date on which the damage has to be determined and paid. The date on which the liquidated damage is determined as per the formula prescribed in the clause 6 of the contract is the time of supply of service entry in 5(e) of Schedule II by the applicant.
“The Consideration received for such forbearace is taxable under CGST and SGST @9% each under the chapter head 9997 at serial no. 35 of Notification No.11/2017- Central/State tax rate,” the AAR said.
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