GST Applicable on Arbitration Settlement for Pre-GST Hydro Project Disputes: AAR Examines Taxability of ₹94.56 Cr [Read Order]

The Authority for Advance Ruling (AAR) West Bengal has ruled that arbitration settlement related to pre GST contracts would be subject to tax under the Goods and Services Tax (GST) Act if it is an upward revision of the original contract price.

The Bench clarified that while compensatory damages are not subject to tax, amounts related to extra work done or price revision would fall under the tax net as consideration for supply.

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The applicant, M/s. Karam Chand Thapar & Bros Coal Sales Limited had entered into a contract with THDC India Limited between 1996 and 2008 for the construction of a hydro power plant.

The disputes arose regarding extra expenditure incurred on changes in excavation methods, relocation of infrastructure due to land submergence and price revision. After a legal dispute an Arbitral Tribunal awarded various claims to the applicant. In October 2024 both parties entered into a conciliation agreement for a settlement amounting to ₹94.56 Crore.

However,the applicant claimed that the amount received was mostly in the form of liquidated damages which was for the breach of contract and the losses suffered. The applicant claimed that as the work was completed before the implementation of GST which is in July 2017 the amount received should not be considered as a supply or agreement to tolerate the act as claimed under Circular No. 178/10/2022-GST.

​The Authority consisting of Shafeeq S (Member CGST) and Jaydip Kumar Chakrabarti (Member SGST) has carefully analyzed the claim and stated that as per Section 142(2)(a) of the CGST Act any upward price revision of a pre GST contract is considered a supply under GST.

Further, the AAR also held that the amount paid for extra work such as the use of high grade cement and backfilling is taxable as consideration for services. On the other hand the amount for the shifting of infrastructure and arbitration costs was held to be merely compensatory and hence not taxable. In the case of the taxable amount the applicant is obliged to produce supplementary invoices.

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