Date of Order: 19.10.2022

Facts:

• 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 project.
• The agreement has clauses for recovery of liquidated damages on counts, one delay in delivering of the contract and the other regarding non performance of the plant.
• The applicant is desirous of ascertaining the exigibility of liquidated damages to GST on account of the delay in commissioning and its time of supply. Hence this application.

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?

Order:

• The authorities observed that CBIC has issued Circular No. 178/10/2022-GSTdated:3.8.2022 related to GST applicability on liquidated damages.
• The applicant’s principal supply is the production and distribution of electricity, which is exempt from payment of GST, the liquidated damages received by the applicant towards such supply need to be considered as flow of money without having implication of GST payment.
• According to the circular where the amount awarded as 'liquidated damages' is the amount awarded to compensate the aggrieved party for injury, loss or damage due to breach of contract and there is no contract, express or implied by the aggrieved party.
• Hence, the amount recoverable by the applicant in the form of liquidated damages does not qualify as supply.
• Appeal is disposed off accordingly.