The Telangana Appellate Authority of Advance Ruling (AAAR) ruled that the liquidated damages can be recovered via petitioner from Bi-electric India on the basis of late commissioning that does not entitle the supply and there would be no GST subject to be paid.
The two-member bench of B.V. Siva Naga Kumari and Neetu Prasad sees that the amount furnished as liquidated damages would be the amount filed merely to compensate for the injury, loss, or damage which the aggrieved party has faced because of the breach of the contract. No agreement would be expressed or suggested via the aggrieved party who obtained the liquidated damages to perform or refrain from executing anything for the party that pays for the liquidated wears. In these cases, the liquidated damages would happen only for the money via the party who causes to violated the contract to the party who faces the loss or damage because of the same breach. The payments do not comprise the consideration to supply and do not get taxed.
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The petitioner would be in the business of producing and distributing the electricity that has been received through solar energy. They would be involved in Belectric India for the construction of solar power projects. The agreement would secure the clauses for the recovery of the liquidated damages on two counts, delayed delivery of the contract was there and the other one is for concern about the plant’s performance.
The lower council said that GST law and 18% GST shall be taxed for the liquidated damages recoverable via petitioner through Belectric India on the basis of the late commissioning qualifying as a supply.
The petitioner opposed that the related justification to treat the liquidated damages would get taxed under GST shall not be furnished through the authority. Order unable to confirm that the favourable rulings said via different courts in identical fact patterns as those of the petitioner shall not be relevant for the case. It is a principle of law in which the same dispute has been resolved in the former time, and the court is obligated to follow the reasoning practised before the decision.
AAAR setting aside the ruling of the lower heads mentioned that the CBIC would be provided with the circular on 3rd August 2022, concerned with GST applicability on the liquidated damages. If the major supply shall get exempted then the ancillary activities concerned with the principal supply do not be appropriate to GST. as the petitioner principal supply would be the production and the distribution of the electricity which has been exempt from GST payment the liquidated damages obtained is required to acknowledge a flow of money without having the GST payment implication.
