Maharashtra State Power Generation Co. Ltd. – 2018 (17) G.S.T.L. 451 (App. A.A.R. – GST – Maharashtra)

Liquidated damages received for delayed supply under a contract shall be treated as Supply of Service

Facts: In this case, the Appellant is engaged in generation of power and it has awarded a contract to BHEL for purpose of erection, testing and commissioning of main plant package and such contract has timeline for completion of project and levy of liquidated damages, if not completed within time.

Issue: Whether liquidated damages recovered on account of non-adherence to the time limits mentioned in the contract shall amount to ‘Supply’.

Held: The AAR held that GST at the rate of 18% would be payable on liquidated damages received by the assessee for delayed supply under a contract and considered liquidated damages to be a consideration for agreeing to the obligation to tolerate an act or a situation, which is treated as a supply of service under Para 5(e) of Schedule II of the CGST Act.

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