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TMI Blog2018 (10) TMI 1339X X X X Extracts X X X X X X X X Extracts X X X X ..... ms cum consideration in view of the violations on the part of the party violating or defaulting on the Association Agreement. The consideration if any as received by the applicant after arbitration by the ICC would clearly qualify as 'supply' as per Sr. No. 5(e) of Schedule II of the CGST Act. In the present case as per details presented, it was found that there is a clear understanding or agreement between the parties in the present case to foresee and tolerate an act or a situation of default on the part of either of them for a monetary consideration which is actually a consideration received by them, though in the agreement they may be giving this consideration, other names such as 'damages' or 'compensation' as thought proper by them, but these different nomenclatures in their Agreement would in no way change the actual nature of monetary "consideration" which would clearly be taxable for the supply of services as per Sr. No. 5(e) of Schedule II of the CGST Act, 2018. Ruling:- The consideration that may be awarded to the applicant by the ICC would qualify as supply of service as per Section 5(e) of Schedule II of Section 7(1) of the CGST Act as per detailed discussions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST Act / MGST Act would be mentioned as being under the GST Act . 02. FACTS AND CONTENTION - AS PER THE APPLICANT The submission (Brief facts of the case), as reproduced verbatim, could be seen thus - I. Statement of the relevant facts having a bearing on the advance ruling sought by the Applicant 1. The Applicant, North American Coal Corporation India Private Limited ( NACC India ) is a private limited company incorporated under the provisions of the Companies Act, 1956 having its registered office at 1st Floor, Deepgriha, S.No. 50/1/2, Chhaya Society, Bhakti Marg, Off Law College Road, Erandavane, Pune - 411004, India. NACC India has been incorporated to carry on the business of providing technical consultancy relating to coal mining and related activities. 2. The Applicant is a wholly owned subsidiary of the North American Coal Corporation, USA ( NACC US ). NACC US is a company formed under the laws of the State of Delaware ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o an Intellectual Property License and US Service Agreement ( IP Services Agreement ) with NACC US dated 1st April 2011 (Refer Annexure D), for receiving services and a non-exclusive license of Intellectual Right from NACC US. The terms of the IP Services Agreement includes the following scope for the years under consideration: Grant by NACC US to the Applicant of non-exclusive, non-transferable, non assignable, non-sub licensable license to use the Licensed Intellectual property in India in connection with the Applicant's provision of mining services to SPL and any other customer in India. Provision of US based services by NACC US to Applicant that will assist the Applicant in performing its obligations to SPL. 8. As per the Association Agreement, the Sasan Project was divided into three phases as detailed below depending on the stage of development of the mine (i) Pre-Development Phase included the preliminary offsite activities ranging from preliminary data collection and evaluation, development of mine plans to the provision of bidding support and representation for mine plan approval. This phase broadly covered the period from August 2007 to March 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Date and (ii) the amount described in Section 5.1(b). The invoice shall be accompanied by reasonable supporting documentation in respect of any unpaid amounts described in Section 5.1(a). Payment by Reliance shall be due within thirty (30) days of Reliance's receipt of such invoice. (b) Post-Effective Date Services. Within fifteen (15) days after the end of each calendar quarter, NAC shall invoice Reliance for (i) the amounts described in Section 5.1 (a) and (ii) the amounts described in Section 5.2 that were incurred during such quarter (and after the Effective Date). The invoice shall be accompanied by reasonable supporting documentation. Payment shall be due within thirty (30) days of Reliance's receipt of such invoice. (c) Development Phase Fee. Each quarterly installment of Development Phase Fee, together with the Gross-Up Payment, shall be due on the forty-fifth (45th) day of each quarter during the Development Phase. NAC shall invoice Reliance for the U.S. Dollar amount of the applicable Development Phase Fee and the estimated Cross-Up Payment not later than the first (1st) day of the quarter for which the Development Phase Fee is due. (d) Produc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11-May-14 71,235.97 2014/15-004 Interest 23-May-14 Receipt 23-May-14 44,320.42 2014/15-005 Interest 23-May-14 Receipt 23-May-14 212,646 2014/15-007 Interest 01-Ju 1-14 Receipt Ol-Jul-14 14,626.54 2014/15-008 Interest Ol-Jul-14 Receipt Ol-Jul-14 169,050 2014/15-009 Q2 2014 exp. 10-Jul-14 Receipt 10-Jul-14 4,949,343 2014/15-010 Q2 2014 exp. 10-Jul-14 Receipt 10-Jul-14 104,303.95 2014/15-11 Interest 23-Jul-14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce for settlement of all costs incurred prior to the termination date and (b) within twenty (20) days of incurring such costs, additional invoices for (i) the On-Site Costs incurred as a result of the repatriation of the On-Site Consultants and (ii) the On-Site Costs relating to the tax-equalization payments for the On-Site Consultants. Reliance's payments of such invoices shall be subject to the provisions of Sections 5.3 and 5.6. (b) If Reliance terminates this Agreement pursuant to Section 6.2(c), any damages recoverable by Reliance shall be limited to the amount of the Development Fees and/or Production Phase Royalties actually paid by Reliance during the year in which Reliance terminates this Agreement pursuant to Section 6.2(c), in no extent to exceed U.S. $ 1,000,000 in the aggregate. (c) If NAC terminates this Agreement pursuant to Section 6.2(c), Reliance shall pay to NAC, as liquidated damages and not as a penalty or other punitive amount, the amount specified below: If Termination Occurs During: Then the Termination Payment is U.S.: Year 1 of the Development Phase $11 million Year 2 of the Development Phase $13 million Year 3 of the Development Phase $ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... qualization costs identified in Annex C and, if any, on the On-Site Consultants Schedule 13. On May 23, 2014, the Applicant served notice on SPL in accordance with Section 14.1 of the Association agreement for an event of default as defined in Section 8.1 for failure by SPL to make payments as required under Article 5 of the Association Agreement. The notice of default provided SPL with 21 days to cure the default as stipulated in the aforesaid agreement. 14. 0n June 13, 2014, after 21 days lapsed without SPL curing its payment default, the Applicant became entitled to cease provision of services to SPL pursuant to Section 8.1 and the same was done by way of correspondence dated June 19, 2014. The Applicant continued to engage in a good faith dialogue to enable SPL to cure its default and avoid termination of agreement. However, SPL failed to make the due payments and continued the default. 15. Following the completion of 60 days from the notice of default, the Applicant sent a notice for termination of the Association Agreement on July 23, 2014 for continued breach of the terms of the aforesaid Agreement for SPL's failure to pay the Applicant for services it perform ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Indian) Arbitration and Conciliation Act, 7 996, as amended (the Arbitration Act ) shall not apply to the arbitration. The arbitrators shall not award punitive, exemplary, multiple or consequential damages. In connection with the arbitration proceedings, the parties hereby agree to cooperate in good faith with each other and the arbitral tribunal and to use their respective best efforts to respond promptly to any reasonable discovery demand made by such party and the arbitral tribunal. (b) All arbitration proceedings shall be conducted in the English language and the arbitral award (the Award ) shall be rendered no later than six (6) months from the commencement of the arbitration or as otherwise provided by the Rules, unless otherwise extended by the arbitral tribunal for no more than an additional six (6) months for reasons that are just and equitable. (c) Except as otherwise required by Applicable Laws of India, the arbitration proceedings and the Award shall not be made public without the joint consent of each party and each party shall maintain the confidentiality of such proceedings and the Award. (d) Each party shall bear its own arbitration expenses and Rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of the Singrauli District Court dated March 19,2015 before the Hon'ble Madhya Pradesh High Court. The Hon'ble Court delivered its final order on September 11, 2015 dismissing the appeal of SPL by holding that when the parties have agreed to resolve all their disputes by arbitration, they cannot be permitted to avoid arbitration. 21. Aggrieved by the order of the Madhya Pradesh High Court, SPL filed a Special Leave Petition ( SLP ) on September 19, 2015 before the Hon'ble Supreme Court of India against the above mentioned judgement of the Hon'ble Madhya Pradesh High Court which is pending disposal. 22. By way of Order dated August 24, 2016, the Hon'ble Supreme Court disposed of the SLP filed by SPL by ruling that the parties can participate in arbitration proceedings outside India despite being companies incorporated under Companies Act, 1956, in India. 23. Pursuant to the aforesaid Order of the Hon'ble Supreme Court, the parties have initiated the arbitration proceedings before ICC. ICC has fixed the date of hearing in the matter from 3 April 2018 to 8 April 2018. 24. The Applicant mentions that, when the Applicant had approached the Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gard, section 7 of the CGST Act, 2017 defines the term 'supply' and the relevant portion of the same is reproduced hereunder as follows for the sake of brevity: 7. (1) For the purposes of this Act, the expression supply includes (a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business; (b) import of services for a consideration whether or not in the course or furtherance of business, (c) the activities specified in Schedule 1, made or agreed to be made without a consideration; and (d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II. 3. Section 7 of the CGST Act, 2017 defines the term 'supply' to include all forms of supply of goods or services or both and it expressly seeks to include all activities treated as supply of goods or supply of services as referred to schedule II of the CGST Act, 2017. In this regard, clause 5(e) provides that agreeing to the obligation to refrain from an act, or to tolerate act or a situ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der Clause 5(e) of Schedule II to the CGST Act, 2017. The Applicant doesn't agree with such interpretation of the Ld. Sales Tax Officer. The Applicant's submissions in this regard are detailed below. Conditions for levy of GST under Clause 5(e) of Schedule II 8. To qualify as a 'supply of services' as envisaged under clause 5(e) of Schedule II appended to the CGST Act, 2017, the following conditions ought to be satisfied: There should be agreement between parties towards discharging a contractual/agreement-linked obligation by the supplier of service; The obligation should be to either 'refrain from an act' or to 'tolerate an act or a situation': The obligation should be discharged in lieu of certain consideration. 9. In order to examine the provisions under Clause 5(e) of Schedule II to the CGST Act, 2017, it should first be relevant to understand as to what should qualify as an Obligation 10. GST law does not contain any definition of the term Obligation . Therefore, it would be relevant to examine the definition of the said term under other legislations/ judicial pronouncements and understand its dictionary meaning. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... critical to note that there is no clause in the Association Agreement that obligates the Applicant to tolerate the act of default on part of the service recipient, and continue to supply services despite such default. 21. On the contrary, Section 6.2. (c) read with Section 8.1 the Association Agreement provides that the Applicant has a right to determine the contract upon occurrence of any of the specified Events of Default. In fact, upon occurrence of a specified event of Default, the Applicant has actually terminated the Association Agreement. Therefore, any obligation under the contract ceases thereafter for the Applicant. 22. In the instant case, when the Applicant had terminated the Association Agreement, it was relieved from its entire obligations thereunder to supply services to the service recipient. The claim of liquidated damages is an act subsequent to the act of termination of the Association Agreement. 23. Had there been any tolerance of an act or a situation by the Applicant in the instant case when the service recipient default in making payments, the Applicant would have continued to provide its services despite a default by the service recipient. The Appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or because of a lessee's default cannot qualify as consideration as the payments made i) are damages for the loss suffered by the Applicant and ii) have no nexus with any identified supply. The payment of liquidated damages by the service recipient is made as a consequence of a breach leading to termination and is not a fee or remuneration for any obligation or tolerance undertaken by the Applicant. 33. The nature of damages claimed on termination of a contract was examined by the Apex Court in Maharashtra State Electricity Distribution Company v. Datar Switchgear Limited Others, (2018) 3 SCC133. The principle laid down by the Court is that the injured party should be placed as good a situation as if the contract had been performed. In other words, it is to provide to damages for pecuniary loss, which naturally flows from the breach. The Court placed its reliance on an earlier decision of the Apex Court in Union of India v. Sugauli Sugar Works (P) Ltd v., (1976) 3 SCC 32: Once it is established that the party was justified in terminating the contract on account of fundamental breach thereof, then the said innocent party is entitled to claim damages for the entire contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur view, in order to render a transaction liable for service tax, the nexus between the consideration agreed and the services activity to be undertaken should be direct and clear. Unless, it can be established that a specific amount has been agreed upon as a quid pro quo for undertaking any particular activity by a partner, it cannot be assumed that there was a consideration agreed upon for any specific activity so as to constitute a service. In a JaipurJewellery Show v. CCE ST, jaipur-1, 2017 (49) STR 313 (TRI), dealing with service tax liability on cancellation charges the Hon'ble Tribunal held as follows: 6 .......... that the same are being retained, as regards the cancellation charges, we note by the appellant from the initial amounts given to them for booking a booth, when the same is subsequently cancelled by the customer and the amount is refunded to them. Admitted position, which emerges is, that no booths are ultimately rented out by the appellant to their customers. As explained, such cancellation charges are for putting the appellant into inconvenience by initially booking the booths and subsequently cancelled. Inasmuch as no service stand provided by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of penalty of liquidated damages which is not a service and hence cannot be made liable for tax during the period involved.. 35. Further, it is important to keep in mind that the sum received by the Applicant is liquidated damages for the loss suffered by it as a result of premature termination of the contract. Recovery and payment of liquidated damages is a post termination event having no connection with the main supply of provision of technical know-how. Since the Applicant is wronged by the service recipient's default in performing its obligations under the contract, liquidated damages is recovered by the Applicant to make goods the loss suffered by it and the said amount, it is re-iterated is not towards provision of any service. 36. On application of the above definitions and the above case laws to the Applicant's case, it is submitted that the flow of money from the service recipient is not for any provision of supply of service of tolerating any default in payment by the service recipient. 37. Instead, the claim of liquidated damages is against the loss suffered by the Applicant on account of the default committed by the service recipient. Any payment rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight to terminate early arising out of a default by the lessess the termination does not occur as a consequence of any mutual agreement between the lessor and the lessee. It is the action of the lessor in exercising the lessor's right to terminate which brings the lease to an end. 71. The lease may require payment to be made by the lessee to the lessor to compensate the lessor for any damage or loss suffered because of the early termination. Genuine damage or loss cannot be characterized as a supply made by the lessor, because the damage or loss does not in itself constitute a supply under section 9-10. 72. A payment received to compensate the lessor for genuine damage or loss flowing from early termination as a result of a default by the lessee is not consideration for a supply....... There is no taxable supply because a payment for genuine damages, which is not consideration for any earlier or current supply, is not made in connection with any supply........... Financial and General Print Ltd. v. Commissioner of Customs and Excise, (1995) VAT Dec. No. 13795 :- The case involved early termination of an agreement and payment of certain damages amount by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... result, where the rulings in aforesaid foreign rulings cited by the Applicant shed sufficient light on the taxability of damages in the context of the expression 'tolerate an act', such rulings ought to be taken into consideration before deciding the issue at hand before this Authority considering the fact that the expression examined by the foreign authorities in the decisions relied upon by the applicant exactly the same as the expression used under the GST law. 42. The aforesaid ruling of the ATO specifically considered and decided on taxability of damages in the context of the expression 'tolerating an act'. Such a ruling, therefore, ought not to be disregarded without sufficient reasons for doing so. Likewise, the decision in case of Financial and General Print Ltd (supra) holds sufficient persuasive value and ought not to be disregarded without providing explicit and sufficient reasons. Mere inclusion of specific clause for payment of damages and quantification thereof should not change the nature of transaction to transform a lawful right of termination into an 'obligation to tolerate' 43 . It is a business prudence that contracting parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g on the nature of the transaction. Even in the instant case, it may so happen, that the arbitral tribunal may alter the amount of liquidated damages claimed. 48. It is submitted that, in principle, there is no qualitative difference in a claim of liquidated damages and a claim of unliquidated damages as there would be arbitral proceedings (in lieu of long-drawn court proceedings) between the parties to adjudicate and assess the amount of liquidated damages payable to the Applicant and the Applicant would still be required to adduce adequate proof of the loss suffered as the requirement of proving the loss suffered by the applicant is not dispensed with' by merely incorporating a clause with liquidated damages. 49. The aforesaid argument of the Applicant has sufficient backing under Indian law and had been constantly apperciated by Indian Courts. Amongst others, the Supreme Court, appreciating the aforesaid aspect, observed as below in Union of India v. Raman Iron Foundry and Ors., (1974) 2 SCC 231: 'Now it is true that the damages which are claimed are liquidated damages under clause 14, but so far as the law in India is concerned, there is no qualitative diffe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eement entered into by the parties cannot be construed to cast an obligation on the Applicant to tolerate an illegal act or situation as the same would have the effect of rendering the said agreement unenforceable. 53. It is re-iterated that the damages claimed by the Applicant are for the loss/injury suffered by it on account of an illegal act of the service recipient. When the service recipient fails to pay the service provider in time as required under the Association Agreement, the Applicant is put to irreparable loss/injury as a result of such non-payment. Comments on submissions made by the jurisdictional officer: 54. The jurisdictional officer had opined in its written submissions that non-performance of a contract is an activity or transaction which is treated as supply of service and the person is deemed to have received the consideration in the form of liquidated damages and is accordingly required to pay tax on such amount. 55. In this regard, the Applicant submits that mere non-performance of a contract by the service recipient would not trigger the levy of GST on liquidated damages paid by the service recipient. The jurisdictional officer had not apprec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilar views in respect of the valuation of the liquidated damages, observing that the value of supply of services will be determined based on the actual receipt of the liquidated damages by the applicant. 62. Without prejudice our submissions on applicability of GST on liquidated damages, it is highlighted that the comment of the jurisdictional officer are in line with the observations of the Apex Court in Union of India v. Raman Iron Foundation and Ors., (1974) 2 SCC 231, where the Hon'ble Apex Court observed as below: Now it is true that the damages which are claimed are liquidated damages under clause 14, but so far as the law in India is concerned, there is no qualitative difference in the nature of the claim whether it be for liquidated damages or for unliquidated damages..........It, therefore, makes no difference in the present case that the claim of the Appellant is for liquidated damages. It stands on the same footing as a claim for unliquidated damages. Noiv the law is well settled that a claim for unliquidated damages does not give rise to a debt until the liability is adjudicated and damages assessed by a decree or order of a Court or other adjudicatory auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fines the term supply and the relevant portion of the same is reproduced hereunder as follows: 7. (1) For the purposes of this Act, the expression supply includes,- (a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business; (b) import of services for a consideration whether or not in the course or furtherance of business; (c) the activities specified in Schedule I, made or agreed to be made without a consideration; and (d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II. (emphasis supplied) 31. Section 7 of the CGST Act, 2017 defines the term supply to include all forms of supply of goods or services or both. Also, it expressly seeks to include all activities treated as supply of goods or supply of services as referred to in Schedule II of the CGST Act, 2017. In this regard, Clause 5 of Schedule II provides for the list of activities that shall be treated as supply of services. Inter alia, Clause 5(e) of the Act provides th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that any claim and subsequent receipt for liquidated ,damages preferred by the Applicant against SPL should not qualify as a 'supply of service performed by one person for another for a consideration. Accordingly, it should not qualify as supply of service for the purpose of levy of GST. 38 It is further submitted that section 7 of the CGST Act, 2017 specifically includes within its ambit activities which are deemed to be treated as supply of services under Schedule II of the CGST Act, 2017. Inter alia, clause 5(e) of Schedule II of the CGST Act, 2017 is the relevant clause for the purpose of the instant application. 39. It is submitted that for a transaction to be covered under the list of clause 5(e) of Schedule II as agreeing to the obligation to tolerate an act, there has to be a concurrence to assume an obligation to refrain from an act or tolerate an act or a situation etc. In the absence of such an obligation between the parties, it is submitted that the said clause cannot be invoked and there can be no levy of GST. 40. It is submitted that the claim of liquidated damages is made towards making good the damages, losses or injuries arising from unintended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of time when the GST liability shall be triggered do not arise. 47. The Applicant, therefore, humbly submits that, although the arbitration proceedings will commence in the month of April 2018, the award by ICC may be pronounced only in later part of this year or early months of next year. Hence, even if the liquidated damages were held to be liable to GST, the question with regard to the value exigible to GST and the time of supply can only be ascertained once the Applicant's eligibility to receive the liquidated damages attains finality before the appellate forum/ Court of law. PRAYER In the light of the above, it is prayed that the Hon'ble Authority may be pleased to rule that: A. Liquidated damages which may be awarded by ICC shall not qualify as 'supply of any goods or services and hence would not be exigible to the levy of GST; and B. Since liquidated damages are not exigible to the levy of GST, the questions regarding valuation of supply and point of time of supply for the purpose of levy of GST do not arise. C. Pass any other order your good self may deem fit in the interests of justice. 03. CONTENTION - AS PER THE CONCERNED OFFICER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds and Services Tax Act 2017 (CGST 2017) defines time of supply of services shall be the earliest of the following dates. a) The date of issue of invoice by the supplier, if the invoice is issued within the period prescribed under sub-section (2) of section 31 or the date of receipt of payment, whichever is earlier: or b) the date of provision of service, if the invoice is not issued within the period prescribed under sub-section (2) of section 31 or the date of receipt of payment whichever is earlier, or The date on which the recipient shows the receipt of services in his books of account, in case where the provisions of clauses (a) and (b) do not apply. Prescribed time for issue of invoice: Sec 31(2) A registered person supplying taxable services shall, before or after the provision of service but within a prescribed period, issue a tax invoice, showing the description, value, tax charged thereon and such other particulars as may be prescribed. As per Rule 47 of CGST Rules 2017 the invoice referred to in rule 46, in the case of the taxable supply of services, invoice shall be issued within a period of thirty days from the date of the supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Advocate, Sh Amit Bhagat Advocate and Sh. Aditya Khanna, Advocate appeared and made request for admission of ARA application as per their written and oral submissions. They specifically point out that they had earlier approached Service Tax Advance Ruling Authority at Delhi and the authority had rejected their application as premature at that time. They stated that presently also final arbitration award is awaited by October, 2018 only. From the company's side Sh. Hans Weber Sr. Tax Director appeared. Jurisdictional Officer, Ms. V. M. Wadkute, State Tax Officer (PUN-VAT-C-118) Pune appeared and made written submissions. The application was admitted and final hearing was held on 03.07.2018 , Sh. N. Venkatraman Sr. Advocate alongwith Sh. Govardhan Purohit, Advocate, Sh Amit Bhagat Advocate and Sh. Aditya Khanna, Advocate, Sh. Prashant Agarwal and Sh. They appeared and made oral written submissions. They also requested for time to make further submissions latest by 10.07.2018 which was granted. The jurisdictional officer, Ms. V. M. Wadkute, State Tax Officer (PUN-VAT-C-118) Pune appeared and made written submissions. 05. OBSERVATIONS We have perused the records on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were filed by the applicant and SPL against each other and it was finally ordered by the Hon'ble Supreme Court that the parties could participate in arbitration proceedings outside India despite being companies incorporated under the Companies Act, 1956, in India. The applicant further stated that accordingly the applicant and SPL have initiated arbitration proceedings before the International Chamber of Commerce (ICC) which are pending finalization. We find that in view of the above details, the applicant has raised three questions for decision of this authority which are as under:- 1. Whether liquidated damages that may be awarded to the Applicant by the International Chamber of Commerce ( ICC ) qualifies as a 'supply' under the Goods and Services Tax ( GST ) law, thereby attracting the levy of GST ? 2. If the answer to Question No. 1 is in the affirmative, what should be the time of supply, that is to say, the point of time in which NACC's liability to pay GST arises ? 4. If the answer to Question No. 1 is in the affirmative, what should be the value of supply on which GST is payable, that is to say, whether the Applicant is liable to pay GS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he submissions and contentions portion of their application referred above. We find that in view of the above detailed facts and contentions of the case, we need to examine the issue at hand as under:- We find that as per Section 9(1) of the CGST Act regarding levy and collection Section 9(1) --- Subject to the provisions of sub-section 2 there shall be levied a tax called the Central Goods and Services Tax on all Intrastate supplies of goods or services or both except on the supply of Alcoholic Liquor for human consumption, on the value determined under Section 15, at such rates not exceeding twenty percent, as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by taxable person. From the above we find that CGST is leviable on Intra-State supplies of goods or services or both. We find that Section 7 of the CGST Act gives scope of 'supply'. Section 7 of the CGST Act reads as under:- 7. (1) For the purposes of this Act, the expression supply includes- (a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, renta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal (i) made or agreed to be made for a consideration by a person (ii) in the course or furtherance of business. Apart from the above provisions we also need to refer to Sr. No. 5(e) of Schedule II as given in Section 7(1)(d) of the CGST Act which is regarding the activities to be treated as supply of goods or supply of services. We find that Sr. No. 5(e) of Schedule II states that the following shall be treated as supply of services, namely:- (e) Agreeing to the obligation to refrain from an Act or to tolerate an Act or a situation or to do an act. Thus in view of the provisions as above we are required to examine the facts of the present case and details of the Association Agreement as submitted, to ascertain whether tax liability would be there or not on the applicant in context of detailed transactions/acts presented before us. We find that first of all there was an Association Agreement first between NACC, US and SPL with effect from 1st January, 2009 and with effect from March, 2011, the rights and obligations of NACC, US as per the original Associ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Termination (a) Upon termination of this Agreement for any reason, NAC shall furnish to Reliance (a) within sixty (60) days after the effective date of termination, an initial invoice for settlement of all costs incurred prior to the termination date and (b) within twenty (20) days of incurring such costs, additional invoices for (i) the On-Site Costs incurred as a result of the repatriation of the On-Site Consultants and (ii) the On-Site Costs relating to the tax-equalization payments for the On-Site Consultants. Reliance's payments of such invoices shall be subject to the provisions of Sections 5.3 and 5.6. (b) If Reliance terminates this Agreement pursuant to Section 6.2(c), any damages recoverable by Reliance shall be limited to the amount of the Development Fees and/or Production Phase Royalties actually paid by Reliance during the year in which Reliance terminates this Agreement pursuant to Section 6.2(c), in no event to exceed U.S. $1,000,000 in the aggregate. (c) If NAC terminates this Agreement pursuant to Section 6.2(c), Reliance shall pay to NAC, as liquidated damages and not as a penalty or other punitive amount, the amount specified below: If ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inate this Agreement. Reliance shall not be responsible for the On-Site Costs during the period of default and prior to the termination of this Agreement, other than the repatriation and tax equalization costs identified in Annex C and, if any, on the On-Site Consultants Schedule Further, in view of default as above we find that Article XII of the Association Agreement clearly provides for Governing law and dispute resolutions as under:- Section 12.1 - Governing Law : This agreement shall be governed by, and construed and interpreted in accordance with, the laws of the United Kingdom with regard to its conflicts of laws principles Section 12.2 Dispute Resolution: Arbitration (a) Any and all claims, disputes, questions or controversies involving Reliance on the one hand and NAC on the other hand arising out of or in connection with this Agreement (collectively, Disputes ) which cannot be finally resolved by such parties within 60 (sixty) days of arising by amicable negotiation shall be resolved by final and binding arbitration to be administered by the International Chamber of Commerce (the ICC ) in accordance with its commercial arbitration rules then in effec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly payable in (i) U.S. Dollars if payable to NAC or (ii) Rupees if paid to Reliance net of any tax or other deduction. The Award shall include interest from the date of any breach or other violation of this Agreement and the rate of such interest shall be specified by the arbitral tribunal and shall be calculated from the date of any such breach or other violation to the date when the Award is paid in full. (e) All notices and other communications by any party to the other party or by the arbitral tribunal to any disputing party in connection with the arbitration hereunder shall be in accordance with the provisions of Section 14.1. (f) Each of the Parties expressly understands and agrees that the Award shall be the final and binding remedy between them regarding any and all Disputes presented to the arbitral tribunal. Thus we find clearly from the terms and conditions as referred above in respect of Article VI, Article VIII, and Article XII of the Association Agreement as refereed above that as per the terms and conditions of the agreement referred above there was clearly an agreement between the applicant and SPL to tolerate an act or situation in case such act was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese different nomenclatures in their Agreement would in no way change the actual nature of monetary consideration which would clearly be taxable for the supply of services as per Sr. No. 5(e) of Schedule II of the CGST Act, 2018. Further we find that the case laws relied upon by them are not relevant in respect of the present facts of the case and Association Agreement as submitted in respect of the present case and therefore cannot be considered. Now we take one by one the questions posed by the applicant before this authority 1. Whether liquidated damages that may be awarded to the Applicant by the International Chamber of Commerce ( ICC ) qualifies as a 'supply' under the Goods and Services Tax ( GST ) law, thereby attracting the levy of GST ? Answer The consideration that may be awarded to the applicant by the ICC would qualify as supply of service as per Section 5(e) of Schedule II of Section 7(1) of the CGST Act as per detailed discussions above in this regard. 2. If the answer to Question No. 1 is in the affirmative, what should be the time of supply, that is to say, the point of time in which NACC's liability to pay GST arises ? Answer The pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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