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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 ..... supply, that is to say, the point of time in which NACC's liability to pay GST arises ? 3. 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 GST on amount of liquidated damages claimed and awarded to the Applicant under the arbitral award or the amount which is actually received by the Applicant after conclusion of the matter before the final Appellate authority. At the outset, we would like to make it clear that the provisions of both the CGST Act and the GST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, 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 beari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ert teams from the United States of America. 5. The Association Agreement was first amended vide the First amendment to Association Agreement dated September 30, 2009 for amending the payment mechanics thereunder (Refer Annexure B). 6. Subsequently, in March 2011, NACC US incorporated a subsidiary, NACC India, being the Applicant, and through the Assignment and Assumption Agreement, Consent, and Second Amendment to the Association Agreement dated April 1, 2011 (Refer Annexure C), the rights and obligations of NACC US as per the original Association Agreement were transferred and assigned to the Applicant, with the consent of SPL. 7. Further, the Applicant has entered into 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 wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate of seven million tonnes per year for such thirty days. As per the Association Agreement, SPL was required to pay a production phase royalty of an amount equivalent to higher of a) USD 250,000 per annum or b) USD 0.1125 for each ton of coal produced from the mine each quarter. 9. In terms of the Association Agreement, SPL was obligated to remunerate NACC US/Applicant in the following manner: "Section 5.4 Automatic Payments/Invoicing. (a) Pre-Effective Date U.S. Services. Within five (5) days after the Effective Date, NAC shall invoice Reliance for (i) any unpaid amounts described in Section 5.7 (a) that were incurred prior to the Effective 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 qua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest 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 Receipt 23-Jul-14 8,227.81 2014/15-12 Interest 23-Jul-14 Receipt 23-Jul-14 95,095 2014/15-13 Q3 2014 Dev Fee upto July 23, 2014 23-Jul-14 Receipt Z3-Jul-14 78,900.59 Total Amounts due 1,259,310.16 17,087,113 11. The Applicant has charged Service tax on the invoices raised by it for the services rendered under the Association agreement and has also duly deposited the same with the Government exchequer even for the invoices where the payment has not been received from SPL. 12. In compliance with the procedures set out in the Association Agreement, the Applicant repeatedly expressed serious concerns over non-payment of aforementioned invoices. Despite several ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent Phase $13 million Year 3 of the Development Phase $15 million Year 4 or later of the Development $17 million phase Any year in the production phase $17 million, less the aggregate amount of the Production Phase Royalties received by NAC prior to the termination date" ARTICLE VIII EVENTS OF DEFAULT Section 8.1 Default by Reliance. If Reliance shall at any time be in breach of its (a) payment obligations, (b) other obligations pursuant to this Agreement, including failure to provide reasonable access to the Mine, the Preparation Plant or any Mining Project that are relevant to the duties and obligations of NAC hereunder and the failure to timely provide presentations in section 13.2(1, NAC may give written notice of such default to Reliance, in which case Reliance shall have twenty-one (21) days within which to cure the default. If, at the end of the twenty-one (21) day period, Reliance has not cured the default NAC shall have the right, (i) if the default is of the type described in subclause (a) above, to immediately cease providing the Services until such time as the event of default is cured, (ii) if the default is of the type described in subclause (b) above, to cease pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cant for services it performed for the period after October 1, 2013 in terms of default mentioned in section 8.1 (a) of Article VIII of the Association Agreement. 16. The termination affected by the Applicant under the terms of Association Agreement resulted in the Applicant claiming from SPL the past due and amounting to USD 1,259,310 for development fee and INR 17,087,113 for reimbursement of expenses (including interest thereon) and of liquidated damages to the tune of USD 17 million as per Section 6.3 of the Association Agreement. A copy of the said notice for termination of the Association Agreement is attached as Annexure E. 17.Upon SPL's refusal to pay the aforesaid claims due to Applicant under the Association Agreement, the Applicant filed a request for arbitration on August 8, 2014 with the International Chamber of Commerce (ICC) in London pursuant to the dispute resolution terms/procedure set out in section 12.2 of the Association Agreement. The relevant section of the Association Agreement is reproduced below "Section 12.2 Dispute Resolution: Arbitration (a) Any and all claims, disputes, questions or controversies involving Reliance on the one hand and NAC on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Reliance on the one hand, and NAC, on the other hand, shall pay one-half of the ICCs and the chairperson's fees and expenses, unless the arbitrators determine that it would be equitable if all or a portion of the prevailing party's expenses should be borne by the other party. Unless the Award provides for nonmonetary remedies, any such Award shall be made and shall be promptly 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 ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for Advance Ruling ("Authority") that functioned under the erstwhile service tax regime, the Authority had rejected the Application of the Applicant vide its Ruling dated 6 May 2017 observing, inter alia, as follows: * The question of whether or not the Applicant ought to pay service tax on liquidated damages is not liable to be entertained as it is not certain today whether the liquidated damages would be granted at all in the arbitration proceedings. * The question posed to Authority is not a valid question since it depends on uncertain event of the Applicant succeeding in arbitration proceedings. * It may happen that after the Authority gives its ruling, the Applicant may eventually fail in its attempt to earn liquidated damages. * In view of the uncertainty of the event, it would not give a finding on an event that had not occurred as yet. A copy of the Ruling dated 6 May 2016 of the Authority is annexed herewith as Annexure F. 25. The Applicant humbly submits that the above order of the Authority should not, in any manner, whatsoever, stand in Applicant's way of approaching your good self yet again as there is no bar prescribed in this regard under the GST law an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The relevant portion in Sch II is as below: SCHEDULE II (Section 7) 5. Supply of services The following shall be treated as supply of services, namely:- (a) ........... (b).............. (e) Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; and " 4. Detailed submissions in respect of the aforesaid are presented below. Applicant's obligation under the Association Agreement doesn't constitute as supply of service: 5. As submitted in its application, the Applicant would like to reiterate that the claim of liquidated damages doesn't qualify as a 'service' itself, as it lacks the element of reciprocity which forms sine qua non for a transaction to qualify as a service. Therefore, there is no question of the claim of liquidated damages leading to any 'supply of service.' 6. Without prejudice to the aforesaid, even if one were to argue that the claim of liquidated damages amounts to a 'service', such claim cannot be regarded as being in the course or furtherance of business. The termination of the Association Agreement puts an end to the business of the relationship of the Applicant with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Definitions. (a) "Obligation" includes every duty enforceable by law; 12. The Andhra Pradesh High Court in case of Hyderabad Stock Exchange Ltd vs Rangnath Rathi & CO (AIR (1958) AP 431 has held that 'An obligation is a tie or a bond which constraints a person to do or suffer something'. 13. As per the Black's law dictionary, the term "Obligation" has been defined as: "A legal or a moral duty to do or not do something." 14. As per Wharton's law lexicon, the term "Obligation" has been defined as: "An act, which binds a person to some performance; or for the performance of a covenant etc." 15. From conjoint reading of the previously mentioned definitions, it is clear that an "Obligation" is imposition of duty to perform an agreed act or a covenant, which is enforceable under law 16. The occurrence of the term 'obligation' under Clause 5(e) of Schedule II of the CGST Act, 2017, mandates that the tolerance must be of an act or a situation and such tolerance must be enforceable. 17. Based on the terms of the Association Agreement, it is clear that the "Obligation" on part of the Applicant is to provide technological know-how to the service recipient base ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ought liquidated damages only because there is no tolerance on its part of the breach effected by the service recipient. Liquidated Damages received for breach/termination of contract cannot qualify as 'consideration' 30. Under the GST law, the term consideration has been defined under Section 2(31) of the Central Goods Service Tax Act, 2017, as follows: " (31). "consideration" in relation to the supply of goods or services or both includes ,- (a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government; (b) the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government: Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was settled law that mere flow of money cannot be subject matter of service tax and consideration/money should have 'nexus' with an identified supply of service. It was also equally settled that payment for damages made were not for any provision of service and were instead were made to make good the loss suffered. Reference is invited by the Applicant to the following case laws: * In the case of Cricket Club of India v. Commissioner of Service Tax [(2015) (40) STR 973], the Hon'ble CESTAT (Mumbai Bench), observed as under: "11.................... Consideration is undoubtedly, an essential ingredient of all economic transactions and it is certainly consideration that forms the basis for computation of service tax. However, existence of consideration cannot be presumed in every money flow. The factual matrix of the existence of a monetary flow combined with convergence of two entities for such flow cannot be moulded by tax authorities into a taxable event without identifying the specific activity that links the provider to the recipient. 12. Unless the existence of provision of a service can be established, the question of taxing an attendant monetary transaction wil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oviding business exhibition services. The same are thus not liable to service tax," "In Reliance Life Insurance Company Ltd. v. Commissioner of Service Tax, Mumbai ll, Appeal No. ST/85584/2015, the Hon'ble Mumbai Tribunal had dealt with the question of payment of service tax on surrender or partial withdrawal charges under the category of 'Management of Investment under ULIP services' for the period 01.04.2009 to 30.06.2012. These charges were collected by the assessee when a policy holder dilutes the policy completely or partially and had no nexus with the provision of main service of management of funds. In these circumstances, the Hon'ble Mumbai Tribunal held that there cannot be any levy of service on the surrender and partial withdrawal charges collected by the assessee as such charges i) cannot be considered as charges towards provision of services of management of an investment, ii) are in the nature of penalty or liquidated damages and iii) ULIP is primarily a contract between the insurer and the insured and when seen in the context of sections 73 and 74 of the Indian Contract Act, 1972, surrender of policy is nothing but ending of contract for which damage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the payment for genuine damages is no consideration for any earlier or current supply. 38. The submission of the Applicant that damages received by it is not consideration for any supply is also substantiated from the following foreign case laws dealing with similar issues and having provisions with identical language: * In GSTR 2003-2011, the Australian Taxation Office (ATO) had to consider the applicability of GST on payments made on an early termination of a lease of goods by a lessor on account of a lessee's default. Under the Australian GST law, section 9-5 provides that a taxable supply is made if a) the supply is for a consideration, ii) the supply is made in the course of furtherance of an enterprise that one carries on, iii) the supply is connected with Australia and iv) the person making the supply is registered or required to be registered. * As for the definition of the term 'supply, section 9(10) (2) of the Australian GST law provided a non-exhaustive list of activities or occurrences that are included the meaning of supply. The list included supply of goods and an entry into, or release from, an obligation i) to do anything, ii) to refrain from an act, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entire transaction' the position is this. While the lease is running, the lessee provides consideration in the form of rent for the quarter and in return the lessor supplies or continues to supply possession of the equipment. If the lessee fails to pay his quarter's rent (or commits any other act of' default'...) the lease may be terminated and the lessor may recoup possession. If So, the lessor's obligation to provide the service is spent and any termination payment compensates the lessor for the latter's loss of opportunity to provide that service ... the lessor's termination of the lease was not a supply of services. It was simply a unilateral act of the lessor. It terminated the lease and so terminated all further supplies of the services of granting possession of the equipment to the lessee ... There was no relevant service to which the compensation payment could be directly linked. The termination cannot, therefore, be properly described as a supply of services effected for consideration ...". 39. From the terms of the agreement, is evident that there is no obligation cast upon the Applicant to tolerate the act of breach of the contract and rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inst loss/injury. These clauses act as a deterrence against breach of terms by the other party. 44. Mere fact that such a clause is included in the contract for protection of the aggrieved party would not result in creation of an obligation to tolerate a breach of the agreement. On the contrary, it gives the aggrieved party a right to suel enforce the terms and claim damages. 45. Similarly, mere quantification of liquidated damages payable to the service provider on termination of the Association Agreement should not, and would not, alter the nature of transaction and transform into a supply of a service in as much as what is paid to the service provider is nothing but damages for the loss/injury suffered. 46. The Applicant exercised its right/entitlement to terminate the Association Agreement on account of the service recipient's default in complying with its obligations to make payment to the Applicant for services rendered. Due to such default by the service recipient, the Applicant has suffered an injury/ loss. The Indian law recognises the Applicant's right to be compensated for such injury/ loss. To safeguard Applicant's interest under the Association Agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 authority. When there is a breach of contract, the party who commits the breach does not eo instanti incur any pecuniary obligation, nor does the party complaining of the breach becomes entitled to a debt due from the other party. The only right which the party aggrieved by the breach of the contract has is the right to sue for damages. That is not an actionable claim and this position is made amply clear by the amendment in section 6(e) of the Transfer of Property Act, which provides that a mere right to sue for damages cannot be transferred". 50. Based on the above, it is clear that the Applicant's right to receive liquidated damages is not guaranteed and crystallized by a mere reference to the payment of liquidated damages in the contract. The receipt of liquidated damages is dependent on the finality of the proceedings before the highest appellate forum. 51. The Applicant receives damages to make good its injury even it approaches any court of law in ordinary course and the mere fact that the App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plicant submits that there is no agreement to discharge an obligation for tolerating any act of default by the service recipient between the parties. The payment of liquidated damages is nothing but damages for the loss suffered by the Applicant and the same does not qualify as 'consideration' for the purpose of GST law. 57. Unless it is demonstrated that there is an obligation under the agreement to refrain from an act or tolerate an act or a situation and this obligation is coupled with the presence of consideration, there can be no levy of GST. In any event, the Applicant submits that payment of LD to the Applicant for a default on the part of the service recipient cannot qualify as consideration for the purpose of the levy of GST. Time of Supply and valuation of the liquidated damages for the purpose of payment of GST 58. Even assuming arguendo that GST is payable on liquidated damages claimed by the Applicant, the Applicant submits that no GST is payable on liquidated damages unless the same is actually received by the Applicant once the arbitral award attains finality. 59. This view of the Applicant is supported by the jurisdictional officer who observed in its wr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim and this position is made amply clear by the amendment in section 6(e) of the Transfer of Property Act, which provides that a mere right to sue for damages cannot be transferred". 63. In light of the above observations, it is clear that the question for time of supply and valuation cannot arise for adjudication till the claim of liquidated damages is finally adjudicated in the favor of the Applicant by the highest appellate forum and the Applicant actually receives the liquidated damages. Statement containing the applicant's interpretation of law and/or facts, as the case may be, in respect of the questions(s) on which advance ruling is required Statement containing the applicant's interpretation of law and/or facts, as the case may be, in respect of the aforesaid question(s) (i.e. applicant's view point and submissions on issues on which the advance ruling is sought): The position of law and our understanding of the same 28.lt is important to note various statutory provisions which have a bearing on the questions raised for the Advance Ruling in the present Application. The relevant statutory provisions are extracted hereunder for the ready reference of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om an act, or to tolerate an act or a situation, or to do an act; and " 32. Further, although there is no comprehensive definition of the term "service" (as it existed under the erstwhile service tax regime), the term "service" is defined as follows under section 2(102) of the CGST Act, 2017: "services means anything other than goods, money and securities but includes activities relating to the use of money or conversion by cash or by any other mode, from one form, currency or denomination, to another form currency or denomination for which a separate consideration is charged." 33. A plain reading of the aforesaid provisions indicate that for a transaction to qualify as a supply of service', it is necessary there is an underlying 'activity performed by one person for another for consideration. 34. In order to qualify as a 'supply of service for a consideration there has to be a service provider and a service recipient who have agreed to perform/receive specified services. The contract/agreement should involve contractual reciprocity. 35. For an activity to qualify as a 'service', the same has to be performed at the behest of the service recipient. An act do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s' amongst the parties 'to tolerate an act or a situation. 42. In the case at hand, it is submitted that there is no obligation on part of the Applicant to tolerate any breach of payment obligations by SPL. The liquidated damages contemplated under the Association Agreement were incorporated to safeguard the interest of the Applicant against an adverse contingency which may or may not occur. 43. Considering the aforesaid factual matrix and legal position, as explained above: * The liquidated damages claimed by the Applicant are not in lieu of any activity/obligation which it has agreed to perform at the behest of the service recipient. Such liquidated damages are claimable on account of breach of contract (default in payment obligation) by SPL. The Applicant cannot be considered to have performed any activity for a consideration for SPL with regard to liquidated damages claimed. * Also, there is no contractual reciprocity or concurrence to assume an obligation to refrain from an act or tolerate an act between the Applicant and SPL, which are indispensable and essential for a transaction to qualify as a "supply of service'. * Accordingly, the transaction in quest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, that is to say, the point of time in which NACC's liability to pay GST arise? If the answer to the question No. 1 is in affirmative, what should be the value of supply on which GST is payable, that is to say, whether the applicant is liable to pay GST on the amount of liquidated damages claimed and awarded to the applicant under the arbitral award or the amount which is actually received by the applicant after conclusion of the matter before the final appellate authority?. Classification of service Chapter /Section /Heading Description of Service CGST Rate (%) SGST/UTGST Rate (%) IGST Rate (%) Condition Heading 9997 Other services (washing, cleaning and dyeing services; beauty and physical well-being services; and other miscellaneous services including services nowhere else classified). 9 9 18 - 1. Scope of Supply : Section 7 of the Central Goods and Services Tax Act 2017 (CGST 2017) defines scope of supply. As per Section 7(1) (d) the activities to be treated as a supply of good or supply of services as referred in the sch. 2 As per schedule 2 para 5 clause (e) "agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... odical return has to be filed, be the date on which such return is to be filed; or (b) in any other case, be the date on which the tax is paid. 3) Value of Supply: As per sub-section 4 of section 15 the value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply. Or As per Rule 30 of CGST Rules 2017 Where the value of a supply of goods or services or both is not determinable by any of the preceding rules of this Chapter IV, the value shall be one hundred and ten percent of the cost of production or manufacture or the cost of acquisition of such goods or the cost of provision of such services. NACC India issued an invoice Dt. 23rd July 2014 amounting 17 million USD to SPL for liquidated damages. The decision on dispute regarding liquidated damages is pending before ICC, London. Invoice date is before the effective date of GST Act 2017. As per Arbitration clause of Association Agreement decision of ICC, London is final & binding remedy between the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iation Agreement as referred above is effective from 1st January, 2009 in order to provide technical know how to SPL in relation to mine development and operations. We further find that later on in March, 2011, NACC, US incorporated a subsidiary, NACC, India and the rights and obligations of NACC, US as per the original Association Agreement were transferred and assigned to the applicant with the consent of SPL. The Sasan Project as per the Association Agreement was divided into three phases being, (1) Predevelopment phase, (2) Development phase and (3) Production phase. The details of terms and conditions of the agreement during these phases are as mentioned at relevant places in the Applicant's submission above. We find that NACC, US in the initial phase and later NACC, India had rendered significant services to SPL as per terms and conditions of Association Agreement referred above. However it is alleged by the applicant that after some time SPL curtailed the activities of the applicant and engaged its Inhouse Consultants. The applicant further states that the last invoice against which, payment was made by SPL to the applicant pertained to the period up to September, 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such claim cannot be regarded as being in course or furtherance of business. The termination of the Association Agreement puts an end to the business relationship of the applicant with the service recipient. It results in complete and absolute cessation of the business of the applicant and not its furtherance. That the act of termination cannot be called in course of any business as the usage of the term 'in course' indicates continuity' of an activity. (III) Thirdly they have contended that the situation in view of the facts of the present case would not get covered under clause 5 (e) of Schedule II of the CGST Act, as there is no obligation to refrain from an act or to tolerate an act or a situation or to do an act. (IV) Fourthly, they have contended that liquidated damages received for breach/termination of a contract cannot qualify as consideration, stating that liquidated damages paid by the service recipient is neither in respect of nor in response to any supply made by the applicant, instead it is paid to make good, loss/injury suffered by the applicant as a result of premature termination of the Association Agreement. (V) They stated that mere inclusion of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of sub-sections (1) and (2), the Government may, on the recommendations of the Council, specify, by notification, the transactions that are to be treated as - (a) a supply of goods and not as a supply of services; or (b) a supply of services and not as a supply of goods. We find that Section 7(1) provides that 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 the (d) activities to be treated as supply of goods or supply of services as referred to in Schedule. Where the word 'include' is of specific importance which implies that all the activities that are given in Section 7 (1) (a), (b), (c), and (d) would be included in 'supply'. For the purposes of this Act which implies that otherwise than the scope as covered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Agreement and the agreement is claimed to be terminated for breaches on the part of the service recipient SPL by the applicant in view of the existent provisions as were already there in the Association Agreement entered into between the applicant and SPL. Now we refer to the relevant clauses in respect of termination of the agreement that were included in it as per the mutual agreement as per terms given in Association Agreement between the applicant and SPL. We find that Article VI of the Association Agreement as referred above provides for term and termination which is as under:- ARTICLE VI TERM AND TERMINATION "Section 6.1 Term. Under earlier terminated in accordance with Section 6.2, the term of this Agreement shall commence on the Effective Date an shall continue until the end of the Production Phase (the " Initial Term"). Following the Initial Term, the parties may extend this Agreement by written agreement for any number of one (1) year terms (each, an "Extended Term" and, together with the Initial Term, the "Term") until the Agreement is terminated pursuant to Section 6.2. Section 6.2 Termination. This Agreement may be terminated : a) At any time by mutual agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Reliance has not cuired the default NAC shall have the right, (i) if the default is of the type described in subclause (a) above, to immediately cease providing the Services until such time as the event of default is cured, (ii) if the default is of the type described in subclause (b) above, to cease providing such Services as NAC determines, in its reasonable discretion, cannot be performed due to Reliance's default until such time as the event of default is cured, or (iii) if any such default is not cured within sixty (60) days and NAC is not then in breach of this Agreement, to terminate this Agreement. Reliance shall continue to be responsible for the On-Site Costs during the period of the default and prior to the termination of the Agreement. Section 8.2 Default by NAC. If NAC shall at any time be in breach of its obligation to provide Services hereunder, Reliance may give written notice of such default to NAC, in which case NAC shall have ten (10) days within which to cure the default. If, at the end of the ten (10) day period, NAC has not cured the default Reliance shall have the right (i) to cease reimbursing NAC for services not actually provided until such time as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceedings, the parties hereby agree to cooperate in good faith with each other and the arbitral tribunal and to use the respective best efforts to respond promptly to any reasonable discovery demand made by such party and the arbitral tribunal. (b) Arbitration proceedings shall be conducted in the English language and the arbitral award (the "Award") shall be rendered be latest 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 Reliance on the one hand, and NAC, on the other hand, shall pay one-half of the ICC's and the chairperson's fees and expenses, unless the arbitrators determine that it would be equitable if all or a portion of the prevailing party's expenses should be bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of default by one party on the part of the other party as per the terms and conditions of the Association Agreement and are not liquidated damages as claimed by the applicant as would be clear from the specific mentioned under Section 12.2 Dispute Resolution: Arbitration which clearly states as under:- "The Arbitrators shall not award punitive, exemplary, multiple or consequential damages" Thus we find that 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 which reads as under:- (5) Supply of Services : The following shall be treated as supply of services:- "(e) Agreeing to the obligation to refrain from an act or to tolerate an act or a situation or to do an act. In the present case as per details presented before us, we clearly find 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by ICC. 06. In view of the extensive deliberations as held hereinabove, we pass an order as follows : ORDER (under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017) NO.GST-ARA- 07/2018-19/B- 63 Mumbai, dt. 11/07/2018 For reasons as discussed in the body of the order, the questions are answered thus - 1. Whether liquidated damages that may he 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 : Answered in the affirmative. 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 time of supply would be determined as per the provisions of Section 13 of the CGST Act after the award of arbitration proceedings is given by the Arbitration Tribunal as administered by the ICC as per the Association Agreement by the parties to dispute, in the present proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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