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TMI Blog2023 (8) TMI 1475X X X X Extracts X X X X X X X X Extracts X X X X ..... etermined pre-hand and there is no element of uncertainty in the same, whereas, to actually qualify as damage, there has to be an element of uncertainty. Damages are not known beforehand and if they are known beforehand, steps can be taken to act in such a way they don't occur. It is clear that the amount recovered as liquidated damages is neither ad-hoc, unconditional nor at the discretion of the applicant or his vendors. The mathematical terms for calculation of such value clearly indicate that the act of breach is not inconvincible. It is also found that in the contract, it is clearly mentioned that amount recovered, is not a penalty/compensation and maximum limit is only 10%, which appears very much within tolerable limit, and amount received in the name of liquidated damages, actually is a consideration for tolerating the act of not supplying stores in the prescribed time limit and hence in the light of section 7 read with definition of consideration under section 2 (31), liquidated damages recovered by the applicant from their vendors is a consideration, for tolerating of an act or a situation under an agreement and hence such an activity constitutes supply of service as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etermination of the liability to pay tax on services, therefore, in terms of said Section 97 (2) (b) of CGST/SGST Act, 2017, however, the application is with regard to Determination of the liability to pay tax on any goods or services or both , Section 97 (2) (e) of CGST/SGST Act, 2017 and the present application is hereby admitted. BRIEF FACTS OF THE CASE 5. In the application dated 02.05.2023, the applicant submitted that- a. M/s India Optel Limited, entered into a contract with various vendors for supply of goods used in the course of business, who are registered with GST department and charge and collect GST on the supplied goods. In terms / conditions of the supply order issued to the vendors, following clause has been mentioned: Liquidated Damage:- If the contractor fails to deliver the stores or any installments thereof within the period fixed for such delivery or at any time repudiates the contract before the expiry of such period, the General Manger may without any prejudice to the right of the purchaser to recover the damages for breach of contract. In the event of seller's failure to have the stores delivered by the dates/ date specified in the contract, the buyer ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f contract. In the event of seller's failure to have the stores delivered by the dates/ date specified in the contract, the buyer may, at his discretion withhold any payment until the whole of the store has been supplied and the buyer may also deduct from the seller as agreed, Liquidated Damages (LD) and not by way of penalty the sum of 0.5% of the contract price of the undelivered store for each and every week and part of a week for which the stores have been delayed subject to maximum of 10% of the value of delayed stores, in case the delay in delivery is acceptable to the buyer. ii. In terms of the above said terms and conditions they recover various amount from the vendors, who do not adhere to the time line/ period granted to them for supply of goods and or services. iii. Under Para 7.1.3 of the Board Circular 178/10/2022-GST dated 03.08.2022, following has been provided: 7.1.3 It is argued that performance is the essence of a contract. Liquidated damages cannot be said to be a consideration received for tolerating the breach or non-performance of contract. They are rather payments for not tolerating the breach of contract. Payment of liquidated damages is stipulated in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NG Accordingly opportunity of personal hearing was granted to the applicant on 25.07.2023. Sh. Mukesh Kumar, Company Representative, on behalf of the applicant appeared for personal hearing on the said date and re-iterated the submission already made in their application. Sh. Deepak Brijwal, Deputy Commissioner, Concerned Officer from the State Authority was also present during the hearing proceedings. He presented the facts and requested the authority to decide the case on merits. DISCUSSION AND FINDINGS 7. In the present case we are not deciding any wider question but restricting our conclusion to the facts and circumstances which were filed by the applicant for our consideration. We have considered the submissions made by the applicant in their application for advance ruling as well as the submissions made by applicant and his authorized representatives during the hearing. We have also considered the issue involved on which advance ruling is sought by the applicant, relevant facts and the applicant's interpretation of law. Now we proceed by taking up the issue. 8. We have carefully considered all the submissions made by the Applicant. The applicant is a registered manufactur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration; (1A) where certain activities or transactions constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II. 'Consideration' is defined in Section 2 (31) of the CGST Act 2017 as: '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 We are of the opinion that in the above definition of the Supply and Consideration the meaning of the word consideration is very broad and also includes any payment made or to be made, whether in money or otherwise,- a) in respect of, b) in response to, c) for inducement of supply of goods or services. Upon going through the sample copy of the agreement submitted by the applicant, we find that at SI. (viii) of the Point 4 GENERAL TERMS CONDITION, it has clearly been stipulated that the serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oing through the contract/ agreement under question submitted by the applicant and the legal provisions we are of the opinion that, mention of specific rate for compensation of the monetary loss, in the contract/ agreement under question, clearly implies that buyer i.e. the applicant and sellers i e the vendors, have already factored in the cost of damages and there is no surprise element in the occurrence of such damages and hence the amount recovered under the head of Liquidated Damages (LD) is a consideration and is exigible to tax under the provisions of the CGST/SGST Act, 2017 and also that the said the activity is a supply under provisions of the CGST/SGST Act, 2017. Further, we also find that in the contract, it is clearly mentioned that amount recovered, is not a penalty/compensation and maximum limit is only 10%, which appears very much within tolerable limit, and amount received in the name of liquidated damages, actually is a consideration for tolerating the act of not supplying stores in the prescribed time limit and hence in the light of section 7 read with definition of consideration under section 2 (31), liquidated damages recovered by the applicant from their vendor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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