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TMI Blog2025 (2) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... in terms of the aforementioned circular are merely a flow of money and such payments do not constitute consideration for a supply and hence, are not taxable. On going through the documents produced, it is difficult to establish that the impugned payments constitute consideration for another independent contract envisaging tolerating an act or situation or refraining from doing any act or situation or simply doing an act. Nonetheless, we also find that the impugned ruling dated 6.9.2021 erred in holding that the settlement amount [liquidated damages] is not due to breach in PSC but due to ANPs obligation to supply services to the appellant.
Conclusion - GSPC (JPDA) Ltd. is not liable to pay GST on the settlement fees demanded by ANP. X X X X Extracts X X X X X X X X Extracts X X X X ..... of the settlement agreement between the parties, declared the proceedings closed in accordance with the rules. 3.6. The Arbitral Tribunal, directed payment of an amount of USD 80,00,000/- of which the GSPC (JPDA)'s share was 20%. 4. In view of the foregoing facts, the appellant had sought Advance Ruling on the following questions, viz: "Whether payment of settlement fees against demand made by ANP vide letter dated 15.7.2015 attract levy of GST under GST regulations." 5. Consequent to hearing the applicant, the Gujarat Authority for Advance Ruling [GAAR], recorded the following findings viz was * that the reason GSPC along with other concessionaries sought termination due to uncertainty arising out of arbitration initiated by Timore-Leste Government * against Government of Australia to have certain maritime agreements in Timor Sea declared as void ab initio; * that in this case, GSPC is paying the amount to ANP & not the other way round; * that the amount paid is not an exploration cost/reimbursement as contended by the appellant; * the appellant is obliged to pay only its proportionate share and not jointly/severally, as is being contended; * that in pursuance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated the PSC with demand of payment of estimated cost of exploration not carried out & damages for breach of its local content obligations. 6. 8.10.2018 ANP filed a request for arbitration with the Secretariat of International Court of Arbitration of the International chamber of Commerce [ICC] 7. 15.7.2020 Settlement amount agreed between parties vide deed of settlement & release 8. 21.8.2020 Parties to arbitration notified the Arbitral Tribunal that settlement had been reached & requested that a final consent award be issued by the Arbitral Tribunal 9. 24.8.2020 Arbitral Tribunal declared the proceedings closed. 10. 16.9.2020 Arbitral Tribunal passes order by consent FINDINGS 9. We have carefully gone through and considered the appeal papers, written submissions filed by the appellant, submissions made at the time of personal hearing, the Advance Ruling and other materials available on record. 10. The list of important dates, qua this contract is mentioned below for ease of reference: 11. The appellant's primary contention is that ANP vide its notice dated 15.7.2015, terminated the PSC with a demand of payment of penalty on account of breach exploration not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the foregoing provisions of this Article 4. and of Article 6 and Annex C and except with the consent of the Designated Authority, no work in a Development Area will be regarded as Exploration except to the extent in respect of a formation shallower or deeper than the Field concerned and in which no Discovery has been made. 13. On going through the notice of intention to terminate dated 13.5.2015, issued by ANP to the concessionaires, we observe the following viz [relevant extracts] 1. NOTICE OF INTENTION TO TERMINATE 1.2 The ANP's right to terminate the PSC arises in accordance with articles 2.4 & 4.5 (a)(iii) of the PSC of the contractor's material breach of the terms of the PSC, in particular, the contractor's failure to meet the Exploration Work Program by 15.1.2014 & deliver the third well. 2. BASIS FOR ISSUANCE 2.2 A Contractors breach of its Exploration work Program 2.3 As the matter currently stands: 2.3.4 in such circumstances, Article 4.5(a)(iii) provides the ANP with the express right to terminate the PSC & require from the Contractor payment of the estimated cost of the Exploration not carried out in that Contract year. 2.4 For completenes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the party who suffers loss or damage due to such breach. Such payments do not constitute consideration for a supply and are not taxable. 7.1.5. ……. ……… ……… …. The key in such cases is to consider whether the impugned payments constitute consideration for another independent contract envisaging tolerating an act or situation or refraining from doing any act or situation or simply doing an act. If the answer is yes, then it constitutes a 'supply' within the meaning of the Act, otherwise it is not a "supply". 7.1.6 If a payment constitutes a consideration for a supply, then it is taxable irrespective of by what name it is called; it must be remembered that a "consideration" cannot be considered de hors an agreement/contract between two persons wherein one person does something for another and that other the pays the first in return. If the payment is merely an event in the course of the performance of the agreement and it does not represent the 'object', as such, of the contract then it cannot be considered 'consideration'. For example, a contract may provide that payment by the recipient of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ining from doing any act or situation or simply doing an act. If the answer is yes, then it constitutes a 'supply' within the meaning of the Act, otherwise it is not a "supply". 18. The appellant's liability as worked out in the notice of intention to terminate dated 13.5.2015, is as under: 3. CONTRACTOR'S LIABILITY UPON TERMINATION 3.1 In light of the matters raised in Section 2 above, it is the ANP's position that, upon termination, the Contractor is liable to the ANP for: 3.1.1 the estimated costs of the Exploration not carried out for the Contract Year 2013 (pursuant to Article 4.5(a)(iii) of the PSC) in the amount of US$ 16,585,789.72; and 3.1.2. damages for breach of its local content obligation in the amount of US $433,000.00; thereby making the Contractor's total liability upon termination to be US$ 17,018,789.72. 3.2 As to the calculation of the estimated costs of Exploration not carried out in the Contract Year 2013, these costs have been calculated as follows. 3.3 The Exploration Work Programme and Budget for Contract Year 2013 stipulates that a budget of US$ 18,000,000 was allocated towards the drilling of the third committed well. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 months of the Execution Date. 2.4 Each of the Second Respondent, the Third Respondent, the Fourth Respondent, the Fifth Respondent and the Sixth Respondent shall pay their share of the Settlement Sum within 14 days of the Execution Date. 2.5 Payment shall be made by way of electronic funds transfer into the following account: Bank: Australia and New Zealand Banking Group Limited Timor-Branch (ANZ) Account Name: Autoridade Nacional do Petroleo e Minerais -TL JPDA Account No. 331271 IBN: TL380030000000033127158 and will be taken to have been made upon receipt of cleared funds into the above account. Resolution of the Proceedings 2.6 By signing this deed, the parties agree to the terms of the Consent Award set out in Annexure A. 2.7 Upon the Execution Date, the Claimant shall promptly seek orders from the Tribunal in the form of the Consent Award. 20. As is evident in this case liquidated damages are paid only to compensate for loss due to breach of PSC in terms of clause 4.5(a)(iii). We have not been in a position to pinpoint any agreement, express or implied between ANP and the six concessionaire that on receiving the liquidated damages, ANP will refrain from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abstain from doing something against payment of consideration for doing or abstaining from such act, for a taxable supply to exist. An agreement to do an act or abstain from doing an act or to tolerate an act or a situation cannot be imagined or presumed to exist just because there is a flow of money from one party to another. Unless there is an express or implied promise by the recipient of money to agree to do or abstain from doing something in return for the money paid to him, it cannot be assumed that such payment was for doing an act or for refraining from an act or for tolerating an act or situation. Payments such as liquidated damages for breach of contract, penalties under the mining act for excess stock found with the mining company, forfeiture of salary or payment of amount as per the employment bond for leaving the employment before the minimum agreed period, penalty for cheque dishonour etc. are not a consideration for tolerating an act or situation. They are rather amounts recovered for not tolerating an act or situation and to deter such acts; such amounts are for preventing breach of contract or non-performance and are thus mere "events' in a contract. Further, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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