The Authority Of Advance Ruling (AAR), Telangana recently held that goods and service tax (GST) is not applicable on the interest payable on the liquidated damages.
The coram of S.V. Kasi Visweswara Rao and Sahil Inamdar said that no supply has happened during the GST regime as per Section 142(10) of the act ibid no GST shall be payable. Further the additional payment received by way of compensation through award by Tribunal for Arbitration is not falling under Section 142(2)(a) and hence not chargeable to GST.
BACKGROUND
The applicant M/s. TPSC (India) Private Limited is engaged in taking up Thermal Projects in various cities in India and during the financial year 2013-2014. The applicant company was allotted an Erection and Pre-Commissioning works related to Steam Turbine Generator and Auxiliaries, project of NTPC, Kudgi, Karnataka and duration of completion of the project was for 4 years.
The Applicant had engaged 4 other sub-contractors, namely Shilpa Engineering Erectors, Fortuna Engi Tech and Structurals (India) Private Limited (Fortuna), Associated Engineering Services (AES) and Axis Inspection Solutions, to complete the work that had been unattended and descoped from the DGAL. Having not satisfied with the process and duration of the contract, DGAL issued a notice to proceed for Arbitration for compensation.
ISSUES RAISED
The applicant raised various issues:
- Whether the contract will be completed during the Pre-GST period and the consequential demand based on the completed contract can be brought to assessment under GST Act, 2017?
- Whether the liquidated damages, without any supply of materials and labor be assessed to GST under GST Act, 2017?
- The mutually agreed and settled amount, based on arbitral award, in the nature of compensation, payable for delay in completion of the contract and agreed to be payable by the Applicant to DGAL without any supply of goods or services, is liable to be taxed under GST?
- Whether DGAL is eligible to claim ITC on the GST amount if any levied on the mutually agreed arbitral award amount received from the Applicant?
- Whether there is any taxability under GST on Interest payable on the liquidated damages?
ADVANCED RULING
The AAR held that if the service is already leviable under the provisions of service tax law, then there cannot be any tax under the provisions of CGST Act to such an extent, notwithstanding anything contained in Section 13, that is time of supply for services.
However, the AAR stated that if a transaction is subjected to both VAT and service tax, let us say, a works contract service, then there will be a tax to the extent of supplies made under the GST regime, though the contract is entered prior to the GST regime. If the taxpayer has paid tax on such supplies (that are yet to be provided and provided in GST regime), he can claim the credit of such taxes.
The AAR has stated that interest has to be assessed at the same rate as the principal supply as per the provisions of Section 15 of CGST/TGST Act’2017. Section 15 of CGST/TGST Act’2017 states that value of supply shall include ‘interest or late fee or penalty for delayed payment of any consideration for any supply.’ There is no GST on the interest of 13% p.a., awarded by Tribunal for Arbitration Award as the principal supply itself is not taxable.
Case Title: TPSC (India) Private Limited
Citation: TSAAR Order No.10/2023