GST Not Payable On Out-Of-Court Settlement: AAR

The Telangana Authority of Advance Ruling (AAR) has ruled that GST is not payable on the out-of-court settlement.

The bench of S.V. Kasi Visweswara Rao and Sahil Inamdar has observed that there is no GST on the interest of 13% per annum awarded by the Tribunal for Arbitration Award as the principal supply itself is not taxable.

The applicant is taking up Thermal Projects in various cities in India. During the financial year 2013-2014, the applicant company was allotted Erection and Pre-Commissioning work related to the steam turbine generator and auxiliary equipment project of NTPC, Kudgi, Karnataka, and the duration of completion of the project was 4 years up to 2017.

On the entire contract value, VAT and Service Tax were remitted by the Applicant Company. During the execution of the contract, the applicant Company gave subcontracts to various companies that were also registered dealers in their respective states.

The applicant sought an advance ruling on the issue of whether the liquidated damages, without any supply of materials or labour, should be assessed for GST under the GST Act, 2017.

The AAR held that interest has to be assessed at the same rate as the principal supply as per the provisions of Section 15 of the CGST or TGST Act 2017. Section 15 of the CGST/TGST Act, 2017 states that the value of supply shall include ‘interest, late fee, or penalty for delayed payment of any consideration for any supply.’ No supply has happened during the GST regime; as per Section 142(10), no GST shall be payable. The additional payment received by way of compensation through an award by the Tribunal for Arbitration does not fall under Section 142(2)(a) and is hence not chargeable to GST.

Applicant’s Name: TPSC (India) Private Limited

Date: 17.04.2023

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