Levy of gst on liquidated damages

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

08 June 2018 Hello Expert :

We explain our case as follows:

1) Our Company in Singapore is the MAIN SUPPLIER to Indian Company, (in Gujarat) for USD 1,000.00 approximately. We have no presence in the form of any branch or entity in India or even an Indian Agent. We are purely working as a SUPPLIER relationship with Indian Company Gujarat. We are NOT going to come to India for offering any Services or Installation etc. in India for this SUPPLY order. It is a pure SUPPLY of Material order on FOB Basis.
2) Due to delay in Shipment, Indian Company applied 4% Late Delivery Charges on our Singapore Company to the tune of USD 40.00 (USD 1,000 x 4%). The Late Delivery charges can also be referred as Liquidated Damages (LD).
3) But Indian Company is applying GST (@18%) on top of the 4% LD Charge i..e USD 40.00 x 18% = USD 72.00. We have objection to this amount of USD 72.00 for the following reasons:

A) The Singapore company is a Foreign Company with no presence in India as explained in 1) above.
B) The Singapore Company sold the equipment as per contract on FOB basis. The shipment was handled by Indian Company through SCI. The relationship between both (our Company and Indian Company) is one of SUPPLIER – IMPORTER relationship. Indian Company is the Importer and handling the Shipment from XXX to India.
C) As a Foreign Company we are not covered under India's GST Law and are not registered in the GSTIN system. So how can the GST be applied on the LD Amount? The Singapore company does not have a GST No too and will not be able to claim for the GST refund.

Kindly can you confirm. We need your expert advise preferably with supporting documentary evidence referring to the GST Law and Clauses.

Vishakha Kejriwal.

Vishakha Kejriwal. (Expert)
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09 June 2018 The issue of taxability of liquidated damages is controversial and subject to interpretation since as per you given case there is no supply by the Indian company. However since liquidated damages are subject to exemption in case of Government undertakings, in the exemption Notification 12/2017 by way of tolerating non-performance of contract the leviability of GST by the Department may arise by the Department interpreting the same to be liabe wrt other contracts. You might take a chance for an advance ruling if the amount is material and your application for ruling is admitted.