2026-VIL-124-AAR
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SGST Advance Ruling Authority

GST - Liquidated damages; Compensation towards Transportation loss – Appellant engaged various transporters for transportation of chemicals, which were susceptible to unavoidable losses during transportation. While losses within an agreed tolerance limit were accepted without recovery, losses exceeding this threshold were treated as breaches of contractual terms – Applicant sought compensation from transporters under various circumstances including material shortage in transit, material quality issues, damage or destruction of goods, theft or pilferage, failure to deliver at required location and time, and damages due to negligence during handling, loading or unloading - Whether the amount received towards compensation for loss arising from various breaches of contractual terms constitutes a supply of services under GST – HELD – The compensation received from transporters for various breaches of contractual obligations constitutes liquidated damages payable as mere flow of money to compensate for injury, loss or damage suffered due to breach of contract and does not constitute consideration for supply of services - The various circumstances under which compensation is claimed reveal that the applicant is merely receiving compensation for injury, loss or damage and is not tolerating any act of the transporters in return for such payment. Since liquidated damages do not represent the object of the contract and constitute merely an event in the course of performance of the agreement. Such payments do not fall within the ambit of services described in paragraph 5(e) of Schedule II and are not taxable under the Act. Accordingly, the compensation received from transporters for various material defects, breaches and non-performance of contractual obligations does not constitute supply of services and is not liable to GST – Ordered accordingly
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