CBIC issues circular on applicability of GST on liquidated damages, compensation/penalty on breach of contract

CBIC issues circular on applicability of GST on liquidated damages, compensation/penalty on breach of contract Central Board of Indirect Taxes & Customs (CBIC) has issued a Circular on GST applicability on liquidated damages, compensation and penalty arising out of breach of contract or other provisions of law. Applicability of GST on payments in the nature of liquidated damage, compensation, penalty, cancellation charges, late payment surcharge etc. arising out of breach of contract or otherwise and scope of the entry at para 5 (e) of Schedule II of Central Goods and Services Tax Act, 2017 (hereinafter referred to as, “CGST Act”) in this context has been examined in the Circular. Circular clarifies some of the important issues like GST on Compensation for cancellation of coal blocks, Cheque dishonor fine/ penalty, Penalty imposed for violation of laws, Forfeiture of salary or payment of bond amount in the event of the employee leaving the employment before the minimum agreed period, Compensation for not collecting toll charges, Late payment surcharge or fee, Fixed Capacity charges for Power, Cancellation charges. Click here to download the circular