Advocate Anandaday Misshra
Court Orders, Settlements ,Compromises , Appropriations & Penalties
The dispute in entire world including Australia , New Zealand, UK, EU etc pertaining to the liability to pay GST towards payments made in lieu of court orders, settlements, compromises, penalties, appropriations etc were related to the following aspects :
a. damages towards a supply already done
b. damages towards a supply not done completely
b. losses incurred during a contract of supply
c. late payment as a penal provision
d. compulsory acquisition
e. invocation of bank guarantee
f. appropriation of security deposit
These amongst other disputes led to endless litigations to arrive at the conclusion whether these amounts are consideration or otherwise .
Principles of Consideration versus Supply
These disputes further led to creation of principles to find as to which considerations will be towards the supply as below :
a. Principle of nexus – to ensure if there is a nexus between supply and consideration
b. Principle of linkage – to ensure if there is a linkage of consideration with an actual taxable supply
c. Principle of obligations – to ensure if there is any obligation to supply against a consideration or an obligation to pay a consideration against a supply
Ratios of Courts
It can be further understood in 2 perspectives as below :
1. High Court of Australia in Commissioner of Taxation v Qantas Airways Ltd [2012] HCA; (2012) 291 ALR 653 laid down the following ratio
- a relevant nexus must exist between the payment and a supplymade pursuant to a court judgment and/ or a settlement agreement for being considered as a taxable supply .
- Damages are not a supply.
- The act of release by the party receiving the payment to give an effect to a settlement of a claim for damages will generally not give rise to rendering of a taxable supply.
2. The Federal Courts has dealt with this issue in A.P. Group Limited and Commissioner of Taxation[2012] AATA 617 and laid down interesting aspect as below :
- the concept of “supply” and the “nexus” that must exist between the payment and a supply in order to establish the relationship of a “supply for consideration”
Grouping of Supplies
The series of litigations and decisions lead to the evolution of grouping the supplies into three categories as below :
a. Earlier Supply – If the settlement or a court order is regarding an earlier supply, and there is a sufficient nexus between the payment made and that supply, then the payment made will fall under the ambit of consideration for the supply.
b. Current Supply – If there is a current supply, and there is a sufficient linkage or nexus exists between the compensation paid under the settlement and/or court order against that supply, then the compensation will be regarded as consideration for the supply.
c. Discontinuance supply– It will have no separately ascribed value and will be a resultant or an inherent part of the order and/or settlement to conclude the dispute finally. These supplies are mere resultant of the nature of a term or condition of the order and/or a settlement, rather than the subject of the settlement.
Indian GST
Whereas, such disputes existing under worldwide GST can be understood in the context of Indian GST from the following ingredients of the GST :
a. If there is a taxable supply , the time of supply creates a liability to pay GST.
b. time period of payment of GST will be stipulated .
c. there is no provision of deferred payment of GST .
d. there is no provision of consideration at any other given point of time under the concept of “transaction value” under Section 15 of draft GST Act at par what is existing presently in “transaction value” under Section 4 of CEA,1944.
Section 15 -The value of a supply of goods and/or services shall be the transaction value, that is the price actually paid or payable for the said supply of goods and/or services where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply
e. there is no reference to any order of court for the purpose of making payment of GST.
Conclusion
It is pertinent to note that the definition of “supply” has to be read together with “consideration”.
It is to be also noted that an amount received towards “forbearance” or “restraining to do something is a consideration” against supply as well .
We shall be carrying out an in-depth analysis of GST in our most Advance Level – I Seminar on GST in MUMBAI on 21st October 2016 . The leading online tax portal of India i.e TAXGURU.in is the online partner for such major event on GST.
Our other Advance Level-I GST Seminars will be held in Kolkata, Chennai, Hyderabad, Bangalore & New Delhi.
To know more about GST Seminars , please connect on [email protected] or log onto www.gstprofs.in.
by Anandaday Misshra, Founder Advocate , AMLEGALS
( The author is one of the leading litigation and advisory advocate. He is an eminent speaker and author on various laws including GST. He handles cases in various Tribunals & High Courts of India. He can be contacted on [email protected] .For more, please refer www.amlegals.com )
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