In re South India Krishna Oil & Fact Pvt Ltd (GST AAR Andhra Pradesh)
In a significant ruling by the GST Authority for Advance Rulings (AAR) Andhra Pradesh, the taxability of compensation amounts, including liquidated damages, trade settlements, and damages collected for non-performance of contractual obligations or breach of the contract, was closely examined in the case of M/s. South India Krishna Oil & Fats Pvt Ltd.
Background and Legal Framework
The case hinges on the interpretation of the Central Goods & Services Tax Act, 2017 (CGST Act) and the Andhra Pradesh Goods & Services Tax Act, 2017 (APGST Act), which are largely in agreement and only differ on specific provisions. The discussion also brings into focus the definition of “supply” under Section 7 of the CGST/APGST Acts and whether compensation for breach of contract or non-performance falls within this definition.
M/s. South India Krishna Oil & Fats Pvt Ltd, engaged in the manufacturing of edible oils, faced issues when their customers failed to lift the agreed quantities of oil, leading to the collection of compensation in the form of liquidated damages or trade settlements. This practice was scrutinized under the GST laws to determine if such compensation constitutes a taxable supply.
