In re GSPC (JPDA) Ltd. (AAAR Gujarat)
Gujarat Appellate Authority for Advance Ruling (AAAR) reviewed the taxability of a settlement payment made by GSPC (JPDA) Ltd. to the National Petroleum and Minerals Authority (ANP). The case involved the termination of a Production Sharing Contract (PSC) for petroleum exploration in the Joint Petroleum Development Area (JPDA) shared by Timor-Leste and Australia. The Gujarat Authority for Advance Ruling (GAAR) had ruled that the settlement payment of USD 80 million, representing GSPC’s share, was subject to GST under the reverse charge mechanism. This decision was based on the view that the payment was for services provided by ANP to GSPC, rather than compensation for breach of contract.
GSPC contested the ruling, arguing that the payment arose due to a breach of PSC terms and not as consideration for any service. The AAAR examined the contract provisions and supporting documents, concluding that the payment represented liquidated damages for breach of exploration obligations. It referred to a circular clarifying that such payments, made solely as compensation without any service component, are not taxable under GST. As the settlement payment was compensation for contractual non-performance, the AAAR overturned GAAR’s decision, ruling that GST was not applicable to the amount paid.
