In order to see whether GST is applicable on Liquidated damages in case of operation and maintenance activities and construction of new power plants or renovation of old plants or applicable in both cases, facts of each agreement and attending circumstances need to be seen.
In instant case, based on agreement entered into by applicant Maharashtra State Power Generation Company Ltd. with BHEL for purpose of erection, testing and commissioning of main plant package it is seen that there are no such clauses in agreement as would tantamount to reducing contract price or contract value of supplies of goods or services or both as made by Contractor on account of delay in delivery of manufactured goods.
In fact, levy of liquidated damages is specifically identified as an independent levy.
The Contract Price Variation clause in impugned agreement does not provide for variation on account of liquidated damages.
The empowerment to levy liquidated damages is for reason that there has been delay and same would be tolerated, but for a price or damages.
Thus, in terms of the aforesaid agreement, GST would be applicable on Liquidated Damages. However, only GST would be applicable on Liquidated damages.
Citation: [2018] 93 taxmann.com 266 (AAR – MAHARASHTRA)