#GST on Penalties & Liquidated Damages Levied by Govt. or Local Authorities# By SN Panigrahi, Essenpee Business Solutions, GST, Penalty, Liquidated Damages, Government, Local Authority

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SN Panigrahi is a Versatile Practitioner, Strategist, Energetic Coach, Learning Enabler.
He is an International-Corporate Trainer, Mentor & Author – PMP Trainer
He has diverse experience and expertise in Project Management, Contract
Management, Supply Chain Management, Procurement, Strategic
Sourcing, Global Sourcing, Logistics, Exports & Imports, Indirect Taxes –
GST etc.
He had done more than 150 Workshops on above
Published more than 500 Articles; More than 60 YouTube
Presentations & More than 70 SlideShares
He is an Engineer + MBA +PGD ISO 9000 / TQM with around 29 Yrs of
Experience
He is a certified PMP® from PMI (USA) and become PMI India
Champion
Also a Certified Lean Six Sigma Green Belt from Exemplar Global
Trained in COD for 31/2 Yrs. on Strategy & Leadership
GST Certified – MSME – Tech. Dev. Centre (Govt of India Organization)
ZED Consultant – Certified by QCI – MSME (Govt of India Organization)
Member Board of Studies, IIMM
Co-Chairman, Indirect Tax Committee, FTAPCCI
Empanelled Faculty in NI MSME
He has shared his domain expertise in various forums as a speaker & presented a number of papers in various national and
international public forums and received a number of awards for his writings and contribution to business thoughts.
SN Panigrahi
9652571117
snpanigrahi1963@gmail.com
Hyderabad

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Government Contract means any prime Contract, subcontract, purchase order, task order,
delivery order, teaming agreement, joint venture agreement, strategic alliance agreement,
basic ordering agreement, pricing agreement, letter contract or other similar arrangement of
any kind with
(i) any Governmental Authority,
(ii) any prime contractor of a Governmental Authority in its capacity as a prime contractor, or
(iii) any subcontractor at any tier with respect to any contract of a type described in clauses
(i) or (ii) above.
Government contracts are contracts undertaken by the Government for varied purposes
like construction, management, maintenance and repairs, manpower supply, IT related
projects etc. The involvement of Central Government or
State Government or Government body or Local Authority in a contract makes it
a government contract.

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Every contract must have Certain Contractual Terms & Conditions which are expressly agreed
between the parties, generally made in writing.
Fines & Penalties or Liquidated Damages are some of such Terms very commonly stated in a Contract.
A penalty clause in a contract obligates the defaulting party to provide some form of compensation to the
innocent party in the event of a breach of contract.
A penalty clause states that one contracting party is required to give something, usually money, to the
other party if he or she breaches the contract. With such a provision in place, the breaching party is
more likely to pay the penalty to the other party.
A Liquidated damages clause specifies the amount of damages to be paid by the breaching party if it
fails to perform specified obligations and other terms in the event of certain types of breaches under
the contract.
In both the cases of Penalty and Liquidated Damages, the Breaching Party shall Pay to the
other, Compensation / Penalty.
Now, let’s Discuss whether GST applicable on Fines, Penalties & Liquidated Charges Levied
by Government.

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Breach
of
Contract
Govt. / Local Authority
Issues Invoice on
Contractor to Recover
Penalty / Compensation.
No GST Applicable
Contractor Issues Invoice
on Govt. / Local Authority
to Receive Penalty /
Compensation.
GST Applicable

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As per Entry No: 62 of Exemption Notification No. 12/2017- Central Tax (Rate); 28th June,
2017 under Chapter Heading / SAC which describes that
“Services provided by the Central Government, State Government, Union territory or local
authority by way of tolerating non-performance of a contract for which consideration in
the form of fines or liquidated damages is payable to the Central Government, State
Government, Union territory or local authority under such contract”.
Govt. / Local Authority Issues Invoice on Contractor to Recover Penalty / Compensation.
Since such Fines / Penalties or liquidated damages payable to Government or Local
Authority are Exempted, therefore, No GST is Charged or Even Payable on RCM basis.

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Entry
No.
Chapter
Heading
/ SAC
Description of Services
62 Headin
g 9991
or
Headin
g 9997
Services provided by the Central Government, State Government,
Union territory or local authority by way of tolerating non-
performance of a contract for which consideration in the form
of fines or liquidated damages is payable to the Central
Government, State Government, Union territory or local
authority under such contract.
Exempted Services Provided by the Government or the Local Authority
Notification No. 12/2017- Central Tax (Rate); 28th June, 2017

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Certain times Government or Local Authority also may Breach any of the Contractual
Clauses, therefore liable to pay fines or liquidated damages to the Contractor.
For Example, as per Contract, the Government or Local Authority, supposed to handover
clear site to the Contractor within stipulated time and failing which it is liable to pay fines
or liquidated damages to the Contractor. Say, the Government or Local Authority fail to
do so as per contract, it tantamount to Breach of Contract liable to pay fines or liquidated
damages to the Contractor.
In such a situation, Contractor Issues Invoice on the Government or Local Authority to
Recover Penalty / Compensation.
Since No relief of Exemption is Provided, GST is Payable on the amount of Penalty or
liquidated damages claimed by the Contractor on the Government or Local Authority.

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My articles titled "GST on Penalties & Liquidated
Damages Levied by Govt. or Local Authorities" is been
published on TaxGuru and link for the same is as follows:-
https://taxguru.in/goods-and-service-tax/gst-payable-
penalties-liquidated-damages-levied-govt-local-
authorities.html

12. 12SN Panigrahi

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SN Panigrahi

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15. Contact Details:
SN Panigrahi
9652571117
snpanigrahi1963@gmail.com 15