Demurrage charges are collected by the shipping line from the foreign vendor in case of delay in unloading the goods beyond a specified period since such delay results in his vessel being detained. If there is a delay in unloading the goods because of the Indian Importer, the Indian Importer will reimburse an amount equal to the demurrage charges which the foreign vendor will have to pay to the vessel owner. Thus, in effect, the amount reimbursed by the Indian Importer to the foreign vendor is in the nature of penalty/damages to compensate the loss which the foreign vendor suffers due to the delay in unloading the goods on the part of the Indian Importer.
Source Taxguru
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