India’s implementation of the Goods and Services Tax (GST) law has impacted damages awarded by arbitral tribunals. The GST, which came into force on July 1, 2017, replaced various central and federal taxes with a single tax. However, there are areas of the GST law where jurisprudence has not yet been settled. One such area is the applicability of GST on liquidated damages awarded by an arbitral tribunal. The Indian government recently clarified that GST would not be applicable on liquidated damages, as it is paid only to compensate for the loss or damage suffered by the aggrieved party. This is in line with international jurisprudence, which supports that liquidated damages cannot be treated as consideration for supply or tolerance of an act.
Source International Tax Review
