Lack of clarity on GST paid on liquidated damages may lead to litigation

There is fear that entities may be asked to reverse ITC or pay back refunds, experts say

The government has clarified the applicability of the goods and services tax (GST) on various items, but its silence on the tax paid on liquidated damages in the past could lead to litigations.

For transactions conducted from July 1, the Central Board of Indirect Taxes and Customs (CBIC) has clarified that there will be no GST on liquidated damages — these are payments made by a supplier of goods or services to the receiver in case of breach of contract or delay in executing a contract.

Earlier, it was a stated position that the liquidated damages paid to