GST Applicable on Arbitration Settlement for Pre-GST Hydro Project Disputes: AAR Examines Taxability of ₹94.56 Cr

The West Bengal Authority for Advance Ruling (AAR) determined that arbitration settlements related to contracts predating the Goods and Services Tax (GST) are subject to GST if they involve an increase in the original contract price. This ruling stemmed from a dispute between M/s. Karam Chand Thapar & Bros Coal Sales Limited and THDC India Limited concerning a hydro power plant construction project from 1996-2008. The dispute involved extra costs for excavation changes, infrastructure relocation, and price revisions, ultimately settled through a ₹94.56 Crore conciliation agreement in October 2024. The applicant argued that the settlement primarily consisted of liquidated damages, exempt from GST, as the work was completed before GST’s July 2017 implementation. However, the AAR, consisting of Shafeeq S and Jaydip Kumar Chakrabarti, cited Section 142(2)(a) of the CGST Act, stating that upward price revisions of pre-GST contracts constitute a taxable supply. Amounts paid for extra work, like using higher-grade cement, were also deemed taxable as consideration for services. Conversely, costs for infrastructure shifting and arbitration were considered compensatory and therefore not taxable. The AAR mandated the applicant to issue supplementary invoices for the taxable portion of the settlement.

(Source：Taxscan)