Page 71 - GSTL_20th August 2020_Vol 39_Part 3

2020 ] IN RE : HALLIBURTON OFFSHORE SERVICES INC. (LIH) 285
“49. … We agree with the AAR when they say that value of the work
done and which is to be paid is not affected by the amount deducted there-
from towards liquidated damages. The consideration remains unchanged
and how the amount is recovered would not change the nature of the sup-
ply. Also, neither the definition of ‘contract price’ nor ‘contract value’ as
given in the Agreement refers to the contingency of liquidated damages.
Contract price is defined in clause 3.13(A) as the total lump sum price plus
the price variations. This is an independent clause having no relation to the
eventuality of liquidated damages, for which as we have said above, a sep-
arate clause has been given. The fact that the liquidated damages are recov-
ered from the bill is only a method of payment - the fact that there are two
agreements remains unaltered.
It is contended by the appellant that the liquidated damages cannot be treated as an
independent supply. However we do not agree with same. When the contract spe-
cifically provides for the payment of the damages, it itself manifests that there is a
separate contractual agreement between the two parties.”
(emphasis supplied)
6.24 In terms of the aforesaid, a clause in relation to liquidated damag-
es or contractual penalties, which are outside the stream of the routine supplies
under the contract, was treated as a distinct supply of services under GST. In this
regard, it would also be pertinent to analyse the applicable of Entry 5(e) of
Schedule II to the CGST Act, which treats “agreeing to the obligation to refrain
from an act, or to tolerate an act or a situation, or to do an act” as a service. In this
regard, in the present facts, there is evidently no act that the Applicant is refrain-
ing from in a case of LIH equipment, nor is the Applicant required to do any act.
Furthermore, the LIH equipment not being the fault of either party, but the result
of an accidental occurrence, the Applicant cannot be said to be tolerating any act
of ONGC. At best, it may be contended that the Applicant is tolerating a situa-
tion, i.e. the irretrievable loss of its goods. In such a case, GST of 18% will be pay-
able on the reimbursement towards LIH equipment received by the Applicant
from ONGC, under HSN Code 9997 94.
6.25 In the case of the Appellant, as mentioned in the background, LIH
does not form part of the scope of work as provided under the Contract for
works contract of bundled services, but is a separate clause, contemplating a po-
tential event that may or may not occur during the tenure of the Contract. Thus,
LIH is not agreed upon as a routine or even inevitable part of the scope of supply
to be made by HOSI under the Agreement, and in fact, it is entirely possible that
no such accident may take place at all in the course of executing the scope of
work under the Agreement. Accordingly, in our view, LIH qualifies as ‘agreeing
to tolerate ... a situation’ as per Entry 5(e) of Schedule II to the CGST Act, and taxed
to GST at 18% under HSN Code 9997 94. In view of above factual and legal anal-
ysis, the Applicant submits the following :
(a) Reimbursement received towards LIH equipment can be considered
as a supply as per Section 7 of the CGST Act, 2017.
(b) Reimbursement received towards LIH equipment can be treated as
agreeing to tolerate an act” as per clause 5(e) of Schedule II of the
CGST Act, 2017 and subject to GST at the rate of 18%.
7. Discussion and findings :
7.1 We have examined the issues raised in the application. The taxabil-
ity and the applicable rate of tax for the goods and services supplied or to be
supplied, as governed under the provisions of respective GST Acts are examined.
GST LAW TIMES  20th August 2020  71