#GSTMakeItEasy: Facing GST related issues? Big initiative by Zee Business - Tweet your problems now! Check all details here

To remove the problems of cascading taxes and minimise the requirements of compliances, the Government introduced the Goods and Services Tax (GST). This has worked with relative success, but many important points still remain to be addressed. #GSTMakeItEasy - This is Zee Business’ initiative to raise some of these issues with the concerned authorities. The channel has been discussing issues related to GST from Monday to Friday. The channel ran a hashtag #GSTMakeItEasy where people can share their issues.

In this latest edition, the channel takes up the problems being faced by businesses with regards to GST amid the coronavirus pandemic. One such issue is regarding 'liquidated damages' under which there have been disruptions in service. Tax Expert Gopal Mundhra who is a Partner with Economic Laws Practice (ELP), tells more on this.

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Liquidated damages is a penalty paid by one party to another party for economic loss incurred to the latter because of the former, Mundhra said.  

The deduction from the contract price is because of delay in performance or because of deficiency in execution or for any other reason.

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GST को लेकर कारोबारियों की क्या हैं दिक्कतें? जानें यहां#GSTMakeItEasy पर ट्वीट कर अपनी समस्या बताएं@GST_Council @nsitharaman @Anurag_Office @cbic_india@ianuragthakur @nsitharaman @PMOIndia @BrajeshKMZee pic.twitter.com/Xd4nwVw8BZ

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The coronavirus spread has been a major disrupter causing delays in execution of contracts or even leading to cancellations. Most of these contracts have been in the real estate sector or infrastructure sector which are required to be completed in a given time frame, he said. The contract has provisions which spell out deductions in the price in case of delays, he further said. This is referred to as liquidated damages or price revision clause or penalty.

As an example, he said that if in any contract there is a deduction in contract price by 20 per cent. If the contract is of Rs 100 and the service provider gets only Rs 80 after deduction, then the contractor thinks that his income is only Rs 80 and hence the GST will be on this and not on entire contract value which is Rs 100. The paying company also takes Rs 80 as expenditure.  

But the government does not treat this as one transaction but as two transactions. One transaction is of Rs 100 which is the price at which the contract is done. The other transaction is Rs 20 as the tax officer say that Under the GST rules “Tolerating an act” is also a service.  

As per the officials the company which is paying Rs 80 for the work is saving Rs 20 which it is also considering as an income. This company is asked to pay GST on Rs 20.  

The tax officers say that this should be treated as two transactions and not one transaction.  

This is an anomaly, he said. 

He said that he believed that in any contract price if there are deduction on account of factors like quality, quantity and duration then it should be treated as price revision and not liquidated damages.

The problems are because of this double taxation.