The post-2022-clarification test for whether a payment for breach, delay, or cancellation is genuinely "consideration for tolerating an act" (taxable) or simply compensation for a loss (not a supply at all).
Entity: ___ · GSTIN: ___ · Financial year ended: ___
CBIC clarification (following extensive litigation and the earlier over-broad reading of Schedule II's "agreeing to the obligation to refrain from an act, tolerate an act/situation, or to do an act") narrowed taxability to cases where the payment is genuine CONSIDERATION for an independent supply of tolerating an act or situation — not every payment labelled "penalty," "liquidated damages," or "compensation" is automatically taxable. The default position for a GENUINE damages/compensation payment (compensating a loss, not paid FOR permission to breach or delay) is that it is NOT a supply and NOT taxable.
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