GST applicability on compensation, penalty and liquidated damages clarified | GST circular 178/2022

The Government has issued a Circular clarifying the applicability of GST on services provided by way of obligation to do an act, to refrain from an act, or to tolerate an act. Till now, there was ambiguity with regard to the taxability of the aforesaid services because every ‘compensation’ received would somehow be related to the aforesaid service. However, the circular has clarified the taxability of such activities/ transactions and highlighted the difference between consideration and compensation.