Examine the following independent cases and answer the relevant questions with regards to provision of the GST law: (i) Blue Bank Ltd. had lent a…

CA Final · Indirect Tax Laws · PYQS · May 2026
Examine the following independent cases and answer the relevant questions with regards to provision of the GST law: (i) Blue Bank Ltd. had lent a term loan to SKY Powers for setting up a solar plant on an agreed repayment schedule. Due to crunch in working capital, SKY Powers missed a few installments and the bank charged penal charges for breach of repayment contract. Whether these penal charges collected by the bank are liable for GST? (2 Marks) (ii) 'Highway', an e-commerce operator (ECO), provides various services in its online platform. In one of the services, it is liable to pay tax as notified under section 9(5) of the CGST Act, 2017. Its tax consultant advised that it can discharge its liability under section 9(5) by utilizing its available Input Tax Credit (ITC) but it needs to reverse proportionate ITC in respect of said turnover reported. You are approached to evaluate the correctness of the advice of the tax consultant. (3 Marks)

Suggested Answer and Working Notes:

(i) Liquidated damages are not a consideration for tolerating an act/situation and are thus not a supply. They are amount for preventing breach of contract and thus, are not subject to GST. Accordingly, no GST is payable on the penal charges collected by bank. (ii) The advise of consultant of Highway is not correct since: ECO has to pay the full tax liability under section 9 (5) only in cash i.e. only through electronic cash ledger.ECO is not required to reverse the ITC on his inputs and input services used for making such supplies.

Topics: Input Tax Credit, Charge of GST

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