On 3 August 2022, the Department of Revenue, Ministry of Finance issued its clarificatory Circular No. 178/10/2022-GST (“Circular”) which primarily addresses the taxability of liquidated damages and penalty. The basic principle emanating from the Circular is that there must be necessary and sufficient nexus between the supply (i.e agreement to do or to abstain from doing something or to tolerate an act) and the consideration to give rise to a taxable event.
