The arbitral awards are given for various reasons and to know the GST implications on each of these awards it is pertinent to understand the nature of the awards given. The arbitral award may provide compensation to the parties, in the form of damages or it may be reimbursement of the amount which is incurred by one of the parties to the contract. Recent circular passed by CBIC Circular No. 178/10/2022-GST dated 3.8.2022 clarifies that the damages are amount paid to compensate the injury, loss or damage suffered by one of the parties due to breach of contract and such amount shall not qualify as consideration towards supply of any goods or services. However, the Circular has not been expressive with respect to various reasons for which the arbitral award is granted and thus the direct approach that the award is in the nature of damage and that the GST is not applicable would jeopardize the actual GST implication on such award.


Audio Source: An article published on the LKS website in December 2022.

Arbitral award: Compensation or consideration | Lakshmikumaran & Sridharan Attorneys (lakshmisri.com)

Authors:  Jagannadh Grandhi, Associate Partner LKS, and Kumari Nivedita, Associate LKS