The Government of India has issued the much-awaited
clarification (vide Circular No. 178/10/2022- GST dated 3rd August
2022) on what could get covered as a 'supply' under the
entry of "Agreeing to the obligation to refrain from an act or
to tolerate an act or a situation, or to do an act". The entry
has been a subject matter of deliberation and dispute since its
introduction under the service tax regime, which then continued
into the GST regime.
The key question for determination has been that when a Party
(say 'A') recovers compensation or damages or cancellation
charges from another Party (say 'B') for non-performance or
any breach of contract by it, then is that non-performance or
breach a separate independent supply of 'tolerating an act'
by Party A, and consequently whether GST is applicable.
