Sections extracted
- Section 73
- Section 74
- Section 16
GST circular working note
Circular 178/10/2022-GST: GST applicability on liquidated damages, compensation and penalty arising out of breach of contract or other provisions of law
Source-led decode of CBIC Circular 178/10/2022-GST with the actual provisions, rules, forms and official PDF trail.
Reviewed by CA Nikhil Gupta · Updated 5 October 2026
Filing identity
Circular number
178/10/2022-GST
Date
2022-08-03
CBIC record
1003115
PDF source
official text PDF; 11 page(s)
Form in 2 minutes
Circular 178/10/2022-GST deals with GST applicability on liquidated damages, compensation and penalty arising out of breach of contract or other provisions of law. Read it as a rate, classification and taxability mapping: identify the supply, supplier, recipient, tariff or service description, notification entry and event date before applying the circular. The circular is binding administrative clarification under the GST framework only to the extent of the issue it answers; the Act, Rules, notifications and event-date version still control the final legal result.
Working point: On the issue of GST applicability on liquidated damages, compensation and penalty arising out of breach of contract or other provisions of law, a practitioner should match the product or service facts to the circular's described entry instead of extending the answer to nearby supplies by label alone.
Bare law, rules and notifications
Rules extracted
No CGST Rule number was expressly extracted from Circular 178/10/2022-GST.
Forms extracted
No GST form was expressly extracted from Circular 178/10/2022-GST.
Notifications and linked circulars
- Circular No. 192/02/2016
- Circular No. 212/2/2019
The source map above is limited to citations actually extracted from the official Circular 178/10/2022-GST PDF. Where the transaction also touches another charging section, exemption entry, return rule or limitation provision, document that separate source before filing or advising.
Paragraph-wise decode
| Para | Issue dealt with in the circular |
|---|---|
| 2 | “Agreeing to the obligation to refrain from an act or to tolerate an act or a situation, or to do an act” has been specifically declared to be a supply of service in para 5 (e) of Schedule II of CGST Act if the same constitutes a “supply” within the meaning of the Act. The said expression has following three limbs: - a. Agreeing to the obligation to refrain from an act- Example of activities that would be covered by this part... |
| 3 | The description “agreeing to the obligation to refrain from an act or to tolerate an act or a situation, or to do an act ” was intended to cover services such as described above. However, over the years doubts have persisted regarding various transactions being classified under the said description. |
| 3.1 | Some of the important examples of such cases are Service Tax/GST demands on – i. Liquidated damages paid for breach of contract; ii. Compensation given to previous allottees of coal blocks for cancellation of their licenses pursuant to Supreme Court Order; iii. Cheque dishonour fine/penalty charged by a power distribution company from the customers; iv. Penalty paid by a mining company to State Government for unaccounted... |
| 4 | In Service Tax law, ‘Service’ was defined as any activity carried out by a person for another for consideration. As discussed in service tax education guide, the concept ‘activity for a consideration’ involves an element of contractual relationship wherein the person doing an activity does so at the desire of the person for whom the activity is done i n exchange for a consideration. An activity done without such a... |
| 5 | The description of the declared service in question, namely, agreeing to the obligation to refrain from an act or to tolerate an act or a situation, or to do an act in para 5 (e) of Schedule II of CGST Act is strikingly similar to the definition of contract in the Contract Act, 1872. The Contract Act defines ‘Contract’ as a set of promises, forming consideration for each other. ‘Promise’ has been defined as w illingness of... |
Use these paragraph cues to locate the operative part quickly, then read the full official PDF for conditions, exceptions, examples, effective dates and past-period regularisation language.
Workflow
- Identify issue.
Record the taxpayer, supply, return period, order or refund event covered by Circular 178/10/2022-GST. - Map source.
Open the circular PDF with the Act, Rule and notification entries listed above. - Compile proof.
Contract, invoice description, product literature, HSN/SAC support, rate notification, exemption condition and tax-position memo. - Close filing.
Use the portal or officer channel that matches the event date and keep the acknowledgement with the source PDF.
Forms and downloadable source
Circular 178/10/2022-GST does not prescribe a separate static form PDF in its extracted source text. The operative document for this page is the circular PDF and the applicable Act, Rule, notification or portal process.
Do not use a form title by memory alone. Confirm the live portal, the rule that prescribes the form, historical return period and any officer instruction before upload or reply.
Highlighted advisory points
Scope
Circular 178/10/2022-GST should be confined to GST applicability on liquidated damages, compensation and penalty arising out of breach of contract or other provisions of law; nearby issues require their own source check.
Evidence
Keep the official PDF, transaction documents and portal record together so a reviewer can reproduce the conclusion.
Version
For historical periods, use the law and portal version applicable to the event, not merely the current screen label.
Exam and advisory case study
For exams and opinions, write the classification path: facts, statutory entry, notification condition, circular clarification, past-period treatment and practical billing result. For Circular 178/10/2022-GST, a complete answer names the issue, lists the controlling provisions extracted above, applies the circular's operative answer, and then states what the taxpayer or officer must do in the return, refund, appeal, billing or record file.
Finin2min summary and Q&A
Summary: Circular 178/10/2022-GST is a source-specific GST clarification on GST applicability on liquidated damages, compensation and penalty arising out of breach of contract or other provisions of law. Use the exact official PDF, not a generic circular checklist, and preserve the law/rule/notification map with the working file.
Is the circular itself the full law?
No. It clarifies administration under GST. The Act, Rules, notifications, court orders and facts of the transaction remain necessary.
When is a form PDF needed?
Only when the circular or linked rule actually points to a prescribed form. If the page lists forms, use the form compendium and the current GST portal version.
Can this be applied to another tax period?
Only after checking the effective date, amendment history and any past-period regularisation language in the official circular and related notification.
Primary official sources
CBIC circular metadata | Official CBIC PDF viewer | CBIC circular list | GST Council circulars
This Finin2min page is an educational working note. Official legislation, Gazette instruments, circulars, portal rules, court decisions and the facts of the matter prevail. Obtain professional advice for a live filing, refund, appeal or dispute.