M/s ASWATHY GAS AGENCIES v. INDIAN OIL CORPORATION LTD. & ORS.

Introduction

This judgment clarifies an important principle under GST law regarding the levy of GST on penalties recovered under commercial contracts. The Kerala High Court held that penalties imposed by Indian Oil Corporation on LPG distributors for violation of the Marketing Discipline Guidelines (MDG) do not constitute consideration for any “supply of service” under Sections 7 and 9 of the CGST Act. Consequently, while upholding the penalties themselves, the Court declared that GST cannot be levied on such penalties, as there was no taxable supply involved.

Background of the Case

The petitioners were LPG distributors appointed by Indian Oil Corporation (IOC).