The Tamil Nadu Authority of Advance Ruling (AAR) has ruled that Minimum Guaranteed Off-take (MGO) Charges is in the nature of Liquidated Damages and therefore is not liable to GST.
The bench of C. Thiyagarajan and B. Suseel Kumar has relied on the CBIC Circular No. 189/10/2022-GST dated 03-08-2022 which clarified that liquidated damages for breach of contract is not a consideration for tolerating an act and hence not a supply.
The Applicant, ONGC is a Maharatna Public Sector Enterprise, under the administrative control of the Ministry of Petroleum and Natural Gas and is engaged in the supply of crude oil and natural gas. They have their establishments across onshore and offshore locations in India, where petroleum operations are carried out, to produce natural gas, for onward sale to various downstream customers in India.
The Applicant has entered into a Pan India Gas Sales and Transportation Agreement (GSTA) and has agreed to sell and deliver, APM (Administered Price Mechanism) and Non-APM Natural Gas produced from Government nominated fields, to GAIL.
The applicant sought the advance ruling on GST implications on the imposition of Minimum Guaranteed Off-take charges by the Applicant on GAIL.
The AAR held that the amount of MGO charges which is paid as liquidated damages’ is an amount paid only to compensate for injury, loss or damage suffered by the applicant due to breach of contract and shall not be construed as the activity of refraining from or tolerating an act or to do anything.
The AAR stated that MGO Charges are merely a flow of money from GAIL who causes breach of the contract to the applicant who suffers loss or damage due to such breach. The activity of the applicant would not fall within the scope of supply under Section 7(1A) of the Act, read with serial No. 5(e) of Schedule-II of the Act. Accordingly, such payments do not constitute consideration for a supply and are not taxable.
Ruling Details
Applicant’s Name: Oil And Natural Gas Corporation Limited
Ruling Date: 24/09/2025
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