TMI BlogApplicability of Service TaxX X X X Extracts X X X X X X X X Extracts X X X X ..... I want to ask whether service tax is applicable on liquidated damages. One of our clients have deducted the service tax on liquidated damages deducted by them from our bills. These liquidated damages relate to the not meeting the specified performance level of the equipment's supplied as well as the delay in supplies. Further, in case service tax is applicable on liquidated damages whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is possible to claim cenvat credit of the same. - Reply By Ganeshan Kalyani - The Reply = Refer Issue ID = 109779 - Date: - 23/01/2016 - Reply By Rajagopalan Ranganathan - The Reply = Sir, According to Section 66 E (e) of finance Act, 1994 agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act is a declared service and liable to se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvice tax. In your case liquidated damages are deducted from your bills for the reason of not meeting the specified performance level of the equipment's supplied as well as the delay in supplies. This amounts to tolerating an act or a situation. Therefore liquidated damages are amenable to service tax. Regarding availment of credit you have to satisfy the authorities in what way the service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax paid on liquidated damages satisfy the definition of 'input service' which is used in promoting your business. You may say that payment of liquidated damages improves you efficiency in manufacturing quality goods or providing services without any complaint from your customer. This you have to decide before availing the credit. This is my opinion. - Reply By KASTURI SETHI - The Reply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... = To prove liquidating damages as input service in relation to output (taxable) is a hard nut to crack. Near impossible.It is better not to take risk. The elements of 'interest' and 'penalty' would be attracted, if failed to establish relationship between both. - Reply By MARIAPPAN GOVINDARAJAN - The Reply = Service tax is applicable on liquidated damages. - Reply By KASTUR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I SETHI - The Reply = I endorse the views of all experts regarding applicability of Service Tax on liquidated damages. - Reply By Ganeshan Kalyani - The Reply = The topic in question is a debatable one. Some are of the view that penalty cannot be considered as consideration and therefore no service tax would be applicable. And some experts opine that it is declared services and eligible to serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice tax. Hence it seems that it is upon interpretation of law. Thanks. - Reply By Suryanarayana Sathineni - The Reply = Dear Friend,As already expresed by our learned friends, ST is payable on the liquidated damages since this falls under th ecategory of Declared Services. With regard to the point of cenvat eligibility, in my view, you can take the said amount as credit as this relates to sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /supply of goods related. Best Regards Suryanarayana - Reply By KASTURI SETHI - The Reply = Sh.Atul Kumar Ji, You can take credit on liquidated damages charges, if you cannot correlate input and output service (taxable). - Applicability of Service Tax - Query Started By: - Atul Kumar Dated:- 8-1-2017 Service Tax - Got 8 Replies - Service Tax - Discussion Forum - Kn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owledge Sharing, reply post by an expert, personal opinion Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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