this is the case we are civil contractors we raised an invoice of Rs.10 lakhs to our customer but the customer has paid only Rs.9 lakhs and for the remaining one lakh he sends a debit note showing is as liquidated damages.
my questions is whether we have to pay service tax on liquidated damages are not.
01 September 2010
According to me the Liquidate damages debited by the client will not attract Service tax, the debit note is the proof for the payment made less for the service provided
02 September 2010
My opinion is that since there is no service rendered there is no question of taxability. Even otherwise there is no receipt of money. Invoice raised for 10 lakhs and amount received was 9 lakhs. ST is only on the amount received and not on the inovice raised.
02 September 2010
There may be the decided judgements by the CESTAT or High Court on the relevant Querry. However, in case your are not able to quote the same , you can furnish the reply to the dept. quoting the basic provisions of the Service Tax , the levy of ST is on the basis of the Service provided, but the liability is fastned only if the payment is received . If no payt is received , the question of the deposit of ST does not arise.
However, I would like to add that if u are not crossing the limit of Rs. 10 lacs duirng the previous year , then for the purpose of counting the limit of Rs. 10 lac the full value of the invoices raised is to be considered irespective of the non receipt on account of liquidated damages.
If you refer the taxable service value definition for your register services, you can get answer, otherwoise under which categary you are register let me know
14 February 2017
As per Section 66E , Penalty/liquidated damages or other recoveries for reason whatsoever for non performance of contract is a declared service and accordingly chargeable to service tax. As per the said section "the activity of agreeing to the obligation to refrain from an act or to tolerate an act or a situation or to do an act is declared service. This service falls under the category of "Other taxable services"
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