LIQUIDATED DAMAGES RECEIVED FROM THE BUYER SERVICE TAX LIABILITY

[muthu kumaran.vp]

Sir

I have doubt on liquidated damages.

One of my client received Purchase order from the buyer for an amount of ₹ 1,00,000. Based on PO, my client (seller) purchased the raw material and processed the same and manufactured the goods. Now, buyer does not want to buy these manufactured goods and instead buyer promised to pay liquidated damage of ₹ 60,000 for loss occurred to the seller. Now, whether the amount received from the buyer falls under liquidated damages definition?, if so, whether do we need to pay service tax on this. My client (seller) is a manufacturing company and does not provide any services.

[KASTURI SETHI]

Sh.Kumaran VP Ji,

It is declared service under Section 66 (E)(e) of the Finance Act. In order to avoid repetition, please go through the detailed replies against Issue ID No.107261 dated 2.9.14 and ID No.110337 dated 11.5.2016.

[muthu kumaran.vp]

Thank you sir

[Ganeshan Kalyani]

Sir i remember well that there was healthy discussion on the subject in recent pass. Thanks.

[Suryanarayana Sathineni]

Dear Kasturi Ji,

You are exactly right and on similar query different views expressed to arrive at the right clarification.

Further, I wish to say that of late , it is being observed that similar issues are raised by various friends though clarifications on such issue/s were given earlier.

Through this mail, I humbly request all the friends to kindly check the contents of the queries in the FORUM before raising their query to avoid the repetition and also to save the precious time of both the queriest and the experts who post their views.

Best Regards

Suryanarayana

[KASTURI SETHI]

Sh.Surya Narayana Ji,

 

[KASTURI SETHI]

Sir, Some querists do not know how to search and most are not regular visitors. So query is repeated.

[Ganeshan Kalyani]

Sir what I think is that querist know very well that indirect taxation is a dynamic subject. What was appplicable yesterday may not be appplicable today. And what is applicable today may not applicable tomorrow. Hence they are approaching our clinic of taxation under banner TMI where we Tax Doctors render our valuable Consultation with updated medicine of Law which cures their problem. And the fact is we are providing service free of cost. Thanks.

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji,

Sir, I agree with you entirely. Reply on this issue remains the same. You are absolutely right that how the querist can come to know whether the old reply is still valid or not. Only if we refer to the earlier reply, only then he would be sure about the validity of the earlier reply.

One thing more to point out is that I refer to the already filed reply only if it is still valid. I appreciate your minute observation and the drafting which is full of similes.

AI Summary

Liquidated damages treated as taxable service under Section 66E(e), attracting service classification despite seller being a manufacturer. The forum concludes that compensation received from a buyer for non-acceptance of manufactured goods is classified as a declared service under Section 66E(e) of the Finance Act, thereby bringing such liquidated damages within the service tax framework even though the recipient is primarily a manufacturer; earlier forum clarifications are cited as supporting precedent.