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 it is possible to claim cenvat credit of the same.
Liquidated Damages and Service Tax: Experts Debate Applicability Under Finance Act, 1994, and CENVAT Credit Challenges A user inquired about the applicability of service tax on liquidated damages deducted due to not meeting equipment performance levels and supply delays. Responses varied, with some experts affirming that such damages are subject to service tax under the Finance Act, 1994, as they constitute tolerating an act. Regarding claiming CENVAT credit, opinions differed; some suggested it might be challenging to prove liquidated damages as an input service related to output, while others believed credit could be claimed if related to goods supply. The topic remains debatable, hinging on legal interpretation. (AI Summary)
TaxTMI 
TaxTMI 
TaxTMI 
