Liability of Service Tax upon the noticee on the amount shown in profit & loss account as Liquidated damage and Debtor Written of.

[Sudhir Kumar]

The department has raised a demand on the income shown in profit & loss account as 'Liquidated Damage' and 'Debtor Written of' and now confirmed the same vide passing the Adjudicating Order. However, in defence reply various judicial pronouncement against the demand and in favour of the party on the above income was submitted by the party but department ignored all of them. Such income received as Liquidated Damage or Debtor Written of is not amounting to Sevice Tax liability.

AI Summary

Challenging service tax on liquidated damages and debt write-offs: whether payments are 'consideration' or mere compensation A tax authority assessed service tax on amounts recorded as liquidated damages and debt write-offs in the profit and loss account and upheld that demand in an adjudication, while the taxpayer submitted judicial decisions arguing those receipts are not taxable services but the authority disregarded them. Key legal issues are whether the payments constitute 'consideration' for a taxable service or mere compensation/financial loss, whether debt write-offs can be characterized as receipt of service, and whether precedent and evidentiary burden were properly applied. Remedies include appellate review, stay/penalty relief, and reliance on binding case law to challenge classification and demand.