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.

[Shilpi Jain]

You either file an appeal against this order by paying the pre-deposit else approach HC to quash this order as the submissions made to the SCN were not considered.

Its now settled that no ST on liquidated damages and in case of debtors w/o no service is provided so no question of any liability. You could also consider to make submissions in the Writ to decide the matter.

[KASTURI SETHI]

There are so many judgments on this issue in favour of the party. The element of consideration is absent, it being compensation. Service is absent. Better option is to exhaust the departmental channel/remedy.. Hopefully, you can get fair justice at the hands of CESTAT. By the time the case is decided by CESTAT, you will come by more judgments in favour of the party.

There is risk in going High Court direct. Time, money and energy will be wasted, if High Court directs to exhaust departmental channel first. It often happens.

AI Summary

Tax authority taxes liquidated damages and debtor write-offs; forum says no consideration - recommend departmental appeal or writ, note risks The tax authority assessed service tax on amounts recorded as liquidated damages and debtor write-offs and confirmed the demand in an adjudication despite the taxpayer citing favorable judicial precedents; forum respondents advise that such amounts lack the element of consideration and do not attract service tax. Recommended remedies include filing an appeal with required pre-deposit or seeking writ relief in high court, though one reply cautions that courts may require exhaustion of departmental remedies first. Forum consensus favors pursuing departmental appeal and CESTAT review while noting risks and potential delay of approaching the high court directly.