Service tax on compensation paid for cancellation of an agreement

[tailor jaffrulla khan]

Whether Service tax is applicable on compensation paid on cancellation of agreement to sell?

[S G]

No till now as there is no service tax will applciable on this transacation as the transacation of sell of property is not liable to service tax and the transaction in question is incidental to sell of property.

If the agreement is for providing service and in case of cancellation of such agreement or contract if any compensation is received, then service tax would be payable by the receiver on such consideration received.

AI Summary

Service tax on cancellation compensation: taxable where agreement is for services; not taxable if incidental to sale of property.
Service tax liability on compensation for cancellation depends on contract nature: compensation incidental to a sale of property is not subject to service tax, whereas compensation received on cancellation of a service agreement is treated as taxable consideration and taxable in the hands of the recipient.