Payment of Service Tax on Liquidating damages received - reg.

[vinay wakde]

We are paying amount against Liquidated Damages. Kindly let us know the following :-

1. Whether we have to pay Service Tax @ 12.36% on the amount received from 01.07.2012
2. Whether we have to raised Invoice in the name of the party to collect amount with Service Tax

Regards,

VINAY

AI Summary

Taxability of liquidated damages may arise under agreeing-to-obligation concept, potentially attracting service tax depending on contractual nexus.
Whether liquidated damages attract service tax is contested: one position treats such payments as compensation or penalty not constituting consideration for a taxable service and so not taxable; another relies on the declared service of agreeing to the obligation-covering obligations to refrain, tolerate, or perform acts-so that payments for breach may be taxable; a further view requires a fact-specific assessment of the nexus between the damages and any taxable service.