We have recovered amount of Liquidating damages from the party as per the agreement. The service Tax is now payable @ 12.36% w.e.f. 01.07.2012 (under reverse charge method) on amount of liquidating damages. We are collecting said the amount by raising a debit note. In the matter, kindly clarify whether we have to raise the Debit note in favour of party inclusive of service tax to recover total amount of liquidating Damages from party i.e. Rs. 100/- inclusive service tax. or otherwise.
Regards,
VINAY
Debate on Applying 12.36% Service Tax to Liquidated Damages and Input Service Credit Eligibility Under Reverse Charge Method A discussion on a forum addresses the issue of service tax on liquidated damages. A user queries whether a debit note for liquidated damages should include service tax, which is payable at 12.36% under the reverse charge method. A respondent advises that the agreement should specify if liquidated damages include service tax. Another query concerns the eligibility for input service credit on service tax paid, with a response indicating that liquidated damages are not typically considered as services provided, thus complicating the claim for input service credit. The discussion highlights the complexity of applying service tax to liquidated damages. (AI Summary)
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