From July 1, service tax will be levied on the demurrage amount ordered by a court.
Demurrage charges are usually related to transportation or shipment business and refer to penalty paid for exceeding the free time allowed for loading, unloading, shipment or delivery.
“In some specific cases or dispute settlements in which the court orders for the payment of cost against loss or as demurrage charge will attract service tax on it,” SK Goel, chairman, Central Board of Excise and Customs (CBEC), told HT.
But no tax will be levied on compensation paid, claims or alimony out of a divorce suit, he said.
“Usually compensation or cost that the court awards is not taxable, but henceforth any such cost ordered by the court after a dispute settlement that would be paid in the form of a demurrage charge — whether it’s in transportation or a contractor’s failure to complete a building causing loss to the client would attract 12% service tax,” said JK Mittal, Supreme Court lawyer and tax consultant.