Besides IP fragmentation we have MPLS fragmentation for some of the MPLS application, or so the RFC are saying and some MPLS fragmentation should exist in all vendors’ hardware and software. MPLS fragmentation should exist at L3VPN (based, of course, on IP fragmentation described in RFC 3032), it might exist on PW (described in RFC 4623), and also it might exist on VPLS if IP fragmentation is presented on CE (RFC 4665). So MPLS fragmentation exists, at least it is described on the RFCs, and no the labeled fragmented packets will not get lost and no will not lose the source and the destination because of the fragmentation.

Again, the best scenario is to avoid fragmentation and to increase the MTU size as much as possible to increase the link throughput. Also it would be best to have the same MTU size along all the paths in the network, but if not possible at least to have the same MTU size along the same layer: core, aggregation and distribution, considering the fact in distribution layer could be some not so smart devices. 

IP Fragmentation

At the beginning has been TCP with no IP at all, the TCP has been spited in 2 TCP/IP at version 3 and it has become operational and highly used at version 4 (that’s why the 4 version from IP). The splitting of TCP has been decided because of the following reasons:  the need to have different layers for Network and Transport; the overkill of gateways (the former name of routers) to deal with end-to-end protocol for both routing packets between devices and reliable communications between end hosts. The IPv6 name has been chosen to avoid any confusion between the non-used IPv5 protocol (Internet Stream Protocol) and the new IPv6 protocol.

Just to be clear since the beginning: the fragmentation can be done on IP layer and on MPLS layer and that’s why on layer 2 link (like QinQ) the frames are dropped (depending, for more details you can check Almighty-MTUl) if the layer 2 MTU is less than the frames size, at this moment there is no layer 2 fragmentation definition or RFCs.