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Service tax on forfieted AMount

Service Tax - Started By: - Prakash Gupta - Dated:- 21-1-2016 Last Replied Date:- 19-1-2017 - Dear All, Please share your view on applicability of the . the assessee is providing service of residential construction services. Thanks,RegardsPankaj Singh - Reply By Mahir S - The Reply = Pankaj ji, According to Section 66B of the Act, service tax would be payable on services provided or agreed to be provided in the taxable territory. Accordingly, advances retained or forfeited by service provider in .....

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attract service tax as rightly replied by Mahir Sir. - Reply By Rajagopalan Ranganathan - The Reply = Sir, According to Section 66 E (e) of Finance Act, 1994 agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act is a 'Declared Service'. Forfeited amount is a consideration for not executing the contractual obligation by the service provider either partly or fully. Therefore the amount forfeited is a consideration for tolerating the act o .....

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structor o) offered a person to construct a residential complex against certain sum of money payable in installments. Other person (Service Receiver) (Promisee) accepted the offer and agreed to pay installments on last day of every month. It was also agreed that service provider shall completed the construction and delivered the complex in 12 months and service receiver shall pay the last installment on the last day of 12th month. It was further agreed that any breach of terms of contract by eit .....

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ited by service receiver and lying with service provider is exigible to service tax or not. To get covered under declared service defined under section 66E(e) it has to be a stand alone transaction. The effect of breach of a contract can not be treated as a separate transaction of service.Act of forfeiting is effect of breach of contract. contract and effect of breaching a contract is a whole body and same can not be separated. By forfeiting two installments already paid service receiver is only .....

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section 66(E)(e). not the situation where your kids tutor provider abruptly decided not to teach your kid and you decided not to pay for the classes which he has already taken. in the second situation, money you have not paid is your compensation for the inconvenience caused and the cost of searching new tutor and mental agony what ever it may be. in second situation. money not paid by you is the effect of non performance of obligation by tutor which he alternatively performed by way of forfeiti .....

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have. so the amount forfeited by service received and retained by service provider does not amount to consideration. . - Reply By vijay kumar - The Reply = In terms of Section 66B, the charge of service tax is on service provided or agreed to be provided. Since the service was agreed to be provided and advance/consideration for service to be rendered was received, even POT is also satisfied. Hence taxable. In this regard, please refer to para 3.1.1. of Edcucation Guide, which reads as follows: 3 .....

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are retained by the service provider in the event of cancellation of contract of service by the service receiver become taxable as these represent consideration for a service that was agreed to be provided. - Reply By KASTURI SETHI - The Reply = Dear Experts, Let us first of all examine the definition of Service as per Section 65B (44) of Finance Act 1994 which reads as follows:- (44)  service means any activity carried out by a person for another for consideration, and includes a declared .....

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s taken in any Court or tribunal established under any law for the time being in force. - From a perusal of above, it is very much clear that in order to charge service tax there must be some sort of activity involved and that activity must be carried out. The term activity has not been defined under the Finance Act and hence it becomes debatable whether a transaction would constitute an activity or not. As per different dictionaries, the word , activity means (a) work performed to create a resu .....

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ve action which could be measured in terms of work completed and create a result. Any participation which is of passive nature shall not be covered under the phrase, Activity carried out Hence such work which does not qualify as an activity carried out shall not be termed as service as per definition under Section 65B(44) of the Finance Act 1994. In the instant case, activity has not been carried and advance amount has been forfeited. Activity for which was advance was given to the Service Provi .....

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ested responsibilities by the service recipient. Had the receiver not violated any clause of the agreement/contract, the advance amount would not have been forfeited. By any stretch of imagination, it cannot be established that such amount of penalty (forfeited amount) has been collected out of an activity provided or agreed to be provided by the service provider. Work has not been completed and hence no service provided. The forfeited amount is a penal action which has been taken by the Service .....

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n of service and hence in order to prove that it is necessary that first an activity should qualify as a service and then the role of section 67 shall come into ambit. Section 67 (3) shall come into picture only thereafter. Further the Board vide its instructions issued vide F No: 137/25/2011- ST dated 03-08-2011 has clarified that delayed payment charges received by the stock brokers are also, therefore, not includible in taxable value as the same are not the charges for providing taxable servi .....

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separately, only then these would be covered by gross amount charged by the service provider, otherwise by no means service tax can be charged on penal charges. Now the issue arises of Declared Service . Also as per Section 66E of the Act wherein some activities have been categorically covered under the definition of Declared Service the activities which includes, agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act , is covered. It is to be no .....

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e ambit of this entry. For instance, if a contractor delays the construction of a project and some penalties are recovered from him, it does not mean that the company has agreed to tolerate the delay and the penalties recovered is consideration for said toleration of act. It has also been established that any amount received in settlement of dispute cannot be considered as a service liable to service tax. ANOTHER ASPECT OF FORFEITED AMOUNT As per the definition of service no activity has been ca .....

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service, (again coma) but shall not include- an activity which constitutes merely,- a transaction in money or actionable claim; If we go through the construction of the sentence it means that a declared service is not the part of Service because it is not in continuity. It is the role of a coma put after consideration and again put after declared service Secondly, a transaction in money shall be excluded from the definition of service From both prospectives, forfeited amount (penalty amount) ca .....

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will prevail. - Reply By KASTURI SETHI - The Reply = I want to correct one line in the title, another aspect of forfeited amount. The following line may be read as under:- If we go through the construction of the sentence it means that a declared service is the part of Service because it is in continuity. No full stop after 'consideration.'.It is the role of a coma put after consideration and again put after declared service' - Reply By KASTURI SETHI - The Reply = ADDENDUM TO MY REP .....

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effect that price is inclusive of Service Tax, only then forfeited amount will form part of consideration for the purpose of payment of ST, otherwise not. If price is not inclusive of ST, then forfeited amount is a dispute between Service Provider and Service Receiver and Govt. or legislature does not come into picture. Service Tax is levied on service, if service is not provided ST on what ? Service Tax is leviable on advance amount but that amount is also subject to the definition of service i .....

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ation under Section 67 has no role to play. All the provisions of Section 67 (including the definition of Consideration in Explanation (a) to Section 67) are applicable only if Service provided. Hence forfeited amount (penalty amount) cannot form part of consideration for charging ST and ST is not payable on penalty amount. - Reply By SANJAY SINGHAL - The Reply = V clear thought process. Kasturi sir. Well explained. - Reply By priti surana - The Reply = Dear experts,Query which i want you to add .....

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e money is taken against receipts or slips. Contract is entered into once the final payment is done and service receiver is given the possession of the unit. So there was no such binding contract when the advance money was received. We had paid service tax on the aforesaid amount under VCES 2013 on 25% of the money received. And had completed the audit of records under EA-2000 scheme for the year 2014-15, on the basis of provisional balance sheet, with no para raised. Now in audit of financial y .....

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