Service Tax on Penalty charged to service provider
This query is : Resolved
CA Kalpesh Gokani
(Querist)
17 December 2010
When service provider i.e. contractor fails to comply with conditions of work order assigned to him, company deducts penalty from its bill amount as per agreed terms. Whether this penalty amount should be reduced from expenses or credited to Misc. Income while accounting? whether ST is payable if this is credited to Misc. Income.?
Shyam Lal Naik
(Expert)
17 December 2010
In my view, the amount should go to reduce the expense. Because, the net amount is payable as per the terms of the condition of the contract.
If at all it is treated as Misc. income, ST is not payable. The reason being, this is not a receipt against any service rendered.
If at all it is treated as Misc. income, ST is not payable. The reason being, this is not a receipt against any service rendered.
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CA Kalpesh Gokani
(Querist)
17 December 2010
Invoice is not provided for net amount, it is provided without deducting penalty amount...so CENVAT credit is also availed on full amount.
Shyam Lal Naik
(Expert)
17 December 2010
For availment of Cenvat Credit, the amount mentioned in the invoice is not at all relevant.
Cenvat is availed on payment basis. The net amount paid by you shall be treated as cum-tax and Cenvat calculated accordingly.
In fact, the CBEC has clarified that, in case of deduction of service providers bill, the bill shall stand modified to that extent.
Cenvat is availed on payment basis. The net amount paid by you shall be treated as cum-tax and Cenvat calculated accordingly.
In fact, the CBEC has clarified that, in case of deduction of service providers bill, the bill shall stand modified to that extent.
CA Kalpesh Gokani
(Querist)
17 December 2010
That is only for when bill amount is reduced due to short service provided...in this case service is fully provided but only penalty is charged due to not fulfilment of contract clause say..contractor has not submitted PF challan or ST Certificate as per contract. than...
17 December 2010
LD has to be shown as misc. income . Service tax is paid on invoice amount. there is no relation between service tax and LD charges.
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