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Service tax on penalty payments

This query is : Resolved 
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(Querist)
15 January 2011 Dear friends,

Some times there are penalty clauses in contracts which require deduction of some amount out of the contract price in case of any deficiency or default i.e. if services will not be completed within one month, a deduction of 20% will be made out of total fees.

In this case, the service provider will raise the complete bill for total amount of contract fees. But the service recipient will deduct 20% of fees. Whether service recipient can claim full credit of input tax charged in the invoice even though it is making 20% deduction?

Thanks
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CA Shailesh Kumar Bhagat

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CA Shailesh Kumar Bhagat (Expert)
15 January 2011 Although it is wrong, but there is a scope of claiming full input credit.

However during verification , it will come out.
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