Non lifting of agreed material

[S.C. WADHWA]

Dear Expert,

1.	A Company entered into a contract
	for manufacturing of 1000 kgs of a particular
	product with another company.
2.	It manufactured 1000kgs but the buyer could not
	purchase the entire quantity.
3.	The company raised debit note for compensation
	excluding taxes for material not purchased by it.
4.	The product is excisable. Amount of debit note is
	₹ 20 lacs.
	Query is:
1	Whether it is covered under declared service.
2	If yes, whether service tax would be levied or not.
3	The company is not registered as service provider
	Whether it has to get registration under service tax
	as service provider. Please give your expert opinion. Regards, WADHWA

[bhart b sharma]

there is manufacturing but no clearance of final product so no excise duty is applicable in this case.

secondly, service tax is imposed on value realised by the service provider in lieu of services that are rendered to the service recipient. in this case, it is disputed amount which is raised by way of debit notes - a sort of civil penalty and recourse would be to settle in a civil suit.

regarding procurement of service tax registration on account of having raised a debit note, there appears to be no requirement of service tax registration as no service appears to have been provided

AI Summary

Service tax not triggered by debit notes for unlifted goods treated as disputed compensation; no registration required.
No excise duty arises where goods are manufactured but not cleared. Service tax applies only to value realised for services actually rendered; a debit note raised as disputed compensation or civil recovery for unlifted goods does not, on its face, constitute consideration for a taxable declared service, and therefore does not attract service tax or require service-provider registration absent evidence that the amount represents payment for services.