service tax on incentive received for early completion of work

[RAM AVTAR]

whether compensation received on early completion of work is taxable under service tax and vat . if yes then service tax will calculation considering original work or not

[KASTURI SETHI]

As per Section 67 (3), Service Tax is applicable on the amount of incentive or compensation. Note the language, 'Any amount.......' Also see the definition of the term 'Consideration'.This amount of compensation shall be considered towards the nature of service you have provided i.e. towards original work.

[Ganeshan Kalyani]

I agree with Kasturi Sir. Consideration means any amount receivable for service rendered. This would include incentives also and become taxable.

[DR.MARIAPPAN GOVINDARAJAN]

whether compensation is for a service? It is meant for the loss that may be there or in future.

[Ganeshan Kalyani]

Hope the query is resolved.

[PARTHASARATHY V]

A very good judgement by CESTAT Bangalore which is squarely cover your quarries which is pasted bellow:

While executing the work or issuing the order it is not ascertained that the work can be completed prior to the stipulated time.
The incentive aspects is coming only after completion of work. Suppose as some other expert stated, if the work is delayed there is LD clause for recovering money form the contract, is there any compensation for that, it is big question.

We can use the Bangalore CESTAT order to shield ourselves.

2016 (1) TMI 67 - CESTAT BANGALORE

AMR India Ltd. Versus Commissioner of Central Excise, Customs And Service Tax Hyderabad-II

 

 

Nature of bonus received conservative and efficient use of diesel and explosives - levy of service tax on such incentive received - Held that:- the incentives given by M/s Singareni are for appreciating the appellants performance in utilizing less quantum of oil and explosives. In fact the said incentives were not even known at the time of performance of the service and are always calculated subsequent to the completion of the service. As such it can be safely concluded that the same is more in the nature of a prize money for a good performance by the appellant and are in no way linked to the value of the services. As such we find no justification for including the same in the value of the services and to confirm service tax on the same. - Demand set aside - Decided in favor of assessee.

[KASTURI SETHI]

Sh.PARTHASARATHY V Ji,

Sir, thanks a lot for latest information.

[RAJESH MANGAL AGRAWAL]

Sh.PARTHASARATHY V Ji,

Sir, thanks a lot for latest Citation.

Pl. see that the period covered in the Citation is Mar-2008 to Mar-2012.

But in the current Regime of Negative list concept, in my opinion it is too much difficult to prove the prize money/ Incentive as Not Leviable to tax.

See Sec 67(3) has used the word "Any Amount" under the Gross amount charged. Further the word Consideration is defined as " Consideration includes-

(i) any amount that is payable for the taxable service provided or to be provided;

(ii) ; (iii0;

Further while defining the Declared Service U/s 66E

The Clause (e) is also very important i.e. agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act;

So in my opinion The subject matter "INCENTIVE' is neither covered under the Negative list of services as defined in Sec 66D, Nor covered under the Mega Exemption 25/2012 or any other exemption. HENCE IT IS TAXABLE.

[Ganeshan Kalyani]

In such situation where there is favourable as well as unfavourable provision to the case then there comes a necessary to sought for thinking on our stand that whether we should fight out the case keeping the amount of incentive involved or should leave it by offering the amount to tax knowing the amount involved is less. A good amount of discussion has happened and cherished the knowledge. Thanks to experts.

AI Summary

Taxability of incentives: post-performance payments may be includable in service value unless shown to be unlinked prizes.
Whether incentives for early or efficient completion are included in the taxable value depends on their characterization: amounts payable for the service or calculated as part of remuneration fall within the statutory Any Amount and the concept of Consideration and are includable, whereas post-performance prizes demonstrably unlinked to service value may be excluded.