Service Tax credit on Penalty Charges.

[RAJENDRA KHOMNE]

Sir,

When service provider i.e. contractor fails to comply with conditions of work order assigned to him, company raised debit note to him for penalty charges with service tax. Our query is Can contractor take service tax credit as per debit note? Pl explain with rule.

Thanks,

AI Summary

Can contractors claim service tax credit on penalties? Experts argue penalties aren't services, citing Section 66E of the Finance Act. A discussion on whether a contractor can claim service tax credit on penalty charges imposed for non-compliance with a work order. Multiple experts agree that service tax should not be applied to penalty charges as penalties are not considered a service under the Service Tax Act. They argue that penalties are for non-fulfillment of contractual obligations and do not qualify as input services for credit. Some participants reference Section 66E of the Finance Act, suggesting penalties may be seen as a declared service, while others emphasize the lack of legal backing for such interpretations, highlighting the educational nature of CBEC guides and circulars.