CHEQUE RETURN PENALTY SERVICE TAX

[george thomas]

Dear Sir

Our Company is engaged in Trading of Edible oil by appointing CFA OR Trade Associate .After the sales we are receiving Cheque payments .As per the Agreement if cheque is bounced more than 2 times we have the right to collect cheque return penalty charges also along with the invoice amount. Plz clarify whether service tax liability is there for the Cheque Return Penalty charges collected from the party.This charges is a part of the sale invoice amount and not providing any service

AI Summary

Service tax on cheque return penalty: treatment hinges on whether penalty is sale consideration or a taxable service.
Whether cheque return penalty charges collected with a sale invoice constitute a taxable service or form part of the sale consideration. The prevailing view is that such penalty charges, when included in the sales invoice for goods, are incidental to the sale and not a taxable service; involvement of a CFA or agent does not convert the penalty into a service. A counterview suggests the transaction could be characterised as a forbearance obligation attracting tax, but others reject that characterisation on these facts.