Declared Services - 66E

[CA AJAY KUMAR AGRAWAL]

In many cases, companies are collecting fines, penalties and liquidated damages from their customers for any deficiency of performance or shortfall of supply/contract. These situations are very common and the amount so collected will form part other revenue of the company. My question is:-

1. In such case whether Company has to pay Service Tax u/s 66E(e) ?

2. If yes, whether Company has to get / endorsed Sec 66E(e) on registration certificate ?

[KASTURI SETHI]

Dear Sir,

Service declared under Section 66 E(e) cannot be endorsed on registration certificate.This activity will fall under,"Other Than Negative List". Accounting Code for the category, "Other Than Negative List" is relevant and required to be mentioned on R.C.

Regarding the applicability of ST, we have to go through terms and conditions of a particular contract.

[Ganeshan Kalyani]

Sir, Sri Kasturi Sir I topic is very interesting. So many queries are receiving on the subject. I think the Govt will notice the validity and amend the provision accordingly. Or a representation may be filed to the Govt requesting to issue clarificatory notification in this regard. Thanks.

[Rajagopalan Ranganathan]

Sir,

Section 66E (e) of finance Act, 1994 stipulates that agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act is a 'Declared Service' and the same is taxable unless specifically exempted. Collection of fines, penalties and liquidated damages by a Company from their customers for any deficiency of performance or shortfall of supply/contract is a declared service and hence the same is liable to service tax. Service Tax Registration Certificate merely mentions taxable service provided by registrant and does not elaborate the services provided by the registrant . Therefore provision of declared service under Section 66E (e) need not be mentioned in the registration certificate.

AI Summary

Declared service under Section 66E(e): fines, penalties and liquidated damages can be taxable, subject to contract terms. Declared service under Section 66E(e) includes agreeing to tolerate, refrain from, or perform an act and prima facie covers fines, penalties and liquidated damages collected for contractual shortfall; taxability depends on contract terms and applicable exemptions. The registration certificate does not require an explicit endorsement of Section 66E(e); registrants should use the broader 'Other Than Negative List' category and appropriate accounting code.