S.T. on pealty

[mehta pradip]

We are supplying ele. goods to power utility.For delay in delivery ,we have to pay penalty.So we are reducing ex.works price by penalty as per Victory Ele. Ltd. case (2013 (12) TMI-81 - CESTAT, Chennai) & then pay E.D. on it .

1)are we correct ?

2)have the purchaser to pay service tax or not under entry. no .57 for tolerating an act of delay in delivery in this situation?

3) If we do not reduce ex-works price by penalty amount, then also purchaser will deduct penalty. Have purchaser to pay service tax or not under entry. no .57 for tolerating an act of delay in delivery in this situation?

[KASTURI SETHI]

Service Tax is payable. You may search in Discussion Forum of TMI. There has been lengthy discussion on this issue about six months ago.

[Ganeshan Kalyani]

Happy New Year 2017.

I agree with Sri Kasturi Sir, there had a very lengthy discussion on the subject. I have searched the reference of that discussion id and reproduced the reference id Number. Pls visit and go through the replies. It will solve the issue. Thanks.

[Ganeshan Kalyani]

Issue Id: - 109779
Dated: 23-1-2016

[mehta pradip]

Thanks for reply .Pl. inform in either situation i.e.I reduce the ex works price by penalty amount & then pay excise duty and I do not reduce the ex works & pay excise duty on which purchaser deduct penalty ,will service tax be payable by purchaser ?

[KASTURI SETHI]

Sh.Mehtab Pradip Ji,

First of all, the judgement referred to by you stands accepted by the department as per status shown by EXCUS. So you are correct in reducing the ex-works price for the purpose of payment of Central Excise duty.

2. In both ways Service Tax is payable by the buyer. It is natural that you will reduce the ex-works price in letter and spirit of terms & conditions of an agreement and that reduction of price is consideration for the buyer.

In order to examine leviability of Service Tax three conditions are to be fulfilled:-

(i) There must be Service Provider.

(ii) There must be Service Receiver

(iii) There must be consideration.

In the situation explained by you, your buyer conforms to all the three parameters. Whether you reduce the price or pay penalty direct, consideration is there. So legally ST is to be paid. Your buyer becomes Service Provider. The intention of the Govt. by inserting this service in the category of 'Declared Services' is to detect such cases where direct consideration is not involved. It is inherent/inbuilt.

Pl. Note. In case one of three elements is missing/absent no ST is payable.

Now you can judge yourself.

AI Summary

Tolerating an Act service: purchaser liable for service tax when penalty reduces price or is paid
The department accepts reducing the ex-works price for central excise purposes. For service tax, the purchaser is liable under the declared service of tolerating an act whether the supplier reduces the ex-works price by penalty or the purchaser deducts the penalty later, because the three conditions - service provider, service receiver and consideration - are present; absence of any one element would negate service tax liability.