Advance Forfieted

[Amit Nayak]

Dear Sir,

in my company ,one party was order to supply the material and we also received advance amount agt po amount ₹ 2800000.after the material is lying in our factory premises and the order was cancel.So,we take it in balance sheet as Advance forfieted amount in other income head.Is there any tax liability in this Forfieted amount as per section 66E(e).

Please advice .

[Rajagopalan Ranganathan]

Sir,

The amount forfeited will represent a fee/penalty for tolerating the act non-lifting of the goods from your factory by your customer. Therefore according to Section 66E (e) of Finance Act, 1994 you have deposit the service tax @15% including Swatch Bharat Cess and Krishi Kalyan Cess.

[YAGAY and SUN]

Service Tax shall be applicable on such transaction under Section 66 E (e).

[KASTURI SETHI]

I support the views of both experts.

[Ganeshan Kalyani]

The amount forfeited is an income and liable to service tax as the provision under Finance Act.

AI Summary

Service tax on forfeited advance: forfeiture treated as fee/penalty and taxable under Section 66E(e).
Forfeited advance retained after order cancellation is treated as a fee/penalty for tolerating non lifting of goods and therefore constitutes a taxable service under the Finance Act provisions addressing specified services; commentators advise deposit of service tax and applicable cesses on the forfeited amount, characterising it as both income and a taxable service charge arising from the contractual breach.