Other Income.

[Guest]

Sir, 

During checking of balance sheet  it came to notice that the unit has received Rs. 2 Crores as income   for non lifting of material by their customer.On questioning the concerned person explained that  they had received  order for supply of goods but due to non lifting by them they  were charged Rs. 2 Crores which they have paid as per terms of contract.

Kindly let me know whether this income is to be treated as income from manufacture and Ex.Duty is payable  or  it should be treated as  commission income and  chargeable to service  tax /or under which head of service tax it should fall in case it is income chargeable to service tax.VERY URGENT.

P.M.Dongre

[Surender Gupta]

Though after inception of negative list in the Service Tax Law and wide scope and definition of the term 'Service' it is felt that all such kind of receipt would be liable to service tax, but to my understanding, such compensation for non lifting of material is nothing to do with service for the purpose of Chapter V of the Finance Act, 1944.

On the other side, in excise, if there is no removal, there is no scope of duty of excise.

In other words, the receipt is neither chargeable to excise  nor service tax.

[YAGAY andSUN]

On such income which is of non operating nature, service tax is applicable w.e.f. 01-07-2012.  Earlier any income generated against Liquidity Damage was not subject to indirect taxation.

[Surender Gupta]

With due regard, I differ with the view of Mr. Pradeep Khatri.

[YAGAY andSUN]

Kindly refer para 6.7 of the Service Tax Educational Guide, which states as below:-

Agreeing to the obligation to refrain from an act, or to tolerate an

act or a situation, or to do an act

In terms of this entry the following activities if carried out by a person for another for

consideration would be treated as provision of service.

•Agreeing to the obligation to refrain from an act.

•Agreeing to the obligation to tolerate an act or a situation.

•Agreeing to the obligation to do an act.

AI Summary

Service tax on compensation for non lifting of goods may arise as consideration for agreeing to refrain or tolerate acts. The issue is whether contractual compensation for non lifting of goods is chargeable to excise or service tax. One view holds no excise liability where there is no removal and that the receipt is not a taxable service. Another view contends that such compensation may constitute consideration for agreeing to refrain, tolerate, or perform an act and therefore could attract service tax under the expanded service definition.