Taxability of forfiture amount collected from clients

This query is : Resolved

AKHIL P (Querist)
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24 September 2014 Dear All,

We are doing construction service and paying service tax under works contract (4.944%). When the clients are booking an apartment we will be entering in to two separate agreements. One for land and one for construction. As per agreement if the client is cancelling the agreement(purchase ) we will be retaining 25% of amount what he has already paid. And the balance 75% will be paid to him.
Q No.1 whether service tax is payable on such forfeiture charges deducted from the client….? (Assume no service tax paid on 100% receipt)
Q No 2 If it is taxable under what service it is taxable ie whether the same has to be included in the Assessable value of service (Works contract @ 4.944%) as per Rule 6 (1)(x) of service tax determination valuation rule.
Or under any other service as per negative list (@12.36%)…?. Please give any case law on the same issue…

Amit B

Amit B (Expert)
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25 September 2014 With respect to Sec 66 E of Finance Act 1994 , e) agreeing to the obligation to refrain form an act , or to tolerate an act or a situation or do an act - Service tax is applicable