Smoking in a car can cause lung disease but is not subject to VAT
The Provincial Administrative Court in Kraków in the judgment of June 23, 2017 (I SA / Kr 376/17, Legalis) noted that in order to determine whether the provision of services had taken place, it is important to determine whether the provision brought any benefit to the recipient. Therefore, it is necessary to determine whether the given activities result in obtaining direct benefits by the paying party in return for their performance or omission. If, on the other hand, contractual penalties are treated as a kind of preventive factor intended to discourage committing prohibited activities, there is no question of providing services. So there is no question of VAT either.
In the judgment of July 31, 2020 (I FSK 1799/17, Legalis), the Supreme Administrative Court upheld this position. It found that there was no justification for the position of the authority that, in connection with the determination of contractual penalties for the indicated incorrect actions of the tenant, the tenant was released from any obligations and that it could be said that the taxpayer performed a consideration. In this case, contractual penalties are primarily repressive and preventive. Thus, it is not subject to VAT.
Source legalis.pl
