Tribunal overturns service tax demand on compensation for breach of contract.

The Tribunal set aside the order confirming a service tax demand on M/s. M. N. Dastur & Co. Pvt Ltd for receiving excess compensation upon cancellation of an agreement to sell an immovable property. The compensation received was deemed to be for damages due to the seller's failure to fulfill obligations, not falling under the 'Declared Service' category. The appeal was allowed, emphasizing that the compensation was for damages incurred, not for tolerating an act or situation, as per Section 66E(e) of the Finance Act.

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Issues:
The judgment involves the confirmation of demand for service tax under the category of 'Declared Service' and imposition of penalty on the appellant for receiving an excess amount after cancellation of an agreement to sell an immovable property.

Summary:
The appellant, M/s. M. N. Dastur & Co. Pvt Ltd, challenged the Order-in-Original confirming a service tax demand of Rs. 74,46,900/- under 'Declared Service' category for receiving excess compensation upon cancellation of an agreement to sell an immovable property. The dispute arose from delayed development of the property due to conflicts between parties involved. The appellant received compensation of Rs. 6,02,50,000/- over the advance payment made, leading to the question of whether this amount constitutes 'consideration' under Section 66E(e) of the Finance Act. The Tribunal analyzed the distinction between 'consideration under a contract' and 'compensation for failure to fulfill the contract' based on previous judgments. It was observed that the compensation received was for damages due to non-fulfillment by the seller and not for tolerating an act or situation, thus not falling under Declared Service as per Section 66E(e).

The appellant contended that the cancellation of agreements and subsequent compensation were not intended at the time of entering into the agreements, emphasizing the primary purpose of purchasing the property. They relied on a previous Tribunal decision to support their argument and contested the demand on the grounds of limitation. The Revenue supported the findings of the Commissioner and opposed the appeal.

After hearing both parties and examining the case records, the Tribunal concluded that the compensation received was for damages/loss of interest on funds invested due to the seller's failure to fulfill their obligations. Citing the precedent set by the Tribunal in a similar case, the Tribunal held that the compensation received did not fall under Declared Service as it was not for tolerating an act or situation but for the damages incurred. Therefore, the impugned order confirming the demand was set aside, and the appeal was allowed with consequential relief as per law.

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