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of <h1>Tribunal Affirms Service Tax on Compensation for Poor Quality Goods as Act of Tolerance Under Finance Act 1994.</h1> The tribunal dismissed the appeal, upholding the demand for service tax under section 66(E) of the Finance Act, 1994. The appellant had received ... Levy of service tax - declared service or not - amount of compensation received by the appellant on the act of tolerance by receiving the claim for poor quality of the goods - HELD THAT:- On going through the credit note, the amount is shown as claim raised by the appellant on account of poor quality of the material supplied which is in nature of compensation received by the appellant for receiving poor quality of goods. The said act is covered under declared service under sub-section (e) of section 66 (E) of the Finance Act, 1994 as it is an act of tolerance by the appellant for which appellant received compensation for receiving poor quality of goods. There are no merit in appeal filed by the appellant. Accordingly, the same is dismissed. Issues involved: Appeal against demand of service tax u/s 66(E) of the Finance Act, 1994 for compensation received for poor quality raw material.Summary:The appellant contested an order demanding service tax u/s 66(E) of the Finance Act, 1994 for compensation received due to poor quality raw material. The appellant used 50% PET and 50% HPA non-woven fabric for manufacturing, but the raw material was of poor quality. The appellant claimed compensation from the supplier for the poor quality material, treating it as 'income from other sources'. The audit revealed the amount should be taxed as service tax u/s 66(E) for an act of tolerance. The Commissioner (Appeals) partially reduced the demand but confirmed the service tax liability. The appellant appealed, but none appeared on their behalf, requesting a decision on merits based on records. The department's representative argued that the compensation received falls under u/s 66(E) as tolerance compensation. After reviewing the records, the tribunal found the compensation was for tolerating poor quality goods, falling under u/s 66(E). Consequently, the appeal was dismissed, upholding the demand for service tax.Judgement Highlight:- Appellant received compensation for poor quality raw material, treated as 'income from other sources'.- Tribunal found compensation falls under u/s 66(E) as an act of tolerance for poor quality goods.- Appeal dismissed, upholding the service tax demand.
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