Contract breach compensation not taxable as declared service; dead rent, residential renting and duplicate service tax demands were also set aside.

Liquidated damages, penalty and forfeiture recovered for contractual breach were held not taxable as declared services because Section 66E(e) applies only where there is an identifiable agreement to refrain from, tolerate, or do an act for consideration; mere compensation for default is outside the levy. Dead rent demand was also set aside because no post-01.04.2016 arrangement was shown. Service tax on residential renting for contractor employees was not sustained on the facts, and no separate liability arose for security and detective agency services where the provider had already discharged the tax. All substantive tax demands were deleted, with only admitted interest confirmed and no penalty imposed.

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Issues: (i) Whether liquidated damages, penalty and forfeiture amounts received for breach of contract were taxable as a declared service under Section 66E(e) of the Finance Act, 1994; (ii) whether service tax was payable on dead rent for the relevant period; (iii) whether renting of immovable property for residential use by contractor employees attracted service tax; and (iv) whether service tax was payable on security and detective agency services where the service provider had already discharged the tax.

Issue (i): Whether liquidated damages, penalty and forfeiture amounts received for breach of contract were taxable as a declared service under Section 66E(e) of the Finance Act, 1994.

Analysis: Taxability under Section 66E(e) requires a specific agreement to refrain from an act, tolerate an act or situation, or do an act, coupled with consideration flowing for that very obligation. Mere penal clauses in contracts, or amounts recovered as compensation for breach, do not by themselves create a taxable service. The amounts were collected to protect contractual performance and compensate for default, not as consideration for any agreed toleration of breach. The distinction between conditions of a contract and consideration for a contract was applied to hold that liquidated damages, penalty and forfeiture amounts lack the necessary nexus with a taxable service.

Conclusion: The demand of service tax on liquidated damages, penalty and forfeiture amounts is not sustainable and is set aside.

Issue (ii): Whether service tax was payable on dead rent for the relevant period.

Analysis: The liability was examined on the basis of the date and continuity of the underlying arrangements. The record showed payment of dead rent under earlier agreements and no new agreement after 01.04.2016. In the absence of a post-01.04.2016 arrangement, the demand could not be sustained for the disputed period.

Conclusion: The demand on dead rent is not sustainable and is set aside.

Issue (iii): Whether renting of immovable property for residential use by contractor employees attracted service tax.

Analysis: The premises were used for residential accommodation of employees at site. The same demand for the earlier period had already been dropped by adjudication, and no contrary sustainable basis was shown for the later period. On the facts, the activity did not warrant a different tax treatment.

Conclusion: The demand of service tax on renting of immovable property for residential use is not sustainable and is set aside.

Issue (iv): Whether service tax was payable on security and detective agency services where the service provider had already discharged the tax.

Analysis: The service provider had paid the full tax to the Government treasury and the appellant had reimbursed the amount. Since the tax stood discharged on the same service, no separate liability could be fastened on the appellant.

Conclusion: No service tax is payable by the appellant on security and detective agency services and the demand is set aside.

Final Conclusion: All substantive tax demands were deleted, with only the admitted interest liability remaining confirmed and no penalty imposed.

Ratio Decidendi: Service tax under Section 66E(e) of the Finance Act, 1994 arises only where there is an identifiable agreement to refrain from, tolerate, or do an act for consideration; amounts recovered merely as compensation or liquidated damages for contractual breach do not constitute such consideration.

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