Supply by agreeing to refrain or tolerate an act requires a contract and consideration; mere penalties are not taxable. The circular explains that the declared service of agreeing to refrain, tolerate or do an act requires an express or implied contractual agreement and corresponding consideration; mere payments for breach, statutory cancellation, fines or penalties are not consideration for such a supply. Payments that compensate or penalise (liquidated damages, statutory compensation, cheque dishonour fines, forfeiture, bond recoveries) are events within the contract or statute and not taxable unless they represent consideration for an independent agreement to tolerate or perform a service. Ancillary charges bundled with a principal taxable supply (late payment fees, cancellation charges) are taxable as the principal supply; exempt principal supplies render ancillary charges non-taxable.