TaxTMI 
TaxTMI 
2021 (7) TMI 1090
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....peals relates to demand of service tax on liquidated damages recovered by the appellant for acts of default, like delayed or deficient supplies by various suppliers. 2. The period involved in all the appeals is after 01.07.2012 and the case set out by the Department is that the appellant had agreed to tolerate breach of timelines stipulated in the contract; the amount imposed as liquidated damages are consideration for the act of tolerating contractual default; and that the appellant had rendered declared service of 'agreeing to the obligation to refrain from an act, or to tolerate an act or a situation or to do an act' contemplated under section 66E(e) of the Finance Act, 1994 [the Finance Act]. 3. The appellant, formerly known as Ne....
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....se notice dated 03.06.2015 was issued to the appellant calling upon the appellant to show cause as to why: "(a) the amount of Rs. 8,52,58,879/- (Rupees Eight crore fifty two lakhs fifty eight thousand eight hundred and seventy nine only), being the service tax due on the liquidated damages recovered from the supplier / contractors by NLC, for the period July 2012 to Mar. 2015, should be recovered from them under proviso to Section 73(1) of the Finance Act, 1994; (b) appropriate interest should not be charged on the said amount under Section 75 of the Finance Act, 1994; (c) Penalty should not be imposed on them under Section 76 and 78 of the Finance Act, 1994." 6. Similar show cause notices were issued containin....
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....o the obligation to refrain from an act. b. Agreeing to the obligation to tolerate an act or a situation. c. Agreeing to the obligation to do an act. The Taxpayer vide their reply has stated that the expression to tolerate an act under the declared services should be understood to cover instance where the consideration is being charged by one person in order to allow another person to undertake any particular activity. I find that in the present case, if BHEL not completed the task agreed upon within the time schedule, NLC agreed to tolerate the same for a consideration in the form of Liquidated damages as per the Schedule 4 of the Agreement. I find the above act of NLC are in relevance to the service covered unde....
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....banking and other financial services. 11. Shri Balakumar and Shri L. NandKumar learned Authorized Representatives appearing for the Department have, however, supported the impugned orders and have submitted that they do not call for any interference as the demands have been confirmed in accordance with the provisions of section 66E(e) of the Finance Act. 12. The submissions advanced by the learned counsel for the appellant and the learned Authorized Representatives of the Department have been considered. 13. There is substance in the submission advanced by the learned counsel for the appellant that no service tax is payable on the amount collected towards liquidated damages as this issue has been decided by the Tribunal in favour o....
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....sions of section 66E(e) have to be analyzed. Section 65B(44) defines service to mean any activity carried out by a person for another for consideration and includes a declared service. One of the declared services contemplated under section 66E is a service contemplated under clause (e) which service is agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act. There has, therefore, to be a flow of consideration from one person to another when one person agrees to the obligation to refrain from an act, or to tolerate an act, or a situation, or to do an act. In other words, the agreement should not only specify the activity to be carried out by a person for another person but should specify the:....
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....y upon the other party nor is it the intention of the other party to get penalized. 28. It also needs to be noted that section 65B(44) defines "service" to mean any activity carried out by a person for another for consideration. Explanation (a) to section 67 provides that "consideration" includes any amount that is payable for the taxable services provided or to be provided. The recovery of liquidated damages/penalty from other party cannot be said to be towards any service per se, since neither the appellant is carrying on any activity to receive compensation nor can there be any intention of the other party to breach or violate the contract and suffer a loss. The purpose of imposing compensation or penalty is to ensure that the d....