TaxTMI 
TaxTMI 
2022 (5) TMI 253
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....') wherein the service recipient agreed to import a specified quantity of coal in a specified period of time and the Appellant agreed to render 'port services' for the same for a consideration. The said Agreement also provides for payment of penalty/liquidated damages/'compensation charges' of Rs.100/MT by the services recipient in the event of failure to achieve the 'Minimum Guaranteed Tonnage' [hereinafter referred to as MGT]. The relevant extract is reproduced below for ready reference: "6.5 SEPL/PTC commits minimum volumes as under from the date of NTP and KPCL agrees for the facilities accordingly:- 1) ...................... 2) ...................... 3) ...................... SEPL/PTC shall be liable to pay a compensation cha....
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....ly breaching the terms and conditions of the Agreement dated 12.07.2011 and the penal clause is invoked only in cases where the service recipient does not adhere to the contractual condition of 'MGT' as per Agreement dated 12.07.2011. 6. We find that as per Finance Act, 1994, the basic element to charge Service Tax is the element of service i.e. there should be an activity in the form of 'service' or 'declared service'. However, in the instant case, the said amount has not been collected towards any activity liable for Service Tax but as compensation/penalty for breach of terms and conditions of the contract [Agreement dated 12.07.2011] i.e. non-compliance of 'MGT'. Thus, such 'compensation charges' are not covered within the definition of....
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....ered to be a payment for any service. Reliance in this regard is placed on the recent decision of the Tribunal in the case of M/s.South Eastern Coalfields Ltd. v. CCE & ST, Raipur [2020 (12) TMI 912]. 9. We find that the term service is defined to mean any activity carried out by a person for another for consideration. The recovery of liquidated damages/penalty from the other party in the instant case cannot be said to be towards any service per se, as the Appellant did not carry on any activity to receive the 'compensation charges'. Hence, scope of levy of Service Tax cannot be extended to apply to situations where the actual activity was non-existent. 10. The activities that are contemplated under Section 66E(e)ibid are activities where....
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.... amounts to fulfillment of the condition envisaged in Para No.6.5.3 of the Agreement dated 12.07.2011 and not consideration for the said contract [Agreement dated 12.07.2011]. 12. Further, the issue of leviability of Service tax on penalty, liquidated damages, compensation, forfeiture amounts, cancellation charges etc. stands settled by various pronouncements wherein it has consistently been held that the said amounts recovered as charges for breach or non-compliance of contractual terms and conditions cannot be construed as 'consideration' for 'refraining or tolerating an act' and were thus not leviable on Service Tax in terms of Section 66E(e) of the Finance Act, 1994. Reliance in this regard is placed on the following decisions: (i) M/....
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....r Section 66E(e) of the Finance Act cannot be sustained and also relied on the following decisions of the Hon'ble Supreme Court: a. Commixxioner of Service Tax vs. M/s. Bhayana Builders [2018 (2) TMI 1325] wherein the Apex Court observed that any amount charged which has no nexus with the taxable service and is not a consideration for the service provided does not become part of the value which is taxable under the Finance Act. b. Union of India vs. International Consultants and Technocrats [2018 (10) GSTL 401 (SC)] - since Service Tax is with reference to the value of service, as a necessary corollary, it is the value of the services which are actually rendered, the value whereof is to be ascertained for the purpose of calculating the ....