TaxTMI 
TaxTMI 
2022 (11) TMI 947
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....etained the amount of advance i.e. Rs.64,96,178/- as was paid by the buyer against the purchase order for the supply of said goods under the head of "Remission & Cessation" during the period from Oct' 2012 to Mar' 2015. The said amount is observed to have been paid against a situation of agreeing to the obligation to refrain from an act / to tolerate an act or a situation i.e. an amount against a declared service as defined under Section 66E (e) of the Finance Act, 1994. With these observations that a Show Cause Notice No. 6433 dated 03.10.2016 were served upon the appellant, claiming the service tax liability of the appellant against the aforesaid amount to the tune of Rs.8,02,927/-. The same was accordingly proposed to be recovered along with the interest and the penalty. The said proposal was initially confirmed vide Order-in-Original No. 06/2017 dated 09.05.2017. The appeal against the said order has been dismissed by Commissioner (Appeals). Being aggrieved against the said order, the appellant is before this Tribunal. 3. I have heard Mr. O.P. Agarwal, learned Counsel for the appellant and Mr. Divey Kumar Sethi, learned DR for the department. 4. It is submitted on behalf of t....
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....ppeals) has committed no error while holding the said tolerance as an act of providing declared service. The forfeiture of the advance payment being received by the appellant is rightly held as the consideration for providing said declared service by the appellant to his buyer. The appeal is accordingly, prayed to be dismissed. 6. After hearing the rival contentions and perusing the entire records as well as the decisions relied upon by the learned Counsel for the appellant, I observe and hold as follows: 6.1 The moot controversy to be adjudicated is: whether while forfeiting the amount of advance deposit, the appellant has provided declared service as contemplated under Section 66E (e) of Finance Act, 1994 to his buyer as has become taxable w.e.f. 01.07.2012. 6.2 For the purpose, it is foremost relevant to look into the definition of "Service". Section 65 B (44) of the Finance Act, 1994 defines service to mean any activity carried out by a person for another for consideration, and includes a declared service, but shall not include- (a) an activity which constitute merely,- (i)a transfer of title is goods or immovable property, by way of sale, gift or in any other manner; o....
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....rvice Tax reported as 2013 (32) S.T.R 49 (Tri.-LB) has held that implicit in the legal architecture is the concept that any consideration, whether monetary or otherwise, should have flown or should flow from the service recipient to the service provider and should accrue to the benefit of the latter and should be in relation to a service provided by the provider of said service to the recipient. Hon'ble Apex Court reiterated the said view in the case of Union of India Vs. Intercontinental Consultants and Technocrats Pvt. Ltd. reported as 2018 (10) G.S.T.L. 401 (S.C) has held that service tax is with reference to the value of such service which are actually rendered and such value is the basis for the purpose of calculating the service tax payable there upon. 9. For a declare service to be taxable there has 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: (i) consideration for agreeing to the obligation to refrain fr....
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....ainst a declared service being provided by him, it is necessary that there has to be some concurrence/assumption of an obligation to refrain from an act or to tolerate the same on the part of the appellant. But in the present case it was an agreement between the parties that in case any term of the purchase order gets breached which may cause some damage or loss to the appellant, the advance deposit made by the buyer to the appellant shall be forfeited by the appellant owing to the said breach. The intention of the parties certainly was not for flouting the terms of the agreement so that the penal clauses get attracted. The penal clauses are in the nature of providing a safeguard to commercial interest of the appellant and it cannot, by any stretch of imagination, be said that recovering any sum by invoking the penalty clauses is the reason behind the execution of the contract for an agreed consideration. The said fact is sufficient to hold that the advance payment when forfeited by the appellant, it actually was an amount of liquidated damages paid by the buyer to the appellant as per the agreed terms and conditions between the two i.e. an amount for not tolerating the breach of c....
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.... opinion it is rather the other way round, had that amount not been forfeited, in that situation, the act of appellant may be an act of tolerance. 13. The present case, apparently and admittedly is a case of supply of goods. The element of service being provided was never a fact of the present case. Retaining the amount of advance deposit by the appellant is nothing but acting in furtherance of the contract by him with his buyer. This Bench in M/s. Ruchi Soya Industries Ltd. (supra) has already held that a contract may provide for penal clause for breach of terms of contract but that will amount to distinction between 'the condition to contract' and 'consideration for a contract' and to ascertain either of the situation, the agreement as a whole has to be read together with the intention and the purpose thereof. The Machine Availability clause in the present case, to my opinion when read with the entire agreement, there is an apparent intent that the terms of agreement shall not be violated and that the service provider shall not compromise with the quality of service else the commercial interest of the appellant shall remain safeguarded in the form of compensation to be paid by M....