TaxTMI 
TaxTMI 
2023 (12) TMI 903
X X X X Extracts X X X X
X X X X Extracts X X X X
.... period from 01.07.2012 to 31.03.2017 the appellant recovered penalty from raw material suppliers against poor quality of materials by adjustment in the ledger account of the supplier. The appellant also recovered penalty amount on cheque return, recovery from notice pay from staff. However, service tax was not paid for these services, though the services that were rendered were 'declared services' under section 66E (e) of the Finance Act, 1944 [the Finance Act]. 4. The appellant filed a reply denying the allegations made in the show cause notice but the Commissioner, by the order dated 08.03.2018, confirmed the demand with penalty and interest. 5. The four activities on which service tax has been demanded from the appellant by treating them to be "declared services" under section 66E(e) of the Finance Act are as follows: (i) Debit notes raised to offset the excess credit in the ledger account (ii) Notice pay recovery (iii) Cheque return penalty (iv) Liquidated damages 6. 'Declared service' has been defined under section 65B(22) of the Finance Act as follows: "65B(22) "Declared service" means any activity carried out by a person....
X X X X Extracts X X X X
X X X X Extracts X X X X
....que since it is their fault. 9. Section 65B(44) of the Finance Act 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 to by a person for another person but should specify the: (i) consideration for agreeing to the obligation to refrain from an act; or (ii) consideration for agreeing to tolerate an act or a situation; or (iii) consideration to do an act. 10. Thus, a service conceived in an agreement where one person, for a consideration, agrees to an obligation to refrain from an act, would be a 'declared service' under section 66E(e) read with section 65B(44) and wou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....29. The situation would have been different if the party purchasing coal had an option to purchase coal from 'A' or from 'B' and if in such a situation 'A' and 'B' enter into an agreement that 'A' would not supply coal to the appellant provided 'B' paid some amount to it, then in such a case, it can be said that the activity may result in a deemed service contemplated under Section 66E(e). 30. The activities, therefore, that are contemplated under section 66E(e), when one party agrees to refrain from an act, or to tolerate an act or a situation, or to do an act, are activities where the agreement specifically refers to such an activity an there is a flow of consideration for this activity." 12. The Circular dated February 28, 2023 issued by Board also provides that service tax cannot be levied on the amount collected towards liquidated damages. It is reproduced below: "4. As can be seen, the said expression has three libs: -i) Agreeing to the obligation to refrain from an act, ii) Agreeing to the obligation to tolerate an act or a situation, iii) Agreeing to the obligation to do an act. Service of agreeing to the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... aforesaid that each of the four issues would have to be examined. 14. In regard to the issue relating to debit notes, Shri Arjun Raghavendra M, learned counsel for the appellant, submitted that there is no consideration paid at all as the debit notes are mere book adjustments to balance the ledger. Learned counsel also placed reliance upon a decision of the Tribunal in Futura Polyster Ltd vs. Commissioner of Central Excise, Chennai [2013 (29) S.T.R. 371 (Tri.- Chennai)] to contend that no service tax can be levied merely because of the entries made in the books of account. 15. Shri Harshvardhan, learned authorized representative appearing for the department has, however, supported the impugned order. 16. The submissions advanced by the learned counsel for the appellant deserve to be accepted as no consideration is paid. The debit notes are mere book adjustments to balance the ledger. The appellant has merely followed the price reduction method with the suppliers. In terms of the agreement price is agreed upon on the commitment by the supplier to supply the goods. However, upon delivery, the price of the delivered goods is reduced if it falls short in quantity or quality. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r cannot be said to have rendered any service per se much less a taxable service and has merely facilitated the exit of the employee upon imposition of a cost upon him for the sudden exit. The definition in Clause (e) of Section 66E as extracted above is not attracted to the scenario before me as, in my considered view, the employer has not 'tolerated' any act of the employee but has permitted a sudden exit upon being compensated by the employee in this regard. 12. Though normally, a contract of employment qua an employer and employee has to be read as a whole, there are situations within a contract that constitute rendition of service such as breach of a stipulation of non-compete. Notice pay, in lieu of sudden termination however, does not give rise to the rendition of service either by the employer or the employee." 21. The Tribunal has also upheld this view in Shriram Pistons And Rings Ltd. vs. Commissioner of C.T., Ghaziabad [2020 (42) G.S.T.L.79 (Tri. All.)]. 22. Regarding cheque bounce penalty, learned counsel for the appellant submitted that there is no consideration for tolerating the activity of cheque bounce. According to the learned counsel, it is....