TaxTMI 
TaxTMI 
2024 (5) TMI 795
X X X X Extracts X X X X
X X X X Extracts X X X X
....rvices. During the course of audit and test check of financial records and ledgers of the appellant by the internal audit team of the department, it was observed that the appellant has recovered interest of an amount of Rs.1,21,33,560/- from their customers in cases where the payment got delayed by them. The department formed an opinion that activity of receiving the said interest is the activity which is covered under Rule 2(e) of Cenvat Credit Rules, 2004 as exempted services. As per Section 65B(44) of the Finance Act, 1994 (hereinafter called as the Act) also an activity which is not a 'service' defined in the said section has to be included in the exempted service. 1.2 Relying on said provisions, department was of the view that the interest received from the customers regarding sale of flats/villas/shops is an exempted service, being rendered by the appellant along with the several other taxable services. However, the appellant was not found maintaining separate account of credit in respect of dutiable and exempted services. Resultantly, they were proposed to be liable to pay an amount equal to 7% of the amount of interest of Rs.1,21,33,560/- as received by them during April....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on that receipt of interest on account of delayed payment of consideration cannot be considered as exempted service as the same is excluded from the value of taxable service as per Rule 6(2)(iv) of the Valuation Rules. Such amount is wrongly regarded as consideration for a separate activity to be considered as an exempted service of Reversal of credit has wrongly been confirmed. The findings of Commissioner (Appeals) are therefore not sustainable. There is no evidence on record to prove that the appellant has used any inputs or input services in respect of receiving interest on account of delayed payment of the consideration. The order is therefore prayed to be set aside also on the ground that the extended period has wrongly been invoked. There is no contravention of any provision of law by the appellant nor any intention to evade the payment of service tax. Hence the period from 01.04.2016 to 30.09.2016 under the show cause notice is barred by limitation. Learned counsel has relied upon the following decisions: (i) Gannon Dunkerley & Co. Vs. Commissioner (Adj.) of S.T., New Delhi [2021 (47) G.S.T.L. 35 (Tri.-Del.)] (ii) M/s. Nat Steel Equipment Pvt. Ltd. Vs. Col....
X X X X Extracts X X X X
X X X X Extracts X X X X
....anner; or (ii) Such transfer, delivery or supply of any goods which is deemed to be sale within the meaning of clause (29A) of article 366 of the Constitution; or (iii) A transaction in money or actionable claim; (b) A provision of service by an employee to the employer in course of or in relation to his employment; (c) Foes taken in any Court or tribunal established under any law for the time being in force. 5.2 The bare perusal of the definition makes it clear that the interest received on the delayed payment is not such activity which can be defined as service. Once receiving payment is not a service, same cannot be called as the part of consideration as is received for rendering the service. The appellant has received interest out of the contract between him and the buyer of flats/villas/shops to whom the appellant has rendered the construction service (a taxable service) as an obligation on the said buyer to make the payment of the amount of sale consideration within the agreed time else should face the burden of paying the interest at the agreed rate. Hence the cost of said flats/villas/shops is the consideration for rendering the said s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed done, an operation carried out, execution of an act, provision of a facility etc. It is a term with very wide connotation." 5.5 On a bare perusal of aforesaid definition, it can easily be concluded that the term 'activity' as used above is of very wide amplitude and it includes nearly each and every act done by a person. However, the recovery of interest from other party cannot be said to be towards any activity per se, since neither the appellant has carried on any activity to receive subject amount of interest nor can there be any intention of the other party to breach or violate the contract and suffer a loss. 5.6 While imposing interest on delayed payments, the expectation of the appellant is that the other party complies with the terms of the contract and a penal interest is imposed only if there is noncompliance. Therefore, the amount recovered as interest for delayed payment cannot be said to be towards toleration of the defaulting party. It can though be termed as 'damages' for breach of terms of the contract. I draw my support from the judgment of M/s South Eastern Coalfields Ltd. vs. Comm. Of ST, Raipur reported as 2021 (55) G.S.T.L. 549 (Tri. - D....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aw support from the case of Steel Authority of India Ltd. Vs. Commissioner of GST & C. EX., SALEM reported as 2021 (55) G.S.T.L. 34 (Tri. - Chennai) wherein it has been held that amount collected towards penalty, earnest money deposit forfeiture and liquidated damages cannot be said to be towards any service per se, since neither appellant is carrying on any activity to receive compensation nor can there be any intention of other party to breach or violate contract and suffer a loss. Similar findings are also given by this Tribunal in the case of Northern Coalfields Ltd. vs. Commissioner of CGST, C.E. & CUS., Jabalpur reported as 2023 (71) G.S.T.L. 63 (Tri. - Del.). 5.8 Recently, CBIC vide its Circular No. 214/1/2023/-ST dated 28.02.2023 has also clarified that the activities contemplated under Section 66E(e) of the Finance Act, 1994 i.e., when one party agrees to refrain from an act, or to tolerate an act or a situation, or to do an act, are the activities where the agreement specifically refers to such as activity and there is flow of consideration for this activity. Similarly, under GST regime, Circular No. 178/10/2022-GST dated 03.08.2022 has also been issued as the provisio....