AI Drafter - (New and Powerful) 
Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter. 
TaxTMI 
TaxTMI 
2024 (11) TMI 404
X X X X Extracts X X X X
X X X X Extracts X X X X
....nce Pvt. Ltd. 2020 (42) GSTL 104 (Tri. Del.) c) K.N. Food Industries Pvt. Ltd. 2020 (38) GSTL 60 (Tri.-All.) d) M.P. Poorva Kshetra Vidyut Vitran Co. Ltd. 2021 (46) GSTL 509 (T.Del.) e) Steel Authority of India Ltd. 2021 (55) GSTL 34 (Tri. Chennai) f) Ruchi Soya Industries Ltd. 2022 (56) GSTL 303 (Tri. Del.) g) Lemon Tree Hotel [2020 (34) GSTL 200 (Tri. Del.)] h) Tirupati Balaji Furnaces Pvt Ltd. 2022-TIOL-77-CESTAT-DEL i) MNH Shakti Ltd. 2021-TIOL-732-CESTAT-Kol j) Bajaj Finance Ltd. 2023 (8) TMI 473-CESTAT-Mumbai k) Mangalam Cement Limited 2024 (9) TMI 407-CESTAT Del 3. Shri Himanshu P. Shrimali, Learned Superintendent (Authorised Representative) appearing on behalf of the Revenue reiterates the findings of the impugned order. 4. We have carefully considered the submission made by both the sides and perused the records. We find that from the facts of the present case appellant are a manufacturer of excisable goods and selling the same on principal to principal basis to their customers. As per normal commercial trend in the trading market the supplier of goods provides credit period for making t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hat, as per Section 66B which was introduced with effect from 01.07.2012, read with Section 65B(44) of the Finance Act, 1994, 'any activity carried on' by 'a person for another for consideration', will be levied to service tax, unless otherwise excluded or covered by the negative list of services. On the basis of various clauses in the agreement entered into by the appellants with their customers/borrowers, the Department alleged that recovery/earning of an extra/surplus (i.e., penal interest/penalty) being other than the loan amount and the principal interest is nothing but a compensation received by the appellants on account of delay in payment of EMI by the customer. As these charges are not in the nature of principal interest and are to be appropriately treated as consideration for a declared service of 'tolerating an act' of non-payment/delay in payment of EMI by the customers/borrowers, as per clauses made in the loan agreement entered into by the appellants in providing loans and advances, show cause proceedings were initiated vide SCN dated 15.12.2018. The learned Commissioner had examined certain clauses providing for 'Remedies in case of default', 'terms of loan' and 'def....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d by M/s Bajaj Finance Limited on the peal and bounce charges received from the Customers and Borrowers during the period from 01.07.2012 to March 2016, under the provisions of Section 73(2) of the Finance Act, 1994. c) I confirm the demand of interest on the amount of Service tax confirmed as detailed in Sr. No.(b) above, as the applicable rates, and order recovery of the same from M/s Bajaj Finance Limited, under the provisions of Section 75 of Finance Act, 1994. d) I also impose a penalty of Rs.53,87,14,050/- [Rupees Fifth three crores eighty seven lakhs fourteen thousand and fifty only], on M/s Bajaj Finance Limited, Pune, under the provisions of Section 78(1) of the Finance Act, 1994. e) However, I give an option to M/s Bajaj Finance Limited, under clause (ii) of first proviso and also second proviso to Section 78(1) of the Finance Act, 1994, as amended, to pay 25% of the service tax determined and confirmed at Sr. No. (b) above as penalty, provided M/s Bajaj Finance Limited pays the entire amount of Service Tax, as determined /confirmed in Sr. No.(b) above, along with interest payable thereon as ordered in Sr. No. (c) above as well as the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....employee to the employer in the course of or in relation to his employment; (c) fees taken in any Court or tribunal established under any law for the time being in force xx xx xx xx xx (51) "taxable service" means any service on which service tax is leviable under section 66B; 66B. Charge of service tax on and after Finance Act, 2012. - There shall be levied a tax (hereinafter referred to as the service tax) at the rate of fourteen percent. on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed. 66D. Negative list of services. -The negative list shall comprise of the following services, namely: - (a) services by Government or a local authority excluding the following services to the extent they are not covered elsewhere- (i) services by the Department of Posts by way of speed post, express parcel post, life insurance and agency services provided to a person other than ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (m) services by way of renting of residential dwelling for use as residence; (n) services by way of- (i) extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount; (ii) inter se sale or purchase of foreign currency amongst banks or authorised dealers of foreign exchange or amongst banks and such dealers; (o) service of transportation of passengers, with or without accompanied belongings, by- (i) a stage carriage; (ii) railways in a class other than- (A) first class; or (B) an air conditioned coach; (iii) metro, monorail or tramway; (iv) inland waterways; (v) public transport, other than predominantly for tourism purpose, in a vessel between places located in India; and (vi) metered cabs, radio taxis or auto rickshaws; (p) services by way of transportation of goods- (i) by road except the services of- (A) a goods transportation agency; or (B) a courier agency; (ii) by an aircraft or a vessel from a place outside India up to the customs station of clearance in India; or....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he form of due date of EMI. In other words, both the principal interest and the penal interest represent the time value of money. While the former indicates the interest in the form of cost for agreed periodical repayments in the form of EMI period/due dates, the later represent the cost for period of delay or additional time taken for repayment of EMI, beyond the due date. Thus, we find that both the principal interest and penal interest is covered under the scope of the term "interest" under Section 65B(30) ibid. 10.1. In the context of the above issues under dispute, we note that the banking and monetary policy framework are being designed by the Reserve Bank of India (RBI) in exercise of the powers vested with it under the Reserve Bank of India Act, 1934 and various policy circulars in this regard are being issued from time to time by RBI. Accordingly, all banks/ banking company dealing with banking business are required to charge interest on loans / advances / cash credits / overdrafts or any other financial accommodation granted / provided / renewed by them or discount usance bills in accordance with the directives on interest rates on advances issued by Reserve Bank....
X X X X Extracts X X X X
X X X X Extracts X X X X
....missioner had held that penal charges and bounce charges are in the nature of consideration for having agreed to tolerate an act or a situation and thus it is a declared service of 'agreeing to tolerate an act or a situation' under section 66 E(e) of the Finance Act, 1994. 11.2 We find that the issue regarding charging of penal interest in respect of delay in payment of EMI, had been examined by the Ministry of Finance in the context of applicability of GST and it was clarified vide CBIC Circular No. 102/21/2019-GST dated 28.06.2019, that the transaction of levy of additional/penal interest does not fall within the ambit of entry 5(e) of Schedule II of the CGST Act i.e. "agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act", as this levy of additional/penal interest satisfies the definition of 'interest' as contained in Notification No.12/2017-Central Tax (Rate) dated 28.06.2017. Accordingly, it was clarified that 'penal interest' charged on a transaction would not be subject to GST. The said circular is extracted below: "Circular No. 102/21/2019-GST F. No. CBEC- 20/16/04/2018 - GST Govern....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ther, as per the contract, if there is any delay in payment by Y beyond the scheduled date, Y would be liable to pay additional / penal interest amounting to Rs. 500/- per month for the delay. In some instances, X is charging Y Rs. 40,000/- for the mobile and is separately issuing another invoice for providing the services of extending loans to Y, the consideration for which is the interest of 2.5% per month and an additional / penal interest amounting to Rs. 500/- per month for each delay in payment. Case - 2: X sells a mobile phone to Y. The cost of mobile phone is Rs 40,000/-. Y has the option to avail a loan at interest of 2.5% per month for purchasing the mobile from M/s ABC Ltd. The terms of the loan from M/s ABC Ltd. allows Y a period of four months to repay the loan and an additional / penal interest @ 1.25% per month for any delay in payment. 4. As per the provisions of sub-clause (d) of sub-section (2) of section 15 of the CGST Act, the value of supply shall include "interest or late fee or penalty for delayed payment of any consideration for any supply". Further in terms of Sl. No. 27 of notification No. 12/2017- Central Tax (Rate) dat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s or advances does not qualify to be interest as defined in notification No. 12/2017- Central Tax (Rate) dated 28.06.2017, and accordingly will not be exempt. 7. It is requested that suitable trade notices may be issued to publicize the contents of this circular. 8. Difficulty, if any, in the implementation of this circular may be brought to the notice of the Board immediately. Hindi version follows." 12. We also find that the issue of penal charges in respect of delay in payment amounting to declared service as contemplated by the department under section 66E(e) of the Finance Act, on which service became taxable w.e.f. July 1, 2012, has already been decided by Principal Bench of this Tribunal in the case of M/s. South Eastern Coalfields Ltd. Vs. Commissioner of Central Excise and Service Tax in Final Order No. 51651/2020 dated 22.12.2020. In this case, the Tribunal had held that the penal clauses are in the nature of providing a safeguard to the 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 cont....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion 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. 26. 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 would be taxable under section 68 at the rate specified in section 66B. Likewise, there can be services conceived in agreements in relation to the other two activities referred to in section 66E(e). 27. It is trite that an agreement has to be read as a whole so as to gather the intention of the parties. The intention of the appellant and the parties was for supply of coal; for supply of goods; and for availing various types of services. The consideration contemplated under the agreements was for such supply of coal, materials or for availing various types of services. 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 safe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rt in Civil Appeal No.2372/2021 and the Hon'ble Apex Court dismissed the same as withdrawn. The said Order dated 11.9.2023 is extracted below: IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO . 237 2 OF 202 1 COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX APPELLANT(S) VERSUS SOUTH EASTERN COALFIELDS LTD. RESPONDENT(S) WITH Diary No. 24419/2022 AND CIVIL APPEAL NOS . 51-5 3 OF 202 2 ORDER Learned Additional Solicitor General appearing for the appellant(s) submitted that he has instructions to withdraw these appeals. His submission is placed on record. The Civil Appeals are dismissed as withdrawn. ...............................................................J. [B.V. NAGARATHNA] ........................................................................ [PRASHANT KUMAR MISHRA] NEW DELHI JULY 11, 2023 13. We also find that the question regarding taxability of an activity or transaction as the supply of service of agreeing to the obligation to refrain ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the obligation to refrain from an act or to tolerate an act or a situation, or to do an act is similar in GST. "Agreeing to the obligation to refrain from an act or to tolerate an act or a situation, or to do an act" has been specifically declared to be a supply of service in para 5 (e) of Schedule II of the CGST Act, 2017. 4. As can be seen, the said expression has three limbs: - 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 obligation to refrain from an act or to tolerate an act or a situation, or to do an act is nothing but a contractual agreement. A contract to do something or to abstain from doing something cannot be said to have taken place unless there are two parties, one of which expressly or impliedly agrees to do or abstain from doing something and the other agrees to pay consideration to the first party for doing or abstaining from such an act. Such contractual arrangement must be an independent arrangement in its own right. There must be a necessary and sufficient nexus between the supply (i.e. agreement to do....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d of service tax in respect of the amount collected on account of bouncing of cheques and cancellation of orders is also not sustainable. These amount are penal in nature and not towards consideration for any service. In this connection reliance can be placed on the decisions of the Tribunal in Jaipur Jewellery Show v. C.C.E & S.T., Jaipur - 2016 (12) TMI 344 - CESTAT New Delhi = 2017 (49) S.T.R. 313 (Tribunal) and K.N. Food Industries (P.) Ltd. v. Commissioner of CGST & Central Excise, Kanpur - 2019-TIOL-3651-CESTAT-ALL = 2020 (38) G.S.T.L. 60 (Tri. - All.). xx xx xx xx xx 21. The Learned Authorized Representative of the Department has, however, placed reliance upon a ruling dated March, 2019 of the Appellate Authority for Advance Ruling Maharashtra to contend that the amount collected towards bouncing of cheque charges amounts to supply of service, but Learned Counsel for the appellant has pointed out that the said order was rectified subsequently by the Appellate Authority for Advance Ruling Maharashtra in its order dated December 12, 2019 [2020 (41) G.S.T.L. 651 (App. A.A.R. GST - Mah.)] and it ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....a provision of service by an employee to the employer in the course of or in relation to his employment; (c) fees taken in any Court or tribunal established under any law for the time being in force." 12. "Declared services" have been defined in section 66E and sub-section(e) of section 66E, which is involved in this appeal, is as follows : "66E. Declared services The following shall constitute declared services, namely:- ***** (e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act;" 13. The show cause notice and the impugned order indicate that the appellant was charging and collecting an amount under the following three heads: (i) Compensation/penalty from the buyers of coal on the short-lifted/un-lifted quantity of coal and non-compliance of the terms and conditions of the Coal Supply Agreement, including forfeiture of earnest money deposit/security deposit; (ii) Compensation/penalty from the contractors engaged by the appellant for providing various types of services for breach of the terms and conditions of the contract; and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n providing taxable service to any person shall pay service tax at the rate specified in section 66B in such manner and within such period as may be prescribed. 18. It is, thus, clear that where service tax is chargeable on any taxable service with reference to its value, then such value shall be determined in the manner provided for in (i), (ii) or (iii) of subsection (1) of section 67. What needs to be noted is that each of these refer to "where the provision of service is for a consideration", whether it be in the form of money, or not wholly or partly consisting of money, or where it is not ascertainable. In either of the cases, there has to be a "consideration" for the provision of such service. Explanation to sub-section (1) of section 67 clearly provides that only an amount that is payable for the taxable service will be considered as "consideration". This apart, what is important to note is that the term "consideration" is couched in an "inclusive" definition. 19. A Larger Bench of the Tribunal in Bhayana Builders (P) Ltd. vs Commissioner of Service Tax [2013 (32) S.T.R. 49 (Tri.-LB)] observed that implicit in the legal architecture is the concep....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to be determined." (emphasis supplied) 21. The aforesaid view was reiterated by the Supreme Court in Union of India vs. Intercontinental Consultants and Technocrats [2018 (10) GSTL 401 (SC)] and it was observed that 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 service tax payable thereupon. 22. In this connection it would also be pertinent to refer to TRU Circular dated 20 June, 2012 issued by the Central Board of Excise and Customs as an Education Guide when the Negative List based taxation regime was introduced from July 2012 to clarify various aspects of the levy of service tax. The Board dealt with "consideration" in paragraph 2.2 of this Circular and pointed out that since the definition was inclusive, it will not be out of place to refer to the definition of "consideration" as given in section 2(d) of the Indian Contract Act, 187212. The relevant portion of the aforesaid Circular is reproduced below: "2.2 Consideration 2.2.1 The....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er 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: (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. 26. 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 would be taxable under section 68 at the rate specified in section 66B. Likewise, there can be services conceived in agreements in relation to the other two activities referred to in section 66E(e). 27. It is trite that an agreement has to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ct or a situation, or to do an act, are activities where the agreement specifically refers to such an activity and there is a flow of consideration for this activity. 31. In this connection, it will be useful to refer to a decision of the Supreme Court in Food Corporation of India vs. Surana Commercial Co. and others [(2003) 8 SCC 636]. The Supreme Court pointed out that if a party promises to abstain from doing something, it can be regarded as a consideration, but such abstinence has to be specifically mentioned in the agreement. The relevant portion of the judgment is reproduced below: "Under the main agreement, a party had contracted for the conversion of whole arhar grain into dal. Subsequently, by another supplemental agreement, the party agreed to upgrade the dal. It was held that as soon as the first agreement was complied with and dal was delivered, the contract came to an end and the supplemental agreement, which was made subsequently, was a separate and independent agreement. In this agreement, there was no consideration to be given to the promissor and thus that agreement could not be enforced in law. It was claimed that in the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t by a client to a hotelier, where the client exercises the cancellation option available to him and that sum is retained by the hotelier, can be regarded as consideration for the supply of a reservation service, which is subject to VAT, or as a fixed compensation for cancellation, which is not subject to VAT. The Court found that there has to be a direct link between the service rendered and the consideration received. The sum paid must constitute a genuine consideration for an identifiable service supplied in the context of a legal relationship for which performance is reciprocal. It is in this context that Court observed: "26. Since the obligation to make a reservation arises from the contract for accommodation itself and not from the payment of a deposit, there is no direct connection between the service rendered and the consideration received (Apple and Pear Development Council, paragraphs 11 and 12; Tolsma, paragraph 13; and Kennemer Golf, paragraph 39). The fact that the amount of the deposit is applied towards the price of the reserved room, if the client takes up occupancy, confirms that the deposit cannot constitute the consideration for ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....produced below: "3. So far as the first issue is concerned, the appellant, in the course of their business of running a hotel, offers advance booking to its customers, on payment of rent or deposit. Sometimes in the event of cancellation or of no show i.e. if the guest does not come for stay, the appellants retains the full or part of the amount towards cancellation charges. It is admitted that the appellant have paid service tax under Accommodation Services as and when they receive advance, availing the permissible abated value. It is the case of the Revenue that upon cancellation by the customers, the gross amount received by the appellant qualifies the receipt under Section 66 E (e). 4. Ld. Commissioner (Appeals) in confirming the demand under this head has observed that retention of such cancellation charges is not against the provisions of intended services but for not availing the said services by the customers, which the appellant has tolerated. 5. Having considered the rival contentions, I find that the aforementioned observation of the Commissioner (Appeals) are erroneous and have no legs to stand. Admittedly, the customers pay an amount to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion of the production capacity of the assessee. ******* ******* ******* In the present case apart from manufacturing and receiving the cost of the same, the appellants were also receiving the compensation charges under the head ex-gratia job charges. The same are not covered by any of the Acts as described under Section 66E (e) of the Finance Act, 1994. The said Sub-clause proceeds to state various active and passive actions or reactions which are declared to be a service namely; to refrain from an act, or to tolerate an act or a situation, or to do an act. As such for invocation of the said clause, there has to be first a concurrence to assume an obligation to refrain from an act or tolerate an act etc. which are clearly absent in the present case. In the instant case, if the delivery of project gets delayed, or any other terms of the contract gests breached, which were expected to cause some damage or loss to the appellant, the contract itself provides for compensation to make good the possible damages owning to delay, or breach, as the case may be, by way of payment of liquidated damages by the contractor to the appellant. As such, the contracts provide fo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....6500/- as compensation for use and occupation of the building. It was alleged that the agreement stood cancelled because the defendant committed a default in performing the agreement and the sum of Rs. 25,000/- paid by the defendant stood forfeited. 40. It is in this context and in the context of section 74 of the Contract Act, that the Supreme Court observed: "20. Section 74 declares the law as to liability upon breach of contract where compensation is by agreement of parties pre-determined, or where there is a stipulation by way of penalty. But the application of the enactment is not restricted to cases where the aggrieved party claims relief as a plaintiff. The section does not confer a special benefit upon any party; it merely declares the law that notwithstanding any term in the contract for predetermining damages or providing for forfeiture of any property by way of penalty, the court will award to the party aggrieved only reasonable compensation not exceeding the amount named or penalty stipulated." 41. The Supreme Court also noticed that section 74 of the Contract Act merely dispenses with the proof of "actual loss or damages". It does not justify....