AI Drafter 
TaxTMI 
TaxTMI 
2024 (11) TMI 475
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....Financial Year - 2013-14 - Rs.7,00,17,000/- Financial Year - 2014-15 - Rs.1,90,00,000/-. Department formed an opinion that the amount received is the consideration due to cancellation of an agreement hence towards a declared service as per section 66 (E) (e) of Finance Act 1994 and thus is taxable in terms of Section 65 (B) (22) of the said Act. Based on this observation that a Show Cause Notice No.226/2015 dated 05.07.2016 was served upon the appellant proposing the demand of service tax amounting to Rs.16267861 on the aforesaid amount of Rs.13,16,17,000/- received by the appellant. Proportionate interest and the appropriate penalties were also proposed against the appellant. Said proposal was confirmed vide Order-in-Original No.49/2018 dated 28.03.2018. The appeal against the said order has been has been rejected vide the order under challenge. Being aggrieved, the appellant is before this Tribunal. 2. We have heard Mr. Krishna Mohan Menon & Ms. Parul Sachdeva, ld. Counsels for the appellant and Mr. S.K. Ray, Authorized Representative for the Respondent. 3. Ld. Counsel for the appellant has mentioned that the appellant is engaged in the business of manufacturing....
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....ancellation involves agreeing to an act or tolerating an act or a situation which is called as declared service and the same is taxable. With respect to the act of suppression of facts, the findings in para 13 of the Order-in-Original are being reiterated. It is submitted that there is no infirmity in the order in appeal as has been challenged before this Tribunal. Appeal is prayed to be dismissed. 6. Having heard both the parties at length and perusing the record, we observe that the appellant had entered into 8 'Agreements to Sell' in the year 2007 for purchase of land at a considerable amount. Vide another agreement called 'Cancellation of Sale Agreement' the seller agreed to pay a compensation for cancellation of agreement to the buyer i.e. the appellant herein. The details of agreement are as follows:- Year Agreement made with Agreement date Date of corresponding 'Cancellation of sale Agreement' Compensation Amt. agreed upon by the Parties in Cancellation agreement A B C D E 2012-13 M/s Shikhar Amusement Pvt.Ltd. 06.02.2007 12.06.2012 2,16,00,000 M/s. R.N.Navnirman 09.01.2007 12.06.2012 1,85,00,000 ....
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....g 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 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. "Declared services" have been defined in Section 66E and sub-section (e) of Section 66E, which is involved in this appeal, is as follows : Declared services "66E. The following shall constitute declared services, namely :- xx xx xx agreeing to the obligation to refrain from an act, or to tolerate (e) an act or a situation, or to do an act; Section 65B(44) 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 anoth....
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....y breach of contract. Section 75 of Contract Act talks about compensation for party rightfully rescinding the contract. 13. Apparently there were executed the agreements to purchase land which are absolutely out of the scope of service tax. Cancellation of these agreements has been made as per mutual consent of buyer/appellant and the sellers of eight 'Agreements to Sell' subject to compensation to be paid to buyer of such amount as specifically agreed between the parties. These facts when read in the light of above discussion are sufficient for us to hold that the amount of compensation received by the appellant is not an amount for any act of obligation or toleration on part of appellant. Hence is wrongly held to be the amount of consideration for rendering declared service defined under section 66 E (e) of Finance Act, 1994. 14. Liability has been fastened upon the appellant under Section 65B read with Section 66E(e) of the Finance Act for the period from July 2012 till March 2016 for the reason that by collecting the aforesaid amounts the appellant had agreed to the obligation to refrain from an act or to tolerate the non-performance of the terms of the contract by the ot....
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....n. Explanation (a) to Section 67 provides that "consideration" includes any amount that is payable for the taxable services provided or to be provided. The recovery of liquidated damages/penalty from other party cannot be said to be towards any service per se, since neither the appellant is carrying on any activity to receive compensation nor can there be any intention of the other party to breach or violate the contract and suffer a loss. The purpose of imposing compensation or penalty is to ensure that the defaulting act is not undertaken or repeated and the same cannot be said to be towards toleration of the defaulting party. The expectation of the appellant is that the other party complies with the terms of the contract and a penalty is imposed only if there is non-compliance. 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). ....