TaxTMI 
TaxTMI 
2024 (12) TMI 85
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....his Tribunal in the case of Gujarat State Electricity Corporation Limited vide order No. 12608/2024 dated 06.11.2024, therefore, the present appeal deserves to be allowed following the said judgment. 3. Shri Rajesh Nathan, learned (Superintendent) Authorised Representative appearing on behalf of the revenue reiterates the findings of the impugned order. 4. On careful consideration of the submission made by both the sides and perusal of records, we find that the issue is no longer res-integra as the same is covered by the decision of this Tribunal vide Final Order No. 12608/2024 dated 06.11.2024 which is reproduced below: "4. On careful consideration of the submission made by both the sides, we find that issues to be decided in the present appeal are as under:- (1) Whether the penalty recovered from the contractors for not completing the work/ contract within a stipulated time is liable to service tax as a declared service under Section 66 E (e). (2) Whether the Notice Pay recovered from employees for not complying with the terms of employment that is failing to give sufficient advance notice before leaving the job is liable to service tax under Section 66 E (e) of Finance A....
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....e." 12. "Declared services" has 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 (e) agreeing to the obligation to refrain from anact, 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/unlifted 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 (iii) Liquidated damages from the suppliers of materials for breach of the terms and conditions of the contract. 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 fo....
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.... 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. v. Commissioner of Service Tax [2013 (32) S.T.R. 49 (Tri. - LB)] observed 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. In the said decision, the Larger Bench made reference to the concept of "consideration", as was expounded in the decision pertaining to Australian GST Rules, wherein a categorical distinction was made between "conditions" to a contract and....
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....lating 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, 1872. The relevant portion of the aforesaid Circular is reproduced below : "2.2 Consideration 2.2.1 The phrase "consideration" has not been defined in the Act. What is, therefore, the meaning of "consideration"? As per Explanation (a) to section 67 of the Act "consideration" includes any amount that is payable for the taxable services provided or to be provided. Since this definition is 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, 1872 as follows - xx xx xx (Emphasis supplied) 23. It would, t....
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....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 safeguard to the commercial interest of the appellant and it cannot, by any stretch of imagination, be said that re....
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....roduced 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 promisor and thus that agreement could not be enforced in law. It was claimed that in the supplemental agreement consideration was that the bank guarantees were not to be encashed, but it was found that there was no mention of such a consideration in the supplemental agreement. Although if a party promised to abstain from doing something, it could be regarded as consideration for the contract, but in the present case there was no such case of abstinence and there was no consideration for supplemental contract." (Emphasis supplied) 32. In the present case, the agreements do not specify what precise obligation has been cast upon the appellant to refrain from an act or tolerate an act or a situation.....
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....urt 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 the supply of an independent and identifiable service. 27. Since the deposit does not constitute the consideration for the supply of an independent and identifiable service, it must be examined, in order to reply to the referring Court, whether the deposit constitutes a cancellation charge paid as compensation for the loss suffered as a result of the client‟s cancellation. 28. In that regard, it should be noted that the contracting parties are at liberty - subject to the mandatory rules of public policy - to define the terms of their legal relationship, including the consequences of a cancellation or breach of their obligations. Ins....
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....(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 the appellant in order to avail the hotel accommodation services, and not for agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; and chargeable on full value and not on abated value. The amount retained by the appellant is for, as they have kept their services available for the accommodation, and if in any case, the customers could not avail the same, thus, under the terms of the contract, they are entitled to retain the whole amount or part of it. Accordingly, I hold that the retention amount (on cancellation made) by the appellant does not undergo a change after receipt. Accordingly, I hold that no service tax is attracted under the provisions of Section 66E(e) of the Finance Act.....
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....y 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 for an eventuality which was uncertain and also corresponding consequence or remedy if that eventuality occurs. As such the present ex gratia charges made by the M/s. Parle to the appellant were towards making good the damages, losses or injuries arising from "unintended" events and does not emanate from any obligation on the part of any of the parties to tolerate an act or a situation and cannot be considered to be the payments for any services." ( Emphasis supplied ) 37. Much reliance has been placed by the Learned Authorized Representative of the Department on the decision of the Supreme Court in Fateh Chand. The submission is that the word "suffering" is synonymous to "tolerating" and the Supreme Court in Fateh Chand held that a reasonable compensation for breach of contract has to be proportionate to....
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....he 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 the award of compensation, when in consequence of the breach no legal injury at all has resulted, because compensation for breach of contract can be awarded to make good the loss or damage which actually arose or which the parties knew when they made the contract „to be likely to result from the breach‟. The Supreme Court also found that there was no evidence that any loss was suffered by the plaintiff in consequences of the default by the defendant, save as to the loss suffered by being kept out of possession of the property. The Supreme Court, therefore, held that plaintiff would be entitled to retain only an amount of Rs. 1000/- that was received as earnest, out of amount of Rs. 25,000/-. 42. The conclusion drawn by the Learned Authorized Representatives of the Department from the aforesaid decision of the Supreme Court that compensation received is „synonymous‟ with „tol....
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....ieu of notice period from outgoing employees. The Assessing Officer was of the view that this amount would attract service tax since the petitioner is deemed to have facilitated the termination of employment and thus a category of service entiled and described as 'facilitation of termination of employment' was carved out by the Assessing Officer. 4. Seven show cause notices were issued relating to different units of the petitioner all over the country. Despite objections raised, the proposals for assessment were confirmed vide the impugned orders dated 30.06.2016, which are challenged by way of the present batch of writ petitions. 5. Service tax is levied upon the receipts from rendition of services as defined in terms of Section 65(44) of Chapter V of Finance Act, 1994 ('Act') as follows: (44) "service" means any activity carried out by a persons for another for consideration, and includes a declared service, but shall not include- (a) an activity which constitutes merely,- (i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or (ii) such transfer, delivery or supply of any goods which is deemed to be a sa....
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....titute taxable service. According to the respondent, the petitioner has tolerated the act of immediate quitting from service, by the employees and such agreement/toleration results in the rendition of a taxable service. 9. Heard Mr.JosephPrabakar, learned counsel for the petitioner and Mr.A.P.Srinivas, learned Senior Standing Counsel for the petitioner. 10. The provisions of Section 66E(e) appear to have given rise to some ambiguity, on this very issue, clarified by the Central Board of Excise and Customs (CBEC) in CBECs' Guidance Notes dated 20.06.2012. At para 2.9.3 the Board states as follows: 2.9 Provision of service by an employee to the employer is outside the ambit of service. 2.9.3. Would amounts received by an employee from the employer on premature termination of contract of employment be chargable to service tax? No. such amounts paid by the employer to the employee for premature termination of a contract of employment are treatable as amounts paid in relation to services provided by the employee to the employer in the course of employment. Hence, amounts so paid would be chargeable to service tax. However any amount paid for not joining a competing busines....