TaxTMI 
TaxTMI 
2026 (5) TMI 642
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....ges during the impugned period i.e. April 2016 to June, 2017; (ii) The nonpayment of service tax on royalty amount deposited from June 2017; (iii) Nonpayment of service tax on dead rent for the period April 2016 to June 2017; (iv) Short payment of service tax on renting of immovable property service for commercial purpose for the period 2014-15 to 2017-18; (v) Short payment of service tax on security and detective agency services for the period April to September 2015-16; (vi) Demand of interest of Rs. 32,713/- was also made for alleged delayed payment of tax for 2016-17; 1.1 various show cause notices were issued to the appellant and after considering the submissions made by the appellant, the following demands have been confirmed: Particulars Amount (in Rs.) Demand of service tax liquidated damages/penalty (April 2016-June 2017) 1,07,17,794/- Demand of service tax on dead rent (April 2016- June, 2017) 2,05,085/- Demand of service tax on Renting of immovable property (2014-15 to 2017-18) 1,19,574/- Demand of service tax on security and detective agency service (April, 2015) 1,45,438/- Interest liability for late payment of service....
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....d in favour of the appellant observing as under: "10. The issue that is involved is whether the appellant is providing a "declared service" contemplated under Section 66E(e) of the Finance Act, which service became taxable w.e.f. July 1, 2012. The period of dispute in the present appeal is from July, 2012 to March, 2016. 11. 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, but does not include what is mentioned in "(a), (b) and (c)". The relevant portion of the definition of "service" is reproduced below : "Section 65B(44) "service" means any activity carried out by a person 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 sale within the meaning of clause (29A) of article 366 of the Constitution; or (iii) a transaction in money or actionable....
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....ns a list of declared services. 16. Section 67 of the Finance Act deals with valuation of taxable service for charging service tax. It is reproduced below :- 67.(1) Subject to the provisions of this Chapter, where service tax is chargeable on any taxable service with reference to its value, then such value shall, - (i) in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him; (ii) in a case where the provision of service is for a consideration not wholly or partly consisting of money, be such amount in money, with the addition of service tax charged, is equivalent to the consideration; (iii) in a case where the provision of service is for a consideration which is not ascertainable, be the amount as may be determined in the prescribed manner. xx xx xx Explanation. - For the purposes of this section, - (a) "consideration" includes - xx xx xx (b) xx xx xx (c) xx xx xx" (Emphasis supplied) 17. Section 68 provides that every person providing taxable service to....
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....does not become part of the value which is taxable under Section 67. The observations are : "The amount charged should be for "for such service provided" : Section 67 clearly indicates that the gross amount charged by the service provider has to be for the service provided. Therefore, it is not any amount charged which can become the basis of value on which service tax becomes payable but the amount charged has to be necessarily a consideration for the service provided which is taxable under the Act. By using the words "for such service provided" the Act has provided for a nexus between the amount charged and the service provided. Therefore, any amount charged which has no nexus with the taxable service and is not a consideration for the service provided does not become part of the value which is taxable under Section 67. The cost of free supply of goods provided by the service recipient to the service provider is neither an amount "charged" by the service provider nor can it be regarded as a consideration for the service provided by the service provider. In fact, it has no nexus whatsoever with the taxable services for which value is sought to be determined." (Emphasis....
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...."consideration" must flow from the service recipient to the service provider and should accrue to the benefit of the service provider and that the amount charged has necessarily to be a consideration for the taxable service provided under the Finance Act. Any amount charged which has no nexus with the taxable service and is not a consideration for the service provided does not become part of the value which is taxable. It should also be remembered that there is marked distinction between "conditions to a contract" and "considerations for the contract". A service recipient may be required to fulfil certain conditions contained in the contract but that would not necessarily mean that this value would form part of the value of taxable services that are provided. 25. It is in the light of what has been stated above that the provisions of Section 66E(e) have to be analyzed. 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....
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....ither 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). 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 and there is a ....
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....hat sum is retained by the hotelier, can be regarded as consideration for the supply of a reservation service. Under Article 2(1) of the Sixth Directive, 'the supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such' is subjected to VAT. Article 6(1) of the Sixth Directive provides that "supply of services" shall mean any transaction which does not constitute a supply of goods within the meaning of Article 5 and that such transactions may include inter alia an obligation to refrain from an act or to tolerate an act or situation. Under Article 11(A)(1)(a) of the Sixth Directive, the taxable amount in respect of supplies of services is to be 'everything which constituted the consideration which has been or is to be obtained by the supplier from the customer or a third party for such supplies'. 34. The question referred for preliminary hearing, in essence, in the aforesaid decision was whether a sum paid as a deposit 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 rese....
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....eposit at issue in the main proceedings is, by contrast, triggered by the client's exercise of the cancellation option made available to him and serves to compensate the hotelier following the cancellation. Such compensation does not constitute the fee for a service and forms no part of the taxable amount for VAT purposes (see, to that effect, as regards interest applied on account of late payment, Case 222/81 BAZ Bausystem [1982] ECR 2527, paragraphs 8 to 11)." (Emphasis supplied) 35. Reference can also be made to a decision of the Tribunal in Lemon Tree Hotel. The issue that arose for consideration was whether forfeiture of the amount received by a hotel from a customer on cancellation of the booking would be leviable to service tax under Section 66E(e). The Tribunal held that the retention of the amount on cancellation would not attract service tax under Section 66E(e) and the relevant portion of the decision is reproduced 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 ....
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....e terms of the contract and did 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 towards payment for any services. The relevant portion of the decision is reproduced below : "4. xxx xxx xxx We find that appellant is admittedly manufacturing confectioneries for and on behalf of the M/s. Parle and is clearing the same upon payment of Central Excise duty on the basis of MRP declared by M/s. Parle. It is only in situation when the appellant's capacity, as a manufacturer, is not being fully utilized by M/s. Parle, their claim of ex gratia charges arises so as to compensate them from the financial damage/injury. As such, ex gratia amount is not fixed and is mutually decided between the two, based upon the terms and conditions of the agreement and is in the nature of compensation in case of low/less utilization of the production capacity of the assessee. xxx xxx xxx 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....
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....aintiff at the time of the execution of the agreement. (iii) The plaintiff had to deliver actual possession to the defendant on March 30, 1949 and the defendant had to give Rs. 24,000/- out of the sale price. (iv) The defendant had to get the sale deed registered by July 1, 1949. If, for any reason, the defendant failed to get the sale deed registered by the stipulated date, then the sum of Rs. 25,000/- (Rs. 1000 received as earnest money deposit and the subsequent Rs. 24,000/- out of the sale price) would be forfeited and the agreement cancelled. 39. The plaintiff received the agreed sum on March 25, 1949 and possession was delivered, but the sale of the property was not completed before the expiry of the stipulated period. The plaintiff, therefore, sought a decree for possession of land and building and a decree of Rs. 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, t....
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....e issue is already settled in favour of the appellant, therefore, we hold that demand of service tax on liquidated damages/ penalty is not sustainable against the appellant, therefore, all the demand under this head is set aside. (b) With regard to the service tax on dead rent: We find that the demand of service tax has been sought to be confirmed against the appellant on the ground that the appellant has not produced any agreement which shows that the same are executed prior to 01.04.2016. But, from the records it is seen that the appellant is paying the said rent way back since 2005 onwards and as per the decision in the case of Madhya Pradesh State Mining (supra) no service tax is payable if the agreements have been executed between the parties prior to 01.04.2016. From the records, it is seen that there is no agreement entered between the parties post 01.04.2016. The whole of the rent were deposited on the basis of earlier agreements. In that circumstances, we hold that no demand is sustainable on account of 'dead rent'. (c) With regard to the demand of service tax on renting of immovable property: We find that the said property has been given by the appellant by th....