9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2021 (2) TMI 821 - AT - Service TaxLevy of Service Tax - amount of liquidated damages/penalty collected by the appellant for non-compliance of the terms of the procurement contracts - amount collected towards theft charges from consumers for un-authorized use of electricity or for tampering of meters - period of dispute is from July, 2012 to March, 2016 - 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? - HELD THAT - 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 said amount 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 other party - Section 65B (44) defines service to mean any activity carried out by a person for another person for consideration, and includes a declared service. Under section 66E (e), a declared service shall constitute agreeing to the obligation to refrain from an act, or to tolerate an act or situation, or to do an act. Section 66 B provides that service tax shall be levied at the rate of 12 per cent 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. Section 66D contains a negative list of services, while section 66E contains a list of declared services. Section 68 provides that every person 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 - 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. This precise issue was considered by a Division Bench of this Tribunal in M/S SOUTH EASTERN COALFIELDS LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX, RAIPUR 2020 (12) TMI 912 - CESTAT NEW DELHI wherein certain clauses providing penalty for non-observance/breach of the terms of the contract entered during the course of business came up for consideration. The case of Department was that the amount collected by the appellant towards compensation/penalty was taxable as a declared service under section 66E(e) of the Finance Act. After considering the decision of a Larger Bench of the Tribunal in M/S BHAYANA BUILDERS (P) LTD. OTHERS VERSUS CST, DELHI OTHERS. 2013 (9) TMI 294 - CESTAT NEW DELHI (LB) and the decisions of the Supreme Court in COMMISSIONER OF SERVICE TAX ETC. VERSUS M/S. BHAYANA BUILDERS (P) LTD. ETC. 2018 (2) TMI 1325 - SUPREME COURT and UNION OF INDIA AND ANR. VERSUS M/S. INTERCONTINENTAL CONSULTANTS AND TECHNOCRATS PVT. LTD. 2018 (3) TMI 357 - SUPREME COURT where it was held that What follows from the aforesaid decisions of the Supreme Court in Bhayana Builders and Intercontinental Consultants , and the decision of the Larger Bench of the Tribunal in Bhayana Builders is that 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. The issue that arose for consideration in M/S LEMON TREE HOTEL VERSUS COMMISSIONER, GOODS SERVICE TAX, CENTRAL EXCISE CUSTOM 2019 (7) TMI 767 - CESTAT NEW DELHI 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). Learned Authorized Representative has, however, referred to the decision of the Delhi High Court in XL ENERGY LIMITED VERSUS MAHANAGAR TELEPHONE NIGAM LIMITED. 2018 (5) TMI 2036 - DELHI HIGH COURT . This decision refers to the decision of the Supreme Court in Oil Natural Gas Corporation Ltd. Vs. Saw Pipes Ltd., which in turn referred to a decision of the Supreme Court in Fateh Chand. The decision of the Supreme Court in Fateh Chand was also relied upon by learned Authorized Representative of the Department in M/S SOUTH EASTERN COALFIELDS LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX, RAIPUR 2020 (12) TMI 912 - CESTAT NEW DELHI but it was found not to applicable to the facts of the case. Likewise, the decision of the Delhi High Court in XL ENERGY LIMITED VERSUS MAHANAGAR TELEPHONE NIGAM LIMITED, would not help the Department. Thus, it is not possible to sustain the order passed by the Principal Commissioner confirming the demand of service tax on the amount collected towards liquidated damages and theft of electricity - appeal allowed.
Issues Involved:
1. Whether service tax is payable on the amount of liquidated damages/penalty collected for non-compliance of procurement contracts. 2. Whether service tax is payable on the amount collected towards theft charges from consumers for unauthorized use of electricity or tampering of meters. 3. Whether the extended period of limitation could be invoked. 4. Whether penalty and interest could be imposed and recovered. Issue-wise Detailed Analysis: 1. Service Tax on Liquidated Damages/Penalty: The Appellant, engaged in the distribution of electricity, collected liquidated damages from contractors for non-compliance with contract terms. The Department argued that these amounts were for tolerating an act and thus constituted a "declared service" under Section 66E(e) of the Finance Act, 1994. The Principal Commissioner confirmed the demand, stating that the appellant tolerated breaches for a consideration, making it a taxable service. However, the Tribunal referred to precedents, including the Bhayana Builders case, which clarified that "consideration" must flow from the service recipient to the provider and should benefit the latter. The Tribunal held that liquidated damages are not for any service but are penalties for non-compliance, thus not taxable under Section 66E(e). 2. Service Tax on Theft Charges: The Appellant also collected charges from consumers for unauthorized use of electricity, which the Department considered a taxable service under Section 66E(e). The Principal Commissioner held that tolerating theft constituted a declared service. However, the Tribunal found that these charges were penalties for illegal acts and not for any service rendered. The Tribunal cited the Lemon Tree Hotel case, where retention of cancellation charges was not considered a taxable service, reinforcing that penalties for unauthorized acts do not constitute services under the Finance Act. 3. Extended Period of Limitation: The Appellant contended that the extended period of limitation should not have been invoked. The Tribunal did not find sufficient grounds for invoking the extended period as the nature of collected amounts did not constitute a taxable service, thus nullifying the basis for extended limitation. 4. Penalty and Interest: Given the Tribunal's findings that the amounts collected were not for any taxable service, the imposition of penalties and interest under Sections 76 and 78 of the Finance Act was also deemed unsustainable. The Tribunal emphasized that penalties are for ensuring contract compliance and not for tolerating breaches. Conclusion: The Tribunal set aside the order dated December 31, 2018, confirming the demand of service tax on liquidated damages and theft charges, along with associated penalties and interest. The appeal was allowed, and the demand was annulled, emphasizing that penalties for breaches or unauthorized acts do not constitute taxable services under the Finance Act.
|
