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2021 (11) TMI 600 - AT - Service TaxLevy of service tax - forfeiture of earnest money and retention of compensation / liquidation damage for not delivery of purchased goods by the other party - declared service or not - agreeing to refrain from or tolerating an act or not - HELD 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. The Hon ble Apex court in the case of UNION OF INDIA AND ANR. VERSUS M/S. INTERCONTINENTAL CONSULTANTS AND TECHNOCRATS PVT. LTD. 2018 (3) TMI 357 - SUPREME COURT while relying upon their earlier decision in the case of COMMISSIONER OF SERVICE TAX ETC. VERSUS M/S. BHAYANA BUILDERS (P) LTD. ETC. 2018 (2) TMI 1325 - SUPREME COURT (order does not show that this order has been followed) has held that since service tax with reference to value of service as a necessary corollary it is the value of service which are actually rendered, the value is to be ascertained for the purpose of calculating the service tax payable thereupon. This perusal of the nature of the amount herein are clear to hold that these amounts are not received by the appellant in lieu of rendering any service. Neither the appellant is carrying on any activity to receive compensation nor can there be any presumption for intention of other party to breach or violate the contract and suffer the losses. The only purpose is for minium compensation and of forfeiting the earnest money is to ensure that the default act is not undertaken again or repeated. However, from any stretch of imagination the retention of such amount cannot be said to be an act of receiving consideration that too towards toleration of the defaulting act of the other parties. What only appears from retention of the money in question is the expectation of the appellant that other party should comply with the terms of the contract and such other party shall be burdened if there is any non compliance on its part. Hence question of tolerating the act of default as alleged by the Department, does not at all arises. The finding of the Commissioner (Appeals) is nothing but the presumption of correctness in the allegation raised vide the impugned Show cause notice. Commissioner (Appeals) has miserably failed to provide any justification to hold that the impugned amounts are received as a consideration for rendering the services as that of tolerating the act of defaulting parties - appeal allowed - decided in favor of appellant.
Issues:
Whether the appellant is providing a 'declared service' as defined under section 66E(e) of the Finance Act. Analysis: The appellant, engaged in the manufacture of MS ingots, faced a service tax liability issue concerning miscellaneous income received due to non-performance of a sale agreement and non-compliance of contract conditions. The Department alleged that retaining the money amounted to agreeing to refrain from an act or tolerating a situation, constituting a 'declared service.' A show cause notice proposed recovery of Rs. 29,81,912 as service tax liability, interest, and penalty. The Order in Original confirmed the proposal, upheld in the Order in Appeal, leading to the current appeal before the Tribunal. The appellant argued that forfeiture of earnest money and compensation for non-delivery of goods do not qualify as 'declared services.' Citing precedents, the appellant sought to set aside the order, emphasizing that penalty imposition was unjustified. The Department contended that the forfeited amounts were taxable services, as per the Commissioner (Appeals)'s interpretation of section 66E(e). They urged dismissal of the appeal, supporting the order's validity. The Tribunal analyzed the relevant provisions, including sections 66E, 65B(44), 66B, 66D, 67, and 68. Emphasizing the necessity of 'consideration' for taxable services, the Tribunal noted that the term was inclusively defined. Referring to legal precedents, the Tribunal highlighted the value of services rendered as crucial for calculating service tax. Examining the specific amounts alleged as consideration for refraining from acts or tolerating situations, the Tribunal found that the appellant did not receive them for providing services. The retention of these amounts aimed at ensuring contract compliance, not tolerating default acts. Relying on previous Tribunal decisions, the Tribunal disagreed with the Commissioner (Appeals)'s finding and set aside the order, allowing the appeal. In conclusion, the Tribunal ruled that the appellant did not provide a 'declared service' under section 66E(e), overturning the previous decision and emphasizing that the retained amounts were not consideration for rendering services. The order under challenge was set aside, and the appeal was allowed.
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