2023 (12) TMI 1241 - AT - Service Tax

Levy of service tax - Declared service or not - Recovery of penalty/liquidated damages recovered from customers and contractors - agreeing to the obligation to recover from an Act or to start an Act or a situation, or to do an Act - HELD THAT - After considering the various provisions of Indian Contract Act therewith, it has been held that liquidated damages/ compensation for the breach of contract can be awarded to make good the loss or damage which actually arises or which the parties knew when they made the contract, to be likely to result from the breach . Hence it cannot be concluded that sum received is synonymous to tolerating . It is absolutely wrong to say that in breach of contract one appellant tolerates an Act or a situation, hence, the view taken by the Commissioner (Appeals) that the liquidated damages as have been received by the appellants towards consideration for tolerating the Act are leviable to service tax under section 66 E(e) of Finance Act is not at all sustainable. In the fact of both the present appeals, it is found that the facts are almost identical. There appears nothing for us to differ from the above observations in the afore-mentioned final order of the said Tribunal. Respectfully, following those findings it is held that the amount in question cannot be called as consideration towards declared service as defined under Section 66E (e) of the Finance Act. The confirmation of tax demand qua said amount is therefore not sustainable. Appeal allowed.

Summary

Issues involved:
The issue involves whether the service rendered by the appellant can be classified as a "declared service" under Section 66E (e) of the Finance Act, 1994.

Summary of Judgment:

Issue 1 - Classification of Service:
The appellant, engaged in coal production and clearance, was holding service tax registration for various services. The Department alleged that the appellant's activities were a declared service under Section 66E (e) and hence liable for service tax. The appellant contended that the service provided does not fall under the declared service category. The Tribunal, after considering relevant legal provisions and precedents, held that the amount received by the appellant as penalty or liquidated damages cannot be considered as consideration towards a declared service. The tax demand was deemed unsustainable, and the order under challenge was set aside, allowing both appeals.

Key Points:
- Appellant's activities were alleged to be a declared service under Section 66E (e).
- Appellant argued that the service provided does not fall under the declared service category.
- Tribunal held that the amount received as penalty or liquidated damages does not constitute consideration towards a declared service.
- Tax demand was deemed unsustainable, and the order was set aside, allowing both appeals.

Significant Legal References:
- Relevant statutory provisions under the Finance Act were considered.
- Previous decisions such as Commissioner of Service Tax versus M/s Bhayana Builders and others were discussed.
- Interpretation of Indian Contract Act provisions regarding liquidated damages was crucial in determining tax liability.
- Various legal precedents were cited to support the Tribunal's decision.

Conclusion:
The Tribunal ruled in favor of the appellant, holding that the amount received as penalty or liquidated damages does not qualify as consideration towards a declared service. The tax demand was found unsustainable, and both appeals were allowed.

This summary provides a detailed overview of the judgment, highlighting the key issues, arguments, legal references, and the final decision made by the Tribunal.