2024 (6) TMI 763 - AT - Service Tax

Levy of service tax - Liquidated Damages - Security Deposit (SD) - Earnest Money Deposit (EMD) - Retention Money - time limitation - Taxability as consideration against tolerating an act under Section 66E(e) - HELD THAT - An identical issue had come up before the Tribunal for consideration in the case of M/S SOUTH EASTERN COALFIELDS LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX, RAIPUR 2020 (12) TMI 912 - CESTAT NEW DELHI wherein the Tribunal held that ' It is, therefore, not possible to sustain the view taken by the Principal Commissioner that penalty amount, forfeiture of earnest money deposit and liquidated damages have been received by the appellant towards consideration for tolerating an act leviable to service tax under section 66E(e) of the Finance Act.' As it has been held by the Tribunal that on the said forfeited amount or amount received by an appellant, the appellant is not liable to pay Service Tax, in these circumstances, it is held that the appellant is not liable to pay Service Tax under Section 66E(e) of the Finance Act, 1994. There are no merit in the impugned order and accordingly, the same is set aside - appeal allowed.

Summary

Issues:
Appeal against confirmation of Service Tax demand under Section 66E(e) of the Finance Act, 1994 on amounts received as Liquidated Damages, Security Deposit, Earnest Money Deposit, and Retention Money. Interpretation of whether such amounts constitute consideration against tolerating an act, a declared service under Section 66E(e).

Analysis:
The appellant contested the demand of Service Tax on amounts received from contractors due to breach of contract terms. An investigation led to a Show Cause Notice for the period from October 2013 to June 2017, alleging that the forfeited amounts were consideration for tolerating an act, falling under Section 66E(e) of the Finance Act, 1994. The appellant challenged the demand on merit and limitation grounds, resulting in an adjudication order against them.

The appellant relied on a Tribunal case involving M/s. South Eastern Coalfields Ltd., arguing that the issue is settled and the impugned order should be set aside. The Authorized Representative for the respondent, however, supported the findings in the impugned order. The Tribunal examined the issue in light of the previous case and relevant legal provisions.

The Tribunal referred to the case of M/s. South Eastern Coalfields Ltd., where it was held that the appellant was not liable to pay Service Tax under Section 66E(e) for similar forfeited amounts. The Tribunal analyzed various sections of the Finance Act, emphasizing the requirement of consideration for taxable services and the definition of "consideration" under the Indian Contract Act. It highlighted that penal clauses in contracts do not necessarily constitute consideration for tolerating an act.

Citing the Supreme Court decision in COMMISSIONER OF SERVICE TAX ETC. VERSUS M/S. BHAYANA BUILDERS (P) LTD., the Tribunal emphasized that amounts without a nexus to taxable services do not form part of the taxable value. It also referred to a TRU Circular to clarify the concept of "consideration." The Tribunal concluded that the forfeited amounts in this case did not qualify as consideration for tolerating an act, hence not subject to Service Tax under Section 66E(e).

Based on the Tribunal's findings in the precedent case and the interpretation of relevant legal provisions, the appeal was allowed, and the appellant was deemed not liable to pay Service Tax under Section 66E(e) of the Finance Act, 1994. The impugned order was set aside, and the appeal was allowed with consequential relief, if any.