2023 (6) TMI 1083 - AT - Service Tax

Levy of Service Tax - Declared Service or not - amount received by the Appellant in excess of the purchase price paid for the immovable property, subsequent to cancellation of the agreement to Sale of the said property - HELD THAT - The provisions contained in Section 66E(e) has been elaborately dealt by the co-ordinate Bench of the Tribunal in the case of M/S MADHYA PRADESH POORVA KSHETRA VIDYUT VITARAN COMPANY LIMITED VERSUS COMMISSIONER OF CGST CENTRAL EXCISE, MADHYA PRADESH 2022 (4) TMI 773 - CESTAT NEW DELHI , wherein the judgment 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 was relied by the Tribunal. It has been observed therein that there is a distinction between a consideration under a contract and the compensation for failure to fulfill the contract . It has also been held that while the consideration is paid for doing something by one party at the desire of the other party and is thus the result of the performance of the contract whereas, on the other hand, compensation or damages is paid when one party fails to perform his part and is thus the result of frustration of contract and/or not performing the contract. In the present case, the appellant had paid the entire purchase price to the sellers who were in turn duty bound to carry out the development of the property within a reasonable period of time and immediately thereafter execute the Sale Deed in favour of the appellant. However, they failed to perform their part of the obligation - The appellant agreed to cancel the two agreements for a lump-sum payment, a portion of which was compensation, which can at best be said to be for the damages/compensation of loss of interest on funds invested solely due to the non-fulfilment on the part of the seller and its associates. The entire case of the Department for raising demand is that the appellant has received compensation by way of cancellation of the subject agreement, which fact is on record and not in dispute. In view of the decision of the Tribunal in the case of Madhya Pradesh Poorva Kshetra Vidyut Vitaran Company Limited, which is squarely applicable to the facts of the present case, the receipt of compensation cannot, by any stretch of imagination, fall under the provisions of Declared Service under Section 66E(e) of the Finance Act. The impugned order cannot be legally sustained and hence, set aside - Appeal allowed.

Summary

Issues:
The judgment involves the confirmation of demand for service tax under the category of 'Declared Service' and imposition of penalty on the appellant for receiving an excess amount after cancellation of an agreement to sell an immovable property.

Summary:
The appellant, M/s. M. N. Dastur & Co. Pvt Ltd, challenged the Order-in-Original confirming a service tax demand of Rs. 74,46,900/- under 'Declared Service' category for receiving excess compensation upon cancellation of an agreement to sell an immovable property. The dispute arose from delayed development of the property due to conflicts between parties involved. The appellant received compensation of Rs. 6,02,50,000/- over the advance payment made, leading to the question of whether this amount constitutes 'consideration' under Section 66E(e) of the Finance Act. The Tribunal analyzed the distinction between 'consideration under a contract' and 'compensation for failure to fulfill the contract' based on previous judgments. It was observed that the compensation received was for damages due to non-fulfillment by the seller and not for tolerating an act or situation, thus not falling under Declared Service as per Section 66E(e).

The appellant contended that the cancellation of agreements and subsequent compensation were not intended at the time of entering into the agreements, emphasizing the primary purpose of purchasing the property. They relied on a previous Tribunal decision to support their argument and contested the demand on the grounds of limitation. The Revenue supported the findings of the Commissioner and opposed the appeal.

After hearing both parties and examining the case records, the Tribunal concluded that the compensation received was for damages/loss of interest on funds invested due to the seller's failure to fulfill their obligations. Citing the precedent set by the Tribunal in a similar case, the Tribunal held that the compensation received did not fall under Declared Service as it was not for tolerating an act or situation but for the damages incurred. Therefore, the impugned order confirming the demand was set aside, and the appeal was allowed with consequential relief as per law.