2023 (12) TMI 1242 - AT - Service Tax

Levy of service tax - Declared Service - relinquishment charges under section 66E (e) of the Finance Act - charges are in the nature of consideration received towards rendition of the declared service i.e. tolerating of relinquishing access rights - HELD THAT - It is well settled that the amount paid in the nature of compensation/damages on account of breach or non-performance of contract would not be considered in lieu of any service and, therefore, would not be leviable to service tax. In view of the decision of the Tribunal in South-Eastern Coalfields Ltd. 2020 (12) TMI 912 - CESTAT NEW DELHI , it has to be held that relinquishment charges are not consideration received towards rendition of a declared service under section 66E (e) of the Finance Act. It would not be necessary to examine the alternative submission made by the learned counsel for the appellant that in any view of the matter, the relinquishment charges recovered by the appellant are part of the electricity transmission service and, therefore, would be covered under the Negative List under section 66D (k) of the Finance Act. The order dated 04.03.2021 passed by the Principal Commissioner cannot be sustained and is set aside - Appeal allowed.

Summary

Issues Involved:
1. Taxability of relinquishment charges under section 66E(e) of the Finance Act.
2. Nature of relinquishment charges as compensation or consideration for service.
3. Applicability of the Negative List under section 66D(k) of the Finance Act.

Summary:

1. Taxability of Relinquishment Charges:
The main issue for consideration was whether the demand of service tax on relinquishment charges under section 66E(e) of the Finance Act, on the ground that these charges are in the nature of consideration for the declared service of tolerating relinquishing access rights, is justified. The appellant argued that relinquishment charges are not for any service but are compensation for pre-mature termination of access by power generating companies from the ISTS network.

2. Nature of Relinquishment Charges:
The appellant contended that the relinquishment charges are compensatory and not for any service provision. The Principal Commissioner, however, viewed these charges as standalone and taxable under section 66E(e) of the Finance Act. The Tribunal disagreed, stating that compensation or damages for breach or non-performance of a contract are not consideration for any service and thus not subject to service tax. The Tribunal referenced several decisions, including South Eastern Coalfields Ltd. and Northern Coalfields Ltd., which established that compensation for breach of contract does not constitute consideration for service.

3. Applicability of the Negative List:
Given the Tribunal's decision that relinquishment charges are not consideration for a declared service, it was unnecessary to examine the alternative argument that these charges are part of the electricity transmission service and thus covered under the Negative List under section 66D(k) of the Finance Act.

Conclusion:
The order dated 04.03.2021 by the Principal Commissioner was set aside, and the appeal was allowed. The relinquishment charges were deemed not taxable under section 66E(e) of the Finance Act, as they are compensatory in nature and not consideration for any service.