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TMI Blog2021 (2) TMI 821X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 66E (e), a declared service shall constitute agreeing to the obligation to refrain from an act, or to tolerate an act or situation, or to do an act. Section 66 B provides that service tax shall be levied at the rate of 12 per cent on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed. Section 66D contains a negative list of services, while section 66E contains a list of declared services. Section 68 provides that every person providing taxable service to any person shall pay service tax at the rate specified in section 66B in such manner and within such period as may be prescribed - It is, thus, clear 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovided. The issue that arose for consideration in M/S LEMON TREE HOTEL VERSUS COMMISSIONER, GOODS SERVICE TAX, CENTRAL EXCISE CUSTOM [ 2019 (7) TMI 767 - CESTAT NEW DELHI] was whether forfeiture of the amount received by a hotel from a customer on cancellation of the booking would be leviable to service tax under section 66E(e). The Tribunal held that the retention of the amount on cancellation would not attract service tax under section 66E (e). Learned Authorized Representative has, however, referred to the decision of the Delhi High Court in XL ENERGY LIMITED VERSUS MAHANAGAR TELEPHONE NIGAM LIMITED.[ 2018 (5) TMI 2036 - DELHI HIGH COURT] . This decision refers to the decision of the Supreme Court in Oil Natural Gas Corporation Ltd. Vs. Saw Pipes Ltd., which in turn referred to a decision of the Supreme Court in Fateh Chand. The decision of the Supreme Court in Fateh Chand was also relied upon by learned Authorized Representative of the Department in M/S SOUTH EASTERN COALFIELDS LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX, RAIPUR [ 2020 (12) TMI 912 - CESTAT NEW DELHI] but it was found not to applicable to the facts of the case. Like ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant mentioning therein that the penalty amount and the amount collected towards theft of electricity by the appellant was towards consideration for tolerating an act and covered as a declared service under section 66E(e) of the Finance Act w.e.f July 1, 2012. The appellant was, therefore, called upon a show cause as to why service tax amounting to ₹ 4,61,26,287/- should not demanded and recovered from the appellant by invoking the extended period of limitation contemplated under the proviso to section 73(1) of the Finance Act and as to why interest should not be demanded and recovered under the section 75 of the Finance Act and why penalty should not be imposed under sections 76 and 78 of the Finance Act. 5. The appellant submitted a reply dated October, 2018 to the aforesaid show cause notice mentioning therein that service tax was not leviable either on the liquidated damages amount collected from the contractors or on the amount collected for theft of electricity. The appellant also pointed out that the extended period of limitation could not have been invoked. 6. The contentions advanced by the appellant were, however, not accepted by the Principal Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heft of electricity, the findings of the Principal Commissioner are as follows : ********** 23. Theft charges are collected from the consumer of electricity for unauthorized use of electricity by means of tampering of meters, unauthorized or direct connection form the pole of electricity or for the purpose other than for which the uses of electricity was authorized within the meaning of Section 135 of Electricity Act, 2003. Theft of electricity is prohibited under Electricity Act, 2003. Theft of Electricity is punishable under Section 135(1) of Electricity Act, 2003 with imprisonment of a term which may extend to three years or with fine or both. Theft of electricity not only cause revenue loss to the party but legitimate distribution and transmission of power to customer also get hampered as this also causes shortage of power. The party has to tolerate whenever there is a theft of electricity. To tolerate an act or situation is covered under declared service and declared service is covered under definition of service itself as stipulated above. Therefore, amount collected under the head theft of electricity is chargeable to service tax. (emphasis supplied) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , certain contracts were executed by the appellant in which a clause provided for levy of penalty for non-observance/breach of the terms of the contract. The appellant also collected theft charges as penalty for unauthorized use of electricity as contemplated under section 135 of the Electricity Act, 2003 read with Chapter-X of the Madhya Pradesh Electricity Supply Code, 2013. 13. The period of dispute is from July, 2012 upto March, 2016. Section 66D of the Finance Act provides for a negative list of services. This negative list comprises, amongst others, in sub-clause (k), transmission or distribution of electricity by an electricity transmission or distribution utility . The issue involved in this appeal is not regarding the amount collected by the appellant for supply of electricity; the dispute is regarding the amount collected towards liquidated damages and theft of electricity. 14. According to the Department, this amount collected by the appellant towards liquidated damages and theft of electricity would be for a declared service under section 66E(e) of the Finance Act, which is a service for agreeing to the obligation to refrain from an act, or to tolerate an ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x shall be levied at the rate of 12 per cent on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed. Section 66D contains a negative list of services, while section 66E contains a list of declared services. 20. Section 67 of the Finance Act deals with valuation of taxable service for charging service tax. It is reproduced below:- 67. (1) Subject to the provisions of this Chapter, where service tax is chargeable on any taxable service with reference to its value, then such value shall,- (i) in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him; (ii) in a case where the provision of service is for a consideration not wholly or partly consisting of money, be such amount in money, with the addition of service tax charged, is equivalent to the consideration; (iii) in a case where the provision of service is for a consideration which is not ascertainable, be the amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uses providing penalty for non-observance/breach of the terms of the contract entered during the course of business came up for consideration. The case of Department was that the amount collected by the appellant towards compensation/penalty was taxable as a declared service under section 66E(e) of the Finance Act. After considering the decision of a Larger Bench of the Tribunal in Bhayana Builders and the decisions of the Supreme Court in Commissioner of Service Tax vs. M/s Bhayana Builders [ 2018 (2) TMI 1325 ] and Union of India vs. Intercontinental Consultants and Technocrats [ 2018 (10) GSTL 401 (SC) ] as also the decision pertaining to Australian GST Rules, the Bench observed as follows: 24. What follows from the aforesaid decisions of the Supreme Court in Bhayana Builders and Intercontinental Consultants , and the decision of the Larger Bench of the Tribunal in Bhayana Builders is that consideration must flow from the service recipient to the service provider and should accrue to the benefit of the service provider and that the amount charged has necessarily to be a consideration for the taxable service provided under the Finance Act. Any amount charg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f coal, materials or for availing various types of services. The intention of the parties certainly was not for flouting the terms of the agreement so that the penal clauses get attracted. The penal clauses are in the nature of providing a safeguard to the commercial interest of the appellant and it cannot, by any stretch of imagination, be said that recovering any sum by invoking the penalty clauses is the reason behind the execution of the contract for an agreed consideration. It is not the intention of the appellant to impose any penalty upon the other party nor is it the intention of the other party to get penalized. 28. It also needs to be noted that section 65B(44) defines service to mean any activity carried out by a person for another for consideration. Explanation (a) to section 67 provides that consideration includes any amount that is payable for the taxable services provided or to be provided. The recovery of liquidated damages/penalty from other party cannot be said to be towards any service per se, since neither the appellant is carrying on any activity to receive compensation nor can there be any intention of the other party to breach or violate the contrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for consideration in Lemon Tree Hotel Hotel was whether forfeiture of the amount received by a hotel from a customer on cancellation of the booking would be leviable to service tax under section 66E(e). The Tribunal held that the retention of the amount on cancellation would not attract service tax under section 66E (e) and the relevant portion of the decisions is reproduced below: 3. So far as the first issue is concerned, the appellant, in the course of their business of running a hotel, offers advance booking to its customers, on payment of rent or deposit. Sometimes in the event of cancellation or of no show i.e. if the guest does not come for stay, the appellants retains the full or part of the amount towards cancellation charges. It is admitted that the appellant have paid service tax under Accommodation Services as and when they receive advance, availing the permissible abated value. It is the case of the Revenue that upon cancellation by the customers, the gross amount received by the appellant qualifies the receipt under Section 66 E (e). 4. Ld. Commissioner (Appeals) in confirming the demand under this head has observed that retention of such cancellation charg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fully utilized by M/s Parle, their claim of ex-gratia charges arises so as to compensate them from the financial damage/injury. As such, ex-gratia amount is not fixed and is mutually decided between the two, based upon the terms and conditions of the agreement and is in the nature of compensation in case of low/less utilization of the production capacity of the assessee. ******* ******* ******* In the present case apart from manufacturing and receiving the cost of the same, the appellants were also receiving the compensation charges under the head ex-gratia job charges. The same are not covered by any of the Acts as described under Section 66E (e) of the Finance Act, 1994. The said Sub-clause proceeds to state various active and passive actions or reactions which are declared to be a service namely; to refrain from an act, or to tolerate an act or a situation, or to do an act. As such for invocation of the said clause, there has to be first a concurrence to assume an obligation to refrain from an act or tolerate an act etc. which are clearly absent in the present case. In the instant case, if the delivery of project gets delayed, or any other terms of the contract g ..... X X X X Extracts X X X X X X X X Extracts X X X X
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