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TMI Blog2021 (7) TMI 1092X X X X Extracts X X X X X X X X Extracts X X X X ..... quashing of the order dated 04.10.2018 passed by the Commissioner (Appeals), by which the order dated 15.11.2017 passed by the Assistant Commissioner has been upheld and the appeal has been dismissed. 2. The period involved in all the appeal is after 01.07.2012 and the case set out by the Department is that the appellant had agreed to tolerate breach of timelines stipulated in the contract; the amount imposed as liquidated damages are consideration for the act of tolerating contractual default; and that the appellant had rendered declared service of 'agreeing to the obligation to refrain from an act, or to tolerate an act or a situation or to do an act' contemplated under section 66E(e) of the Finance Act, 1994[the Finance Act] . 3. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided by them for the period 01.07.2012 to 30.12.2015 should not be demanded from them under proviso to Section 73(1) of the Finance Act, 1994;" iii) the applicable interest at the applicable rates should not be recovered from them under Section 75 of the Finance Act 1994 on the Service Tax amount as mention in (ii) above; iv) Penalty should not be imposed on them under Section 78 ibid." 6. The appellant submitted a detailed reply dated 18.07.2017 to the aforesaid show cause notice with a request that the proceedings may be dropped for the reason that no service tax was payable on liquidated damages and penalties recovered under the contract. 7. The Assistant Commissioner, however, did not accept the contentions of the appellant and co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment of the FSV for a period not exceeding 3 days on payment of specified amount for every day of extension. This amount is termed as (iii) Ground Rent. The department contended that the amount recovered by the appellant for non[1]fulfilment of obligation in terms of the agreement under (i), (ii) and (iii) as stated above from their suppliers and buyers(bidders) are nothing but consideration for tolerating an act of their customers or a situation and hence the activity is a 'declared service' as stated under Section 66E(e) of the Finance Act, 1994 and therefore liable to pay service tax and accordingly confirmed the demand of service tax against which present appeal filed." 9. Ms. Krithika Jaganathan, Learned counsel appearing for the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmed in accordance with the provisions of section 66E(e) of the Finance Act. 11. The submissions advanced by the learned counsel for the appellant and the learned Authorized Representatives of the Department have been considered. 12. There is substance in the submission advanced by the learned counsel for the appellant that no service tax is payable on the amount collected towards liquidated damages as this issue has been decided by the Tribunal in favour of the appellant in South Eastern Coalfields. 13. Various commercial contacts had been executed by South Eastern Coalfields and certain clause provided for levy of penalty for non-observance / breach of the terms of the contract. A show cause notice was issued with an allegation that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act. There has, therefore, to be a flow of consideration from one person to another when one person agrees to the obligation to refrain from an act, or to tolerate an act, or a situation, or to do an act. In other words, the agreement should not only specify the activity to be carried out by a person for another person but should specify the:(i) consideration for agreeing to the obligation to refrain from an act; or (ii) consideration for agreeing to tolerate an act or a situation; or (iii) consideration to do an act. 26. Thus, a service conceived in an agreement where one person, for a consideration, agrees to an obligation to refrain from an ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovided 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 contract and suffer a loss. The purpose of imposing compensation or penalty is to ensure that the defaulting act is not undertaken or repeated and the same cannot be said to be towards toleration of the defaulting party. The expectation of the appellant is that the other party complies with the terms of the contract and a penalty is imposed only if there is non-compliance. 29. The situation would have been different if the party purchasing coal had an op ..... X X X X Extracts X X X X X X X X Extracts X X X X
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