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TMI Blog2022 (4) TMI 773X X X X Extracts X X X X X X X X Extracts X X X X ..... her decisions by this Tribunal In short, the view constantly held by this Tribunal is that there is a distinction between a consideration under a contract and the compensation for failure to fulfill the contract. While the consideration is something done by one party at the desire of the other party. Compensation or damages are paid when one party fails to perform - Consideration is the result of the performance of the contract. Compensation/damages are the result of frustration of contract or not performing the contract as per the conditions laid down in it. Compensation can be of two forms - HELD THAT:- If the suffering party sues the other in a court and damages are award by the court such damages are un-liquidated damages. The quantum of damages is decided by the court taking into account the facts and circumstances of the case and the damage suffered. Liquidated damages are those damages and which are built into the contract itself. They provide that the defaulting party shall pay to the other a certain amount in case of default. The purpose of the liquidated damages in a contract is to dissuade the parties from reneging from the contract - What is chargeable to service t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as followed in respect of the same appellant by this Bench, we find no reason to take a different view in the matter. The issues which for consideration are the exigibility to service tax on the following and consequent imposition of penalties upon the appellants for non-payment of Service Tax in respect of the following :- (i) Late payment surcharge: The amount is charged by the appellants in the electricity bills issued to customers and is collected if the customer fails to pay the bill within time. The demand is on the ground that the appellants are tolerating the non-payment of electricity bill within time by the customer and such tolerance qualifies as a declared service as per Section 66E(e) of the Finance Act, 1994. The demand under this head was dropped by the final order dated 14 January 2021 in respect of the same appellants for a prior period; (ii) Meter renting charges: The appellants collect meter rents from their consumers and the case of the Revenue is that since only transmission and distribution of electricity was covered under the negative list of services not exigible to service tax, meter rent being not under the negative list is chargeable to service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation 2.2.1 The phrase consideration has not been defined in the Act. What is, therefore, the meaning of consideration ? As per Explanation (a) to section 67 of the Act consideration includes any amount that is payable for the taxable services provided or to be provided. Since this definition is inclusive it will not be out of place to refer to the definition of consideration as given in section 2(d) of the Indian Contract Act, 1872 as follows xxxxx xxxxx xxxxx (emphasis supplied) 23. It would, therefore, be appropriate to examine the definition of consideration in section 2(d) of the Contract Act, as the Contract Act deals with all kinds of contracts and predates the Finance Act. The definition of consideration is as follows:- 2(d) When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise. 24. What follows from the aforesaid decisions of the Supreme Court in Bhayana Builders and Intercontinental Consultants, and the decision of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties was for supply of coal; for supply of goods; and for availing various types of services. The consideration contemplated under the agreements was for such supply of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such a consideration in the supplemental agreement. Although if a party promised to abstain from doing something, it could be regarded as consideration for the contract, but in the present case there was no such case of abstinence and there was no consideration for supplemental contract. (emphasis supplied) 32. In the present case, the agreements do not specify what precise obligation has been cast upon the appellant to refrain from an act or tolerate an act or a situation. It is no doubt true that the contracts may provide for penal clauses for breach of the terms of the contract but, as noted above, there is a marked distinction between conditions to a contract and considerations for a contract . 5. Southeastern Coalfields was followed in several other decisions by this Tribunal In short, the view constantly held by this Tribunal is that there is a distinction between a consideration under a contract and the compensation for failure to fulfill the contract. While the consideration is something done by one party at the desire of the other party. Compensation or damages are paid when one party fails to perform. Consideration is the result of the performance of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3) ₹ 60,000/-under Section 77(2) 2 ST/50168/2019 Late Payment Surcharge ₹ 183,88,53,751 /- 1) ₹ 183,88,53,751 /- under Section78 2) ₹ 10,000/-under Section 77 (1) (a) 3) ₹ 10,000/-under Section77(1)(d) 4) ₹ 10,000/-under Section77(2). 3 ST/51066/2019 Liquidated Damages Charges ₹ 4,11,98,996 /- ₹ 4,11,98,996 /- under Section78 4 ST/50513/2019 Late payment Surcharge Meter Renting Charges ₹ 107,81,05,451 /- under Section 78 R/w 173,174 of CGST Act, 2017 5 ST/52104/2019 Meter Rent Reconnection Income from Pole used for Cable TV Network ₹ 38,69,89,440 /- ₹ 38,69,89,440 /- underSection78 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at was exempt under those provisions was transmission and distribution of electricity, despite which, during the pre-negative list regime, the respondents have considered services related to transmission and distribution of electricity as exempted from service tax by virtue of those notifications. Insofar as electricity meters are concerned, vide circular No.131/13/2010-ST dated 7.12.2010, it was clarified that supply of electricity meters for hire to consumers being an essential activity, having direct and close nexus with transmission and distribution of electricity, the same is covered by the exemption for transmission and distribution of electricity extended under relevant notifications. 13. Thus, the reason for saying that supply of electricity meters for hire to consumers is covered by the exemption notification is that such service is an essential activity having direct and close nexus with transmission and distribution of electricity. This circular only provides an interpretation of when a service would stand included in another service, namely, when such service is an essential activity having direct and close nexus with the exempted activity. Therefore, the fact that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the exemptions, except that they are provided under different statutory provisions. In the opinion of this court, the meaning of transmission and distribution of electricity does not change either for the negative list regime or the GST regime. If that be so, the services which stood included within the ambit of transmission and distribution of electricity during the pre-negative list regime cannot now be sought be excluded by merely issuing a clarificatory circular, that too, with retrospective effect. By the clarificatory circular, the respondents seek to give a different interpretation of the very same services as against the clarification issued for the prenegative list regime. 15. Thus, from the very manner in which the respondents have treated the services related to transmission and distribution of electricity during the pre-negative list regime, such services would stand covered by the exemption granted to transmission and distribution of electricity by virtue of inclusion of such services in the list of negative services under section 66D (k) of the Finance Act as well as by virtue of exemption notification issued under the CGST Act. (emphasis supplied) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 43 of the Electricity Act casts a duty upon the licensee to provide if required electric plant or electric line for giving electric supply to the premises. Therefore, providing electric line and electric plant are elements of service which are naturally bundled in the ordinary course of business, with the single service of transmission and distribution of electricity which gives the bundle its essential character. The only related service which does not fall within the ambit of the definitions of electric line and electric plant is the meter used for ascertaining the quantity of electricity supplied to any premises. However, insofar as installation of electricity meter and hire charges collected in respect of electricity meters are concerned, by the circular dated 7th December, 2010, the Government of India has clarified that supply of electricity meters for hire to the consumers is an essential activity having direct and close nexus with transmission and distribution of electricity and therefore, is covered by the exemption for transmission and distribution of electricity extended under the relevant notifications. Evidently therefore, all the services related to transmission an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of electricity, which service is exempted from payment of service tax. 29. Thus, for all the reasons stated above, it is not possible to sustain the levy of service tax on the amount collected by the appellant for late payment surcharge, meter rent and supervision charges. 30. The issue that now remains to be decided is about the levy of penalty on the lease rent collected from the customers. The appellant claims that since it has deposited the lease rent, the levy of penalty may be set aside. It is not possible to accept this contention of the learned counsel for the appellant. The imposition of penalty under lease rent‟ is, therefore, confirmed. 31. Thus, for all the reasons stated above, the confirmation of demand by the Principal Commissioner on late payment surcharge, meter rent and supervision charges are set aside. The levy of penalty on the lease rent amount is confirmed. The appeal is, therefore, allowed to the extent indicated above . 9. In view of the above, the appeals are disposed of, as below: (i) In Service Tax Appeal no. 50289 of 2019, the demand of service tax on late payment surcharge meter renting charges and supervision charges are set ..... X X X X Extracts X X X X X X X X Extracts X X X X
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