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TMI Blog2023 (2) TMI 606X X X X Extracts X X X X X X X X Extracts X X X X ..... in which supply, installation of various hardware and /or software or provision of service was involved. M/s. Rajcomp was found paying service tax only on the service charges so received from the concerned Department, instead of paying the service tax on the gross value of the amount so received - it was held that the appellant acted as a pure agent as a result of which the amount collected by the appellant from the State Government for payment to the vendors cannot be subjected to service tax. Whether the appellant is liable to pay service tax on the amount deducted from the payment of various service providers /vendors in the name of liquidated damages for violating terms of agreement entered into? - HELD THAT:- This issue was examined at length by the Division Bench of the Tribunal in M/S SOUTH EASTERN COALFIELDS LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX, RAIPUR [ 2020 (12) TMI 912 - CESTAT NEW DELHI ] and it was held that It is, therefore, not possible to sustain the view taken by the Principal Commissioner that penalty amount, forfeiture of earnest money deposit and liquidated damages have been received by the appellant towards consideration for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r for implementation of the project. The vendor raises invoices which includes VAT and Service tax, which is paid by the Appellant through payment sanction orders. The appellant raises invoices, including service charges, to the Government of Rajasthan. Upon completion of the project, the unutilized amount is returned to the Government of Rajasthan. 3. The Learned counsel for the Appellant elucidated that the schemes being implemented by the appellant as a nodal agency, are predominantly oriented towards technological advancement of the various Departments of the State Government. The concerned Department of the State Government, along with the Department of Information Technology Communications prepares a report for a project. This report is given sanctity by the Apex Committee of the State Government, subsequent to which a project estimate is assigned. Considering the expertise of the appellant in execution of such projects, a formal request is extended to the appellant by the Department of IT C for implementing the project. Thereafter, the appellant floats tenders on behalf of the concerned Department of the State Government and awards the work to one or more vendors for su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to tolerate an act or a situation, or to do an act . 6. We have heard the learned Counsel for the appellant and the learned Authorised Representative. 7. The two main issues being agitated by the Appellant are the following: (i) Demand of service tax on the gross amount/consideration being received by the Appellant for execution of IT projects for the Government of Rajasthan (ii) Demand of service tax on amount deducted in the name of liquidated damages for violating the terms of Agreement. 8. We observe that the present appeal filed is against a periodical show cause notice issued to the appellant, consequent to an Audit of the records of the assessee. 9. It is pertinent to appreciate the fact that earlier two show cause notices issued to the appellant on identical issue stand decided by this Tribunal vide Final Order No. 50148-50150/2022 dated 18.02.2022 [MANU/CE/0063/2022] wherein the previous demands made have been set aside. The impugned Order-in-Original has demanded service tax on two issues. The audit of the record of the appellant reveal that they were providing taxable service to various Government departments in which supply, installation of various har ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 5 of the Valuation Rules. 25. In the first instance, as noticed above, rule 5(1) of the Valuation Rules has been struck down by the Supreme Court as being ultra vires section 67 of the Finance Act. 26. Secondly, the appellant had appointed vendors on behalf of the State Government for procurement of goods and/or services. The amount payable to the vendors are borne by the State Government, though, through the appellant for which the appellant submits utilization certificates to the State Government with the corresponding invoices raised by the vendors. This would be apparent from the documents annexed with the appeal. 33. It would, therefore, be seen that the amount paid by the State Government Departments to the appellant are reimbursements, which cannot be subjected to levy of service tax. The only consideration received by the appellant was the service charge on which service tax was discharged by the appellant. 38. Thus, as all the conditions of rule 5(2) of the Valuation Rules are satisfied, the appellant acted as a pure agent as a result of which the amount collected by the appellant from the State Government for payment to the vendors cannot be subjected to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad an option to purchase coal from A or from B and if in such a situation A and B enter into an agreement that A would not supply coal to the appellant provided B paid some amount to it, then in such a case, it can be said that the activity may result in a deemed service contemplated under section 66E (e). 30. The activities, therefore, that are contemplated under section 66E (e), when one party agrees to refrain from an act, or to tolerate an act or a situation, or to do an act, are activities where the agreement specifically refers to such an activity and there is a flow of consideration for this activity. ******** 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 . 12. We also find that the CBIC Circular No. 178/10/2022-GST dated 03.08.2022 has clarified that liquidated damages cannot be said to consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X
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