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TMI Blog2024 (5) TMI 1058X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant is registered with the department under the service tax for rendering various taxable services and were paying service tax under forward charge on the services viz, consulting engineering service etc, and on various other services as service recipient under RCM. That on specific intelligence an inquiry was initiated against the appellants and it was observed that for the period from 01.07.2012 to 30.06.2017, the appellants had received amount to the tune of Rs. 18,30,910/- for the period from 01.07.2012 to 30.06.2017 from their suppliers/contractors which were declared by them in their trial balance under a separate accounting head as "Recovery from suppliers/contractors towards penalty damages" and narrated the same as "Liqui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the provisions of Section 75 of the Act, dropped the demand amounting to Rs. 29,783/-under Section 67(2) of the Act; imposed penalty at the rate of 100% of confirmed demand under Section 78 of the Act read with Section 174 and 142(8)(a) of the CGST Act with an option of reduced penalty of 25% of the Service Tax so determined in terms of clause (ii) of the second proviso to Section 78(1) of the Act read with third proviso thereto and also imposed penalty of Rs. 10,000/- under Section 77 of the Act read with Section 174 and 142(8)(a) of the CGST Act. Aggrieved by the said Order-in-Original, the appellant filed appeal before the Commissioner (Appeals) who rejected their appeal. Hence, the present appeal. 4. Heard both side and perused the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idated damages collected by the appellant as penalty/late delivery charges cannot be subjected to service tax under Section 66E (e) of the Finance Act. In this regard, we may refer the Final Order No. 50329/2022 dated 16.02.2023 passed by the Principal Bench in the appellant's own case where identical issue was involved. We may reproduce the relevant findings which are contained herein below: "6. Having heard the rival contentions, perusing the record of the appeal and after going through various decisions of the Tribunal, as has been relied upon by both the sides, we are of the opinion that issue involved herein is: "Whether the liquidated damages collected due to breach of condition of contract as far as the time line for supply is c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to refrain from an act, would be a 'declared service' under section 66E(e) read with section 658(44) and would be taxable under section 68 at the rate specified in section 668. Likewise, there can be services conceived in agreements in relation to the other two activities referred to in section 66E(e). 27. It is trite that an agreement has to be read as a whole so as to gather the intention of the parties. The intention of the appellant and the 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 flouti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e party purchasing coal had 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." 8. Order No. 50879/2022 dated 20.09.2022 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax on liquidated damages, comperisation and penalty arising out of breach of contract in the context of "agreeing to the obligation to refrain from an act or to tolerate an act or a situation, or to do an act. This Circular emphasizes that there has to be an express or implied agreement to do or abstain from doing something against payment of consideration for a taxable supply to exist and such an act or a situation cannot be imagined or presumed to exist merely because there is a flow of money from one party to another. It also mentions that unless payment has been made for an independent activity of tolerating an act under an independent arrangement entered into for such activity or tolerating an act, such payment will not constitute cons ..... X X X X Extracts X X X X X X X X Extracts X X X X
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