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TMI Blog2024 (12) TMI 85X X X X Extracts X X X X X X X X Extracts X X X X ..... n above cited case law, therefore, the ratio of the above decision is directly applicable in the present case. Following the above decision of the Tribunal, the impugned order is not sustainable, hence the same is set aside. Appeal allowed. - HON'BLE MEMBER ( JUDICIAL ) , MR. RAMESH NAIR And HON'BLE MEMBER ( TECHNICAL ) , MR. RAJU Shri Neeta Lodha , Chartered Accountant for the Appellant Shri Rajesh Nathan , Assistant Commissioner ( AR ) for the Respondent ORDER RAMESH NAIR The issue involved in the present appeal is that since transmission or distribution of electricity by an electricity transmission or distribution utility is exempt from Service Tax under section 66D (k) of the Finance Act, 1994, hence the major activity of the company isexempt from service tax. At times the appellant recover penalty charges from the contactors / suppliers for delay in providing the goods/ service. The department is of the view that on such penalty, service tax will be applicable. 2. Ms. Neeta Lodha, Ld. Chartered Accountant, appearing on behalf of the appellant at the outset, submits that this issue is no longer res- integra in light of the judgment of this Tribunal in the case of Guja ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecame taxable w.e.f. July 1, 2012. The period of dispute in the present appeal is from July, 2012 to March, 2016. 11. Section 65B(44) of the Finance Act defines service to mean any activity carried out by a person for another for consideration, and includes a declared service, but does not include what is mentioned in (a), (b) and (c) . The relevant portion of the definition of service is reproduced below : Section 65B(44) service means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include - (a) an activity which constitutes merely, - (i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or (ii) such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of article 366 of the Constitution; or (iii) a transaction in money or actionable claim; (b) a provision of service by an employee to the employer in the course of or in relation to his employment; (c) fees taken in any Court or tribunal established under any law for the time being in force. 12. Declared services has been defined in Section 66E and sub- section(e) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 amount as may be determined in the prescribed manner. xx xx xx Explanation. - For the purposes of this section, - (a) consideration includes - xx xx xx (b) xx xx xx (c) xx xx xx (Emphasis supplied) 17. 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. 18. 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 sub-section (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 wholl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vided for a nexus between the amount charged and the service provided. Therefore, any amount charged which has no nexus with the taxable service and is not a consideration for the service provided does not become part of the value which is taxable under Section 67. The cost of free supply of goods provided by the service recipient to the service provider is neither an amount charged by the service provider nor can it be regarded as a consideration for the service provided by the service provider. In fact, it has no nexus whatsoever with the taxable services for which value is sought to be determined. (Emphasis supplied) 21. The aforesaid view was reiterated by the Supreme Court in Union of India v. Intercontinental Consultants and Technocrats [2018 (10) G.S.T.L. 401 (S.C.)] and it was observed that since service tax is with reference to the value of service, as a necessary corollary, it is the value of the services which are actually rendered, the value whereof is to be ascertained for the purpose of calculating the service tax payable thereupon. 22. In this connection it would also be pertinent to refer to TRU Circular dated 20 June, 2012 issued by the Central Board of Excise and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lue would form part of the value of taxable services that are provided. 25. It is in the light of what has been stated above that the provisions of Section 66E(e) have to be analyzed. Section 65B(44) defines service to mean any activity carried out by a person for another for consideration and includes a declared service. One of the declared services contemplated under Section 66E is a service contemplated under clause (e) which service is agreeing to 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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. 31. In this connection, it will be useful to refer to a decision of the Supreme Court in Food Corporation of India v. Surana Commercial Co. and Others [(2003) 8 SCC 636]. The Supreme Court pointed out that if a party promises to abstain from doing something, it can be regarded as a consideration, but such abstinence has to be specifically mentioned in the agreement. The relevant portion of the judgment is reproduced below : Under the main agreement, a party had contracted for the conversion of whole arhar grain into dal. Subsequently, by another supplemental agreement, the party agreed to upgrade the dal. It was held that as soon as the first agreement was complied with and dal was delivered, the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration which has been or is to be obtained by the supplier from the customer or a third party for such supplies‟. 34. The question referred for preliminary hearing, in essence, in the aforesaid decision was whether a sum paid as a deposit by a client to a hotelier, where the client exercises the cancellation option available to him and that sum is retained by the hotelier, can be regarded as consideration for the supply of a reservation service, which is subject to VAT, or as a fixed compensation for cancellation, which is not subject to VAT. The Court found that there has to be a direct link between the service rendered and the consideration received. The sum paid must constitute a genuine consideration for an identifiable service supplied in the context of a legal relationship for which performance is reciprocal. It is in this context that Court observed : 26. Since the obligation to make a reservation arises from the contract for accommodation itself and not from the payment of a deposit, there is no direct connection between the service rendered and the consideration received (Apple and Pear Development Council, paragraphs 11 and 12; Tolsma, paragraph 13; and Kennemer Gol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the amount on cancellation would not attract service tax under Section 66E(e) and the relevant portion of the decision 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 retain 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 66E(e). 4. Ld. Commissioner (Appeals) in confirming the demand under this head has observed that retention of such cancellation charges is not against the provisions of intended services but for not availing the said services by the customers, which the appellant has tolerated. 5. Having considered the rival contentions, I find that the aforementioned observation of the Commissioner (Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... compensation in case of low/less utilization of the production capacity of the assessee. xxx xxx xxx 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 gests breached, which were expected to cause some damage or loss to the appellant, the contract itself provides for compensation to make good the possible damages owning to delay, or breach, as the case may be, by way of payment of liquidated damages by the contractor to the appellant. As such, the contracts provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od cancelled because the defendant committed a default in performing the agreement and the sum of Rs. 25,000/- paid by the defendant stood forfeited. 40. It is in this context and in the context of Section 74 of the Contract Act, that the Supreme Court observed : 20. Section 74 declares the law as toliability upon breach of contract where compensation is by agreement of parties pre- determined, or where there is a stipulation by way of penalty. But the application of the enactment is not restricted to cases where the aggrieved party claims relief as a plaintiff. The section does not confer a special benefit upon any party; it merely declares the law that notwithstanding any term in the contract for predetermining damages or providing for forfeiture of any property by way of penalty, the court will award to the party aggrieved only reasonable compensation not exceeding the amount named or penalty stipulated. 41. The Supreme Court also noticed that Section 74 of the Contract Act merely dispenses with the proof of actual loss or damages . It does not justify the award of compensation, when in consequence of the breach no legal injury at all has resulted, because compensation for breac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve out the notice period, then in lieu of the same, the employee will be required to pay the equivalent pay of salary for the period for which notice was not served. 2. Thus, in a case where an employee wishes to quit, it is incumbent upon the employee to put the employer to notice in advance of a stipulated period to enable recruitment of a new employee and smooth transition of the work carried on by the employee, who proposes to quit. It also facilitates a situation where the employee may desire immediate quitting by enabling him to do so, however, also ensuring that some compensation is provided to the employer by virtue of the sudden and unexpected termination of duty. 3. The petitioner in this case had received certain amounts in lieu of notice period from outgoing employees. The Assessing Officer was of the view that this amount would attract service tax since the petitioner is deemed to have facilitated the termination of employment and thus a category of service entiled and described as 'facilitation of termination of employment' was carved out by the Assessing Officer. 4. Seven show cause notices were issued relating to different units of the petitioner all over th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lopment, design, programming, customisation, adaptation, upgradation, enhancement, implementation of information technology software; (e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; 7. According to the Revenue, payment in lieu of notice constitutes payment to an employee by the employer for the notice period or vice versa where the employer/employee desires an immediate exit from the organization. 8. This arrangement, the Revenue argues, would attract the provisions of Section 66E(e), whereby agreement by an entity to the obligation to refrain from an Act or to tolerate an Act or a situation, or to do not act, would constitute taxable service. According to the respondent, the petitioner has tolerated the act of immediate quitting from service, by the employees and such agreement/toleration results in the rendition of a taxable service. 9. Heard Mr.JosephPrabakar, learned counsel for the petitioner and Mr.A.P.Srinivas, learned Senior Standing Counsel for the petitioner. 10. The provisions of Section 66E(e) appear to have given rise to some ambiguity, on this very issue, clarified by the Central Board of Excise and Customs ..... X X X X Extracts X X X X X X X X Extracts X X X X
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