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TMI Blog2025 (4) TMI 1394X X X X Extracts X X X X X X X X Extracts X X X X ..... . against delayed completion of works is chargeable to service tax under Section 66E(e) of the Finance Act, 1994 Act, 1994. 2. Briefly stated, show cause notice was issued to the appellant for the period 2014-2016, alleging that the amounts collected by the appellant in the form of fines/penalties, liquidated damages, forfeiture of earnest money/security deposits etc. from the contractors who failed to provide the services within the agreed stipulated time was in lieu of 'tolerating the act' of service providers/contractors like poor performance or not meeting the obligations and was therefore, chargeable to service tax amounting to Rs.79,95,367/- as the services rendered fall under Section 66E(e) of the Act. The Adjudicating Authority vid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 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 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harged has necessarily to be a consideration for the taxable service provided under the Finance Act and the amount which has no nexus with the taxable service is not a consideration for the service provided and therefore, does not become part of the value which is taxable. Such amounts have been held to be in the nature of penal charges on account of breach or non-performance of contract and are recovered with the intention to make good for the losses and to also act as a deterrent to ensure that buyer or supplier do not violate the terms of the contract. These amounts cannot be termed as 'consideration' in lieu of any service under Section 65B (44) of the Act. Further, it has been laid down that an activity to be covered as a declared serv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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