The case deals with the issue of whether the amount retained ...

Forfeited security deposits not taxable as consideration for "tolerating an act.

December 2, 2024

Case Laws     Service Tax     AT

The case deals with the issue of whether the amount retained through forfeiture of earnest money/security deposits of contractors can be considered as consideration for declared services u/s 66E(e) of the Finance Act, 1994, which covers "agreeing to the obligation to refrain from an act or to tolerate an act or a situation, or to do an act." The Tribunal held that the forfeited amount cannot be considered as consideration towards rendering declared services u/s 66E(e). The cancellation of the contract itself is not considered a service. This decision is in line with earlier rulings of the Tribunal and the Supreme Court in the case of South Eastern Coalfields Limited. The Department's Circular No. 214/1/2023-ST dated 28th February 2023 clarified that the activities contemplated u/s 66E(e) are those where the agreements specifically refer to such an activity, and there is a flow of consideration for this activity. The Tribunal referred to its earlier decision in the case of Bharat Heavy Electricals Limited, which dealt with the decision in South Eastern Coalfields Limited. The Board decided not to file an appeal against the decision in South Eastern Coalfields Limited, which was upheld by the Supreme Court. Consequently, the Tribunal held that the amount retained was wrongly considered as consideration for rendering declared services.

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