Custom, Excise & Service Tax Tribunal
Miraj Products Pvt Ltd vs Commissioner, Central Excise & ... on 3 February, 2026
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
New Delhi
PRINCIPAL BENCH - COURT NO. III
Service Tax Appeal No. 52288 Of 2022
[Arising out of Order-in-Appeal No. 692-CRM-ST-JDR-2019 dated 22.07.2019
passed by the Commissioner (Appeals) of Central Goods and Service Tax, Jodhpur]
Miraj Products Private Limited : Appellant
Uper Ki Oden, Nathwara, Rajsamand (Raj.)
Vs
Commissioner of Central Goods, Service : Respondent
Tax, Udaipur 142-B, Hiran Magri, Sector-11, Udaipur APPEARANCE:
Ms. Mehak Mehra, Advocate for the Appellant Shri Rajeev Kapoor, Authorized Representative for the Respondent CORAM :
HON'BLE MS. BINU TAMTA, MEMBER (JUDICIAL) HON'BLE MS. HEMAMBIKA R. PRIYA, MEMBER (TECHNICAL) FINAL ORDER No. 50293/2026 Date of Hearing:03.02.2026 Date of Decision:03.02.2026 HEMAMBIKA R. PRIYA Challenge in the present appeal is to the Order-in-Appeal No. 692 (CRM) ST/JDR/2019 dated 22.7.2019 wherein the demand of ₹1,42,528/- was confirmed along with equal penalty.
2. The brief facts are that during the audit of the records of the appellant, the department observed that the appellant had forfeited/ retained certain amounts due to (i) non completion of notice period by outgoing employees (ii) unclaimed bonus (iii)non achievement of sales 2 Service Tax Appeal No. 52288 Of 2022 targets by dealers/ distributors. The department opined that the said amounts forfeited by the appellant was in lieu of tolerating an act of it‟s employees and the dealers/distributors. Consequently, a show cause notice dated 27.11.2018 was issued for recovery of service tax of ₹1,42,528/-. The said demand was confirmed by the adjudicating authority vide order in original dated 26.3.2019. The appellant filed an appeal before the Commissioner (Appeals) who vide the impugned order upheld the order-in original. Aggrieved, the present appeal is before this Tribunal.
3. Learned Counsel for the appellant submitted that the issue was no more res- integra as such forfeited amounts collected by the appellant was not consideration towards provision of any service. He relied the following decisions in this context:
i. GE T and D Indian Limited versus Deputy Commissioner of Central Excise, Chennai1 ii. Girnar Software Pvt Ltd versus Commissioner Service Tax, Jaipur2 iii. The Lalit Mumbai versus Commissioner, CGST3 3.1. Learned counsel contended that the above said decisions had relied on the CBIC guidelines dated 20.6.2012 wherein it was clarified that such amounts would not be chargeable to service tax. As regards the non achievement of sales targets, learned counsel stated that issue was also no more res integra as the same had been decided in favour of the appellant, interalia, in the following cases:
i. Oil & Natural Gas Corp Ltd vs Commissioner, CGST Dehradun4 1 [(2020 (35) GSTL 89(Mad)] 2 (Final order no. 55634/2024 dated 4.4.2024) 3 Final order no: 50360-50362 dated 12.2.2025.3
Service Tax Appeal No. 52288 Of 2022 ii. Power Transmission Corporation of Uttarakhand Ltd versus Commissioner, CGST, Dehradun5 Commissioner, CGST iii. South Eastern Coalfields Ltd vs Commissioner, Raipur6 upheld by Supreme Court.
3.2. Learned counsel also submitted that the extended period was not invokable as there was no suppression.
4. Ld Authorised Representative reiterated the findings of the impugned order but fairly conceded that the issue was squarely covered by the decisions of the Tribunal.
5. We have heard the learned counsel for the appellant and the learned Authorized Representative for the Department.
6. We find that it is well settled law that an amount collected as "notice pay" by n employer from its outgoing employee who do not serve the notice period cannot be a consideration towards provision of service. We find that this Tribunal in Girnar Software Pvt Ltd vs. Commissioner, Jaipur (supra) in similar factual matrix held as under:
"11. We have perused the decision relied upon by the learned Counsel of the appellant. We also observe that in the case of GE T and D India Ltd. vs Deputy Commissioner of Central Excise, Large Tax Payer Unit, Chennai [2020-TIOL-183-HCMad-ST] it has been discussed that the provisions of section 66E(e) of the Finance Act, 1994 appear to have given rise to some ambiguity. On this very issue, the CBEC in Guidance Notes dated 20.06.2012, at paragraph 2.9.3 has clarified in the negative to the question "Would amounts received by an employee from the employer on premature termination of contract of employment be chargeable to service tax". The query raised in the said clarification relates to a contra situation, one, where amounts have been received by an employee from the employer by reason of premature termination of contract of employment and the taxability thereof. Board has answered in the negative pointing out that such amounts would not be related to the 4 Final order no. 50415/2025 dated 18.3.2025 5 Final order 50008/2026 dated 5.1.2026 6 (2021(55) GSTL 549 (Tri- Del) 4 Service Tax Appeal No. 52288 Of 2022 rendition of service. In view thereof, we opine that the employer cannot be said to have rendered any service per se much less taxable service and has merely facilitated the exit of the employee upon imposition of cost upon him for the sudden exit. Definition in clause (e) of Section 66E is not attracted to the scenario at hand. We hold that the employer has not 'tolerated' any act of the employee but has permitted a sudden exit upon being compensated by the employee in this regard in form of Notice pay, in lieu of sudden termination. In any case this act however, does not give rise to the rendition of service either by the employer or employee. 12. We have also perused the decision relied upon by the appellant the Principal Bench in Rajasthan Rajya Vidhyut Prasaran Nigam Ltd. (supra) wherein it has been held as follows:-
"15. The present case deals with contracts of employment. Employment contracts are entered into with the expectation that the employer will continue to keep him employed for the period as agreed and that the employee will perform his duties diligently. They are not entered into so that the employer can remove the employer from service or so that the employee can resign and leave the service. However, often, for various reasons the employer may decide to terminate the services of the employee which puts the employee to inconvenience and he has to find another job. Conversely, the employee may decide to resign and leave the service which inconveniences the employer who will have to make alternative arrangements such as finding a substitute. A notice period on both sides is provided for so that the other party can make arrangements. If the employer decides to terminate the services without giving the required notice, the employment contract itself provides for a compensation to be paid. Similarly, if the employee resigns without notice, compensation is paid by the employee or recovered from his dues. Both the notice period and the compensation are incorporated in the employment contact itself but these are not the purpose of the contract. Consequently, any compensation paid is not a consideration for the contract.
16. Since the provision of section 66E(e) appears to have given rise to some confusion, the Central Board of Excise and Customs issued CBEC‟s guidance notes dated 20.06.2012 para 2.9.3 clarifies as follows: "2.9. Provision of service by an employee to the employer is outside the ambit of service.
2.9.3 Would amounts received by an employee from the employer on premature termination of contract of employment be chargeable to service tax? No Such amounts paid by the employer to the employee for premature termination of a contract of employment are treatable as amounts paid in relation to services provided by the employee to the employer in the course of employment. Hence, amounts so paid would not be chargeable to service tax. However any amount paid for not joining a competing business would be liable to be taxed being paid for providing the service of forbearance to act."5
Service Tax Appeal No. 52288 Of 2022
17. Referring to the above clarification by the CBEC, High Court of Madras has, in GE T&D India Ltd. held that notice pay, in lieu of sudden termination, does not give rise to the rendition of service either by the employer or the employee and allowed the writ petitions. Thus, the specific issue in this case is no longer res integra. GE T&D India Ltd. was followed in Intas Pharmaceuticals, State Street Syntel Services Pvt. Ltd., Shri Ram Pistons and Rings Ltd. and HCL Learning Ltd.
19. In view of our finding that compensation for failure under a cannot is NOT consideration for service under the contract and also following the law laid down by Madras High Court in GE T&D that Notice pay, in lieu of termination, however, does not give rise to the rendition of service either by the employer or the employee, the impugned order upholding confirmation of a demand of service tax on the notice pay received/recovered by the appellant from its employees for premature resignation cannot be sustained and needs to be set aside."
14. We have no reason to differ from these findings. Keeping in view the same and the discussion above, we hold that the findings of Additional Commissioner are contrary thereto and rather are presumptive in nature. We hereby hold that Order-in- Original is not sustainable. The amount from employee received by appellant, the employer, in lieu of notice period is wrongly held to be an amount towards rendering the Declared Service. Resultantly, the order under challenge is hereby set aside and consequent thereto the appeal stands allowed."
6.1 Consequently we hold that the demand of service tax on such amounts cannot be sustained.
7. We now consider the issue relating the amounts recovered because of non achievement of sales targets, we find that it is settled law that such recoveries are not consideration for provision of any service. We draw support from this Tribunal‟s decision in The Power Transmission Corporation of Uttarakhand versus Commissioner, Dehradun. The relevant paras are reproduced herein after:-
"Both sides agreed that the issue is no longer res integra and has been settled by the Tribunal in the following cases:-
(1) South Eastern Coalfields Ltd. Vs. CCE & ST, Raipur7 (2) CCE & ST, Raipur Vs. South-Eastern Coalfields Ltd.8 7 2021 (55) GSTL 549 (Tri.-Delhi) 6 Service Tax Appeal No. 52288 Of 2022 (3) Hindustan Zinc Limited Vs. Commissioner of CGST & Central Excise, Udaipur.9 (4) Hindustan Zinc Limited Vs. Commissioner of CGST & Central Excise , Udaipur.10 (5) Hindustan Zinc Limited Vs. Commissioner of CGST & Central Excise, Udaipur.11 (6) Oil & Natural Gas Corporation Ltd. Vs. Commissioner of Central Goods & Service Tax, Dehradun12 (7) Hindustan Zinc Limited Vs. Commissioner of CGST & Central Excise, Udaipur.13 (8) Hindustan Zinc Limited Vs. Commissioner of CGST & Central Excise, Udaipur.14 (9) Hindustan Zinc Limited, Rajpura Dariba Mines Vs. Commissioner of Central Excise & CGST, Udaipur 15 (10) Hindustan Zinc Limited, Rajpura Dariba Mines Vs. Commissioner of Central Excise and CGST, Udaipur.16 For the sake of reference, we would refer to the observations of the Tribunal in the case of South Eastern Coalfields Ltd Vs. CCE & ST, Raipur17 as under:-
"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 8 11.07.2023 in Civil Appeal No.2372/2021 9 Final Order No.50474/2025 dated 8.4.2025 10 Final Order No.51039/2025 dated 17.07.25 11 Final Order No.50519/2025 dated 25.04.2025 12 Final Order No.50415/2025 dated 18.03.2025 13 Final Order No.50475-50476/2025 dated 8.4.2025 14 Final Order No.59733/2024 dated 4.11.2024 15 Final Order No.51523/2025 dated 30.09.2025 16 Final Order No.50551/2025 dated 30.4.2025 17 2021 (55) GSTL 549 (Tri.-Delhi) 7 Service Tax Appeal No. 52288 Of 2022
(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 act, would be a „declared service‟ under Section 66E(e) read with Section 65B(44) and would be taxable under Section 68 at the rate specified in Section 66B. 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 flouting the terms of the agreement so that the penal clauses get attracted. The penal clauses are in the nature of providing a safeguard to the commercial interest of the appellant and it cannot, by any stretch of imagination, be said that recovering any sum by invoking the penalty clauses is the reason behind the execution of the contract for an agreed consideration. It is not the intention of the appellant to impose any penalty upon the other party nor is it the intention of the other party to get penalized.
28. It also needs to be noted that Section 65B (44) defines "service" to mean any activity carried out by a person for another for consideration. Explanation (a) to Section 67 provides that "consideration" includes any amount that is payable 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 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.
43. It is, therefore, not possible to sustain the view taken by the Principal Commissioner that penalty amount, forfeiture of 8 Service Tax Appeal No. 52288 Of 2022 earnest money deposit and liquidated damages have been received by the appellant towards "consideration" for "tolerating an act" leviable to service tax under Section 66E(e) of the Finance Act."
5. The Revenue did not pursue the appeal challenging the said decision of the Tribunal and the same were withdrawn on the statement made by the learned ASG that he has instructions to withdraw the appeal, as per order dated 11.07.2023 in C.A.No. 2372/2021. Thus the decision of the Tribunal in South Eastern Coalfields is the law which has binding effect and needs to be followed."
7. In this context, we also take note of Department‟s Circular No.214/1/2023-ST dated 28.02.2023 analysing the provisions of Section 66E(e) read with 66B(44) and clarified that the activities 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 the activities where the agreement specifically refers to such an activity and there is a flow of consideration for this activity‟. In view thereof, the amount in question is not a consideration for providing any service.
8. The present case is clearly covered by the earlier decisions and therefore, the amount collected by the appellant is not towards rendering „declared service‟.
9. The impugned order is unsustainable and is hereby set aside.
Consequently, the appeal is allowed.
(Dictated & pronounced in the open Court ) (BINU TAMTA) MEMBER (JUDICIAL) (HEMAMBIKA R. PRIYA) MEMBER (TECHNICAL) G.Y.