Custom, Excise & Service Tax Tribunal
Bhaskar Steel And Ferro Alloy Pvt Ltd vs Rourkela Commissionerate on 10 August, 2022
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL,
EAST REGIONAL BENCH : KOLKATA
Service Tax Appeal Nos.77259 of 2019
(Arising out of Order-in-Original No.03/CCE/S.Tax/RKL/2019-20 dated 19.07.2019
passed by Commissioner of CGST & Excise, Rourkela)
M/s Bhaskar Steel and Ferro Alloys Pvt. Ltd.
SRMB House, 7, Khetra Das Lane, Kolkata-700012
Appellant
VERSUS
Commissioner of CGST & Excise, Rourkela
KK-42, Civil Township, Rourkela-769004
Respondent
WITH
Service Tax Appeal Nos.77260 of 2019
(Arising out of Order-in-Original No.03/CCE/S.Tax/RKL/2019-20 dated 19.07.2019
passed by Commissioner of CGST & Excise, Rourkela)
Shri Nikunj Beriwal, Director of M/s Bhaskar Steel and Ferro
Alloys Pvt. Ltd.
SRMB House, 7, Khetra Das Lane, Kolkata-700012
Appellant
VERSUS
Commissioner of CGST & Excise, Rourkela
KK-42, Civil Township, Rourkela-769004
Respondent
Appearance:
Shri A.K.Prasad, Advocate for the Appellant
Shri S.Mukhopadhyay, Authorized Representative for the Respondent
CORAM:
HON'BLE SHRI P. K. CHOUDHARY, JUDICIAL MEMBER
HON'BLE SHRI P. ANJANI KUMAR, TECHNICAL MEMBER
FINAL ORDER NO.75452-75453/2022
DATE OF E-HEARING : 16.06.2022
DATE OF PRONOUNCEMENT : 10 AUGUST 2022
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Service Tax Appeal Nos.77259 &
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Per P.K.Choudhary :
This is an appeal against the Order-in-Original
No.3/CCE/S.Tax/RKL/2019-20 dated 19.07.2019 passed by the
Principal Commissioner of GST & Central Excise, Rourkela.
2. The brief facts of the case are that M/s Bhaskar Steel and Ferro
Alloy Pvt Ltd ( hereinafter referred to as 'the appellants' or ' the
appellant company') having their registered office in Kolkata are
engaged in the manufacture of Sponge Iron and M. S. billets for which
they were having central excise registration during the relevant period.
They were also duly registered with service tax having registration
number AACCB2809FST001.
3. Shri Nikunj Beriwal ( the other appellant) is a Director in the
company.
4. Based on the balance sheets filed by the appellants before the
income tax authorities for the financial years 2013-14 and 2014-15 the
department came to the view that entries shown under the head
'Compensation/Short term capital gains' for the two years was nothing
but consideration received for rendering service and was, therefore,
liable to service tax .
5. Show cause notice dated 28.09.2018 was , accordingly, issued
invoking the extended period and demanding Rs.3,09,55,655/- from
the appellants along with interest. Penalty was proposed on the
appellant company as well as the Director, Shri Nikunj Beriwal.
6. The appellants submitted detailed reply dated 21.03.2019 giving
factual and legal submissions as to why no service tax was payable on
the above receipts.
7. However, the Pr. Commissioner of GST & CX, Rourkela, rejected
the submissions of the appellants and, vide his Order-in-Original No
3/CCE/S.Tax/RKL/2019-20 dated 19.07.2019 (the impugned order),
confirmed the full demand along with interest and imposed equivalent
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penalty plus Rs 10,000/-on the company and penalty of Rs 1 lakh on
the Director, Shri Nikunj Beriwal. Hence, these 2 appeals.
8. We have heard both sides and perused the appeal records.
9.1 Shri A.K.Prasad, the learned advocate of the appellant company
as well as the appellant director, has made the following submissions.
9.2 The issue involved is whether payments received by the
appellants from 11 different companies/firms are liable to service tax
or not. These are discussed below serially as also why they not liable
to service tax.
A. BGB Spintex Pvt Ltd and CFM Infratex Ltd [ para 13.34.1 of the
impugned order]
(1). The appellants had entered into an agreement on 16.05.2013
with two land owners for purchase of agricultural land at the price of
Rs 35,00,000/- and had also paid earnest money of Rs 3,50,000/-. A
company by the name CFM Infratex Ltd wanted to purchase the said
agricultural land already booked by the appellants. Accordingly, they
negotiated a deal with the appellants and agreed to buy the appellants
rights in the properties for Rs 3,68,50,000/- inclusive of the earnest
money already paid.
(2). It is the view of the department that the amount received by the
appellants was an agreement for refraining from an act or for
tolerating an act or situation and was, therefore, liable to service tax
under clause (e) of Section 66E of the Finance Act 1994.
(3). It is submitted that as per definition of 'service' under section
65B(44) of the Finance Act, 1994, the following will not amount to
service, namely, an activity which constitutes merely a transfer of title
in goods or immovable property by way of sale, gift or in any other
manner
(4) As per the Service Tax Education Guide issued by the CBEC the
words 'immovable property' would have the same meaning as given in
clause 26 of the General Clauses Act, 1897. In other words 'immovable
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Service Tax Appeal Nos.77259 &
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property' shall also include land benefits to arise out of land and things
attached to the earth or permanently fastened to anything attached to
the earth.
(5). The Hon'ble Allahabad High Court in the case of Kanhiya Lal &
Another versus Satya Narayan Pandey (AIR1965ALL 496) has held
that any benefit to arise out of an immovable property would also be
included in the definition of 'immovable property'. In the instant case
the appellants had acquired a right to purchase the said agricultural
piece of land and this right was a benefit arousing out of an
immovable property and is, therefore, excluded from the definition of
'service' and, hence, not liable to service tax.
(6)(a). The Principal Commissioner has held that capital gains can
be earned only against change in ownership, not otherwise. This is not
legally correct since even amount earned by surrender of tenancy
rights is liable to capital gains tax as per the Income Tax Act, 1961 [
CIT vs D.P.Sandu Brothers-MANU/SC/0070/2005].
(6)(b) Further, in para 6.2.8 of the Service Tax Education Guide it has
been clarified that ownership is not necessary for transfer of any right
in an immovable property. The relevant portion is reproduced below:-
6.2.8 If the person who has entered into a contract with the
builder for a flat for which payments are to be made in 12
installments depending on the stage of construction and the
person transfers his interest in the flat to a buyer after paying
7 installments, would such transfer be an activity chargeable
to service tax?
Ans: Such transfer does not fall in this declared service entry
as the said person is not providing any construction service.
In any case transfer of such an interest would be transfer of a
benefit to arise out of land which as per the definition of
immoveable property given in the General Clauses Act, 1897
is part of immoveable property. Such transfer would therefore
be outside the ambit of „service‟ being a transfer of title in
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immoveable property. Needless to say that service tax would
be chargeable on the seven instalments paid by the first
allottee and also on subsequent instalments paid by the
transferee.
(7). Further, by the surrender of the agreement rights in the property
by the appellant it cannot be said that the appellant agreed to refrain
from an act or agreed to tolerate any act of the eventual buyer or
tolerated any situation. The Principal Commissioner has not clarified
how these clauses are applicable in the case of the appellants.
B. Shivshankar Logitex Pvt Ltd.
(1). Similarly, in another case of purchase of agricultural land at the
price of Rs 15,00,000/- earnest money was paid to the owner. In this
case too another company by the name Shivshankar Logitex Pvt Ltd
wanted to purchase the said land and after mutual discussion the
appellants released their agreement rights to the property for Rs
36,50,000/-. In this case also, since the rights or benefits of the
appellants arose out of an immovable property the same was outside
the scope of ' service' and, therefore, outside the scope of service tax.
(2). Further, in this case too, by the surrender of the agreement right
in the property by the appellant it cannot be said that the appellant
agreed to refrain from an act or agreed to tolerate any act of the
eventual buyer or tolerated any situation. The Pr Commissioner has
not clarified how these clauses are applicable in the case of the
appellants.
C. M/s Shanti Enterprise
(1). In this case the appellants entered into an agreement with
another buyer for purchase of non-agricultural land
@ Rs.1,51,00,000/- and an advance payment was also made.
Subsequently another company, M/s Shanti Enterprise wanted to
purchase the said land for developing it and, accordingly, the
appellants surrendered their agreement rights at a mutually agreed
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price of Rs.2,08,00,000/-. On the same lines, in this case also, the
transaction did not relate to any 'service' and, therefore, no service tax
was leviable on the same.
(2). Further, in this case too, by the surrender of the agreement right
in the property by the appellant it cannot be said that the appellant
agreed to refrain from an act or agreed to tolerate any act of the
eventual buyer or tolerated any situation. The Principal Commissioner
has not clarified how these clauses are applicable in the case of the
appellants.
D. Excelsior Services Pvt Ltd.
(1). In this case the appellants entered into an agreement with M/s
Excelsior Services Pvt Ltd ,to purchase a built-up area of a building in
Kolkata for Rs 25,10,00,000/- and advance money was also paid for
the same. As per the agreement the possession of the said building,
along with the car parking, was to be handed over to the appellants by
September 2014. However, subsequently, M/s Excelsior Services Pvt
Ltd expressed their inability to perform their agreement and a deal of
cancellation was executed with the appellants on payment of Rs
8,78,50,000/- as compensation.
(2). On the same lines, in this case also, the transaction did not
relate to any 'service' and, therefore, no service tax was leviable on
the same.
(3). Further, it is now established law that such compensation cannot
be considered as the appellants agreeing to the obligation to refrain
from an act or to tolerate an act or a situation or to do an act. The Pr.
Commissioner has not clarified how these clauses are applicable in the
case of the appellants.
E. M/s Autocare Services
(1). Autocare Services owned a property in Vadodara which they
developed and started construction of commercial office space. The
appellants entered into 14 separate agreements for purchase of 14
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office premises in the said building and advance amounts were also
paid. Subsequently, it was mutually agreed between the appellants
and M/s Autocare Services to cancel the sale agreements and
relinquish the appellants rights on payment of consideration/profit of
Rs.3,38, 24,939/-. Since this amount was also received in connection
with surrender of rights or benefits relating to immovable property the
same is outside the scope of 'service' and, hence, not liable to service
tax.
(2). Further, it also cannot be said that the appellants had agreed to
an obligation to refrain from an act or tolerated an act or a situation or
did an act. The Principal Commissioner has not clarified how these
clauses are applicable in the case of the appellants.
F. Vijay Kumar Dalmia and STB Exports Pvt Ltd.
(1). In this case the appellants had purchased 204.75 satak of land
from one Vijay Kumar Dalmia. Subsequently, out of this area of land
82 satak land was sold by the appellants to M/s STB Exports Pvt Ltd.
In the whole transaction of sale/purchase of immovable property the
appellants earned profit of Rs 64,31,000/-. This is a clear case of
outright sale and purchase of immovable and is outside the scope of
'service' and' hence, not liable to service tax.
(2). The Principal Commissioner has not even discussed the factual
submissions made by the appellants on this point.
G. M/s Thermax Ltd.
(1). The appellants entered into an agreement with M/s Thermax Ltd
for supply of manpower to the appellants plant . M/s Thermax Ltd, in
turn, entrusted this job to M/s Ensol Power Pvt Ltd, their sub-vendor.
M/s Ensol Power Pvt Ltd then supplied the manpower on behalf of M/s
Thermax to the appellants. For this work the appellants booked the
payment on the account of M/s Thermax. But since M/s Thermax had
not released payments to M/s Ensol Power Pvt Ltd the appellants made
payment to M/s Ensol Power Pvt Ltd and, in turn, booked the amount
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paid on M/s Thermax account. Hence, the appellants issued a debit
note on Thermax for Rs.2,00,000/-. Thus, it is seen that this
Rs.2,00,000/- is nothing but the reimbursement by M/s Thermax for
the amount paid by the appellants on their behalf to M/s Ensol Power
Pvt Ltd. This, by no stretch of imagination can be considered as a
'service' provided by the appellants as this was nothing but
reimbursement. No service of any sort had been rendered by the
appellants to M/s Thermax Ltd.
(2). The appellants had given the correct position in their reply to the
SCN but the Principal Commissioner has simply ignored these
submissions.
(3). Even if it is held that this amount was paid by Thermax for non-
fulfilment of agreement to supply manpower ( though there are no
documents to support this), as held by the Principal Commissioner,
then also this amount is not liable to service tax as it would then be in
the nature of liquidated damages.
(4). The law is well settled that no Service Tax is payable on
liquidated damages.
H. Nilu Construction Pvt Ltd.
(1). The appellants were occupying a portion of godown space, as
tenant, owned by M/s Nilu Construction Pvt Ltd, Kolkata. M/s Nilu
Constructions Pvt Ltd wanted to erect a new building on the said
premises. The appellants agreed to vacate the said premises on
payment of Rs.90,00,000/- as compensation for surrender of their
tenancy rights. As per the decision of the Allahabad High Court in the
case of Kanhiya Lal and Anr ( supra) this cannot be considered as
'service' and, hence, no tax is payable.
(2). Further, surrender of tenancy rights is liable to capital gains tax
as per the Income Tax Act, 1961 [ CIT vs D.P.Sandu Brothers-
MANU/SC/0070/2005].
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(3). Further, it also cannot be said that the appellants had agreed to
an obligation to refrain from an act or tolerated an act or a situation or
did an act. The Principal Commissioner has not clarified how these
clauses are applicable in the case of the appellants.
I. M/s Siddhartha Land and Building Pvt Ltd.
(1). The appellants were in occupation, as a tenant, of 4,000 sq ft of
space in a building in Kolkata, owned by M/s Siddhartha Land and
Building Pvt Ltd. M/s Siddhartha Land and Building Pvt Ltd wanted to
re-develop the land and construct a multi-storeyed building. They
requested the appellants to vacate the premises. The appellants
surrendered their tenancy rights on receipt of compensation of
Rs.3,25,00,000.
(2). It is established law that surrender of tenancy rights is not
covered under clause (e) of Section 66E of the Finance Act 1994.
(3). Further, as per the decision of the Hon'ble Allahabad High Court
in the case of Kanhiyalal and Anr ( supra) the tenancy rights are also
benefits arising out of the immovable property and outside the
definition of 'service' and, therefore, cannot be subjected to Service
Tax .
(4). Surrender of tenancy rights is liable to capital gains tax as per
the Income Tax Act, 1961 [ CIT vs D.P.Sandu Brothers-
MANU/SC/0070/2005].
J. M/s Madanlal Brijlal Pvt Ltd.
(1). The appellants were in occupation, as tenant, of a portion of the
building owned by M/s Madanlal Brijlal Pvt Ltd. The owner wanted to
construct a building at the said premises and entered into a
rehabilitation agreement with the appellants to vacate the premises on
the condition that the appellants would be provided a larger area in
the new building. However, subsequently the appellants surrendered
their tenancy rights on payment of Rs.2.40 crores as compensation.
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(2). It is established law that surrender of tenancy rights is not
covered under clause (e) of Section 66E of the Finance Act 1994.
(3). Further, as per the decision of the Allahabad High Court in the
case of Kanhiyalal and Anr ( supra) the tenancy rights are also benefits
arising out of the immovable property and outside the definition of
'service' and, therefore, cannot be subjected to Service Tax .
(4). Surrender of tenancy rights is liable to capital gains tax as per
the Income Tax Act, 1961 [ CIT vs D.P.Sandu Brothers-
MANU/SC/0070/2005].
K. Jasmine Commercials Pvt Ltd.
(1). Jasmine Commercials Pvt Ltd. was the owner of a building in
Kolkata. The appellants entered into agreement with Jasmine
Commercials Pvt Ltd to buy a portion of the ground floor subject to the
condition that the car parking space in the building would be converted
for commercial use of the appellants. Out of Rs 4,00,00,000 being the
price or the said property the appellants paid an advance of Rs 2.25
crores. However, since Jasmine Commercials Pvt Ltd failed to get
permission from the Municipal Corporation to convert the seven car
parking space for commercial use, the matter was referred for
arbitration and an award of Rs 3.19 crores, as damages, was passed
in favour of the appellants.
(2). These damages cannot be considered as agreeing 'to the
obligation to refrain from an act or to tolerate an act or a situation or
to do an act‟ as per clause (e) of section 66E of the Finance Act, 1994.
9.3 In this regard the learned advocate for the appellants relied on
the following decisions:-
(1). Amit Metaliks Limited Vs. Commissioner of CGST,
Bolpur 2020(41)GSTL325(Tri-Kol) confirmed by the Supreme
Court as reported in 2022(56)GSTLJ53(SC)
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(2). K.N. Industries Pvt. Ltd. Vs. Commissioner of CGST &
C.EX., Kanpur 2020 ( 38) GSTL 60 ( Tri- All)
(3). GE T & D India Ltd. Vs. Deputy Commissioner of C.Ex.,
Chennai 2020(35)GSTL89(Mad)
(4). M P Poorva Kshetra Vidyut Vitran Co. Ltd. vs. Principal
Commr., CGST & C.Ex., Bhopal
2021(46)GSTL409(Tri-Del)
(5). Societe Thermale d'Eugenic-les-Brains v. Ministere de
I'Economie, des Finances et de I'Industrie -- Case No. C-
277/2005 of European Court
(6). M/s. South Eastern Coalfields Ltd. Vs. CCE AND ST 2020-
TIOL-1711-CESTAT-DEL
(7). Lemon Tree Hotel vs Commissioner, Goods and Service Tax
Central Excise & Custom Indore [ 2020-TIOL-1114-CESTAT]
(8). Tirupati Balaji Furnaces Pvt Ltd vs Commissioner of Central
Goods & Services Tax, Jaipur [2022-TIOL-77-CESTAT-DEL]
(9). Rajasthan Rajya Vidyut Prasaran Nigam Ltd vs
Commissioner of CGST, Customs and Central Excise, Jodhpur-1
[2022-TIOL-134-CESTAT-DEL]
(10). MNH Shakti Ltd vs Commissioner CGST AND Central
Excise, Rourkela [2021-TIOL-732-CESTAT-KOL]
(11). Jindal Steel and Power Ltd vs Principal Commissioner of
CGST & Central Excise, Ranchi [2022-TIOL-408-CESTAT-KOL]
9.4 Limitation
(1). In the instant case the show cause notice is dated 28.09.2018
whereas the period covered 01.04.2013 to 31.03.2015. The demand
has been raised by invoking the extended period of limitation under
the proviso to Section 73(1) of the Finance Act 1994. The only ground
for invoking the extended period is that the above amounts were not
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reflected in the Service Tax returns filed by the appellants and that
had the DGGI not intervened and unearthed the facts the activities of
the appellants would not have come to surface. These allegations have
been made in para 7 of the show cause notice. This is the same
ground on which the Principal Commissioner has upheld the invoking
of the extended period. In this regard it is submitted that it is not the
case of the department that service tax returns were not filed at all.
The case of the department is that the amounts recovered from the 11
companies listed above were not reflected in the said returns. It is
submitted that there was no intention on the part of the appellants to
conceal anything. Had that been the case they would not have
declared these receipts in their balance sheet and also paid capital
gains tax on them. It is clear that the appellants were under a bona
fide belief that the amount received by them from the 11 companies
were not consideration for any service provided by them and,
therefore, not liable to service tax.
(2). Courts have consistently held that the extended time limit can be
invoked only if there is a positive act on the part of an assessee to
conceal anything from the department. There must be a deliberate
attempt to suppress information for invoking the extended period.
(3) In this regard the appellants have rely on the following
judgments:-
(i) Compark E Services Pvt. Ltd. Cs. Commr. Of C.Ex & ST.,
Ghaziabad [2019(24)GSTL634(Tri-All)]
(ii) Uniworth Textlines Ltd. Vs. Commissioner of Central Excise,
Raipur 2013(288)ELT161(SC)
(iii) Nestle India Ltd. Cs. Commissioner of Central Excise,
Chandigarh [2009(235)ELT577(SC)]
(iv) Continental Foundation Jt. Venture Vs. Commr. Of C.Ex.,
Chandigarh [2007(216)ELT177(SC)]
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Service Tax Appeal Nos.77259 &
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(v) Sarralle Equipments India P. Ltd. Vs. Commr. Of C.Ex & ST.,
Haldia [2019(22)GSTL196(Tri-Kol)]
(vi) Ford India Pvt Limited Vs. Commissioner LTU, Chennai [2018-
TIOL-943-CESTAT-MAD]
(vii) Hindalco Industries Ltd. Vs. Commissioner of C.Ex. Allahabad
[2003(161)ELT346(Tri-Del)]
(viii) Pahwa Chemicals Private limited vs. C.of C.ex., Delhi
[2005(189)ELT257(SC)]
(ix) CCE, Jalandhar vs. Royal Enterprises [2016 ( 337) ELT 482
(SC)]
(x) Pushpam Pharmaceuticals Company Vs. Collector of C.ex.
Bombay [1995(78)ELT401(SC).
9.5. Interest &Penalty
(1). In view of the above, the demand cannot stand. If the demand
does not stand there is no question of charging an interest or imposing
any penalty on the appellant company
(2). As regards imposition of penalty on the other appellant, Shri
Nikunj Beriwal, Director, the Pr Commissioner has relied on section
9AA(1) of the Central Excise Act, 1944, as applicable to Service Tax.
In this regard it is submitted that this provision is applicable only in
respect of prosecution proceedings before a court of law and not in
departmental adjudication.
(3) Even otherwise, there is nothing in the show cause notice to show
that Shri Nikunj Beriwal knowingly and deliberately abetted the
evasion of service tax. Therefore, no penalty is imposable on him also.
10. The learned authorised representative for the Revenue reiterated
the findings of the impugned order.
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11. We have examined the rival submissions and also perused the
records. In each case the facts are different. These are discussed
below serially.
A. BGB Spintex Pvt Ltd and CFM Infratex Ltd
(1). The appellants had entered into an agreement on 16.05.2013
with two land owners for purchase of agricultural land at the price of
Rs 35,00,000/- and had also paid earnest money of Rs 3,50,000/-. A
company by the name CFM Infratex Ltd wanted to purchase the said
agricultural land already booked by the appellants. Accordingly, they
negotiated a deal with the appellants and agreed to buy the appellants
rights in the properties for Rs 3,68,50,000/- inclusive of the earnest
money already paid.
(2). It is the view of the department that the amount received by the
appellants was an agreement for refraining from an act or for
tolerating an act or situation and was, therefore, liable to service tax
under clause (e) of section 66E of the Finance Act 1994 .
(3). We find that 'service' has been defined under section 65B(44) of
the Finance Act, 1994, as follows:-
„(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;
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(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.
.........‟
(4) 'Immovable property' has not been defined in the Finance Act,
1994, or the Rules made thereunder. As per the Service Tax Education
Guide ( para 2.6 refers) issued by the CBEC the words 'immovable
property' would have the same meaning as given in section 3(26) of
the General Clauses Act, 1897, which reads as under:-
(26) "immovable property" shall include land, benefits to
arise out of land, and things attached to the earth, or
permanently fastened to anything attached to the earth;
(5). As rightly pointed out by the learned advocate of the appellants
the issue as to what would constitute ' benefits arising out of land'
came to be deliberated upon by the Allahabad High Court in the case
of Kanhiya Lal & Another versus Satya Narayan Pandey (AIR1965ALL
496). It was held as under:-
5. The term ''immovable property" has not been defined in
the Act, and unless there is anything in the subject or the
context to suggest to the contrary, it can be given the same
meaning as contained in the definition clause of the General
Clauses Act. In Section 3(26) of the Central General Clauses
Act, "immovable property" is defined to include "land,
benefits to arise out of land, and things attached to the earth,
or permanently fastened to anything attached to the earth." A
similar definition is contained in Section 4 (23) ot the U. P.
General Clauses Act with the modification that 'immovable
property' shall not include standing timber, growing crops or
grass. The definition is clearly illustrative and not exhaustive,
and can cover buildings and benefits to arise out of buildings.
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Building is a thing attached to the earth and is by itself an
immovable property. In the case of land, benefits to arise out
of land are also "immovable property", and consequently, in
the case of buildings, benefits to arise out of buildings can be
deemed to be "immovable property."
6. Benefits to arise out of building can be of various kinds
depending upon the rights which can be enjoyed by the
person. Owner of a building not in occupation thereof can
exercise his proprietary rights by letting the accommodation
to tenants and collecting rent from them. An owner in
occupation of the building enjoys not only the proprietary
rights but also the right of occupation. A lessee including
tenant also enjoys benefits arising out of the building. He has
the right to occupy the building on payment of the lease
money till the tenancy is determined by the lessor or lessee.
When the lessee (tenant) enjoys certain rights in the building,
he is a person who is in enjoyment of benefits arising out of
the building and the tenancy right shall by itself be an
"immovable property".
(6) In the present case the appellants had acquired a right to purchase
the said agricultural piece of land and this right was a benefit arising
out of an immovable property and was, therefore, an immovable
property itself. The instant case is nothing but transfer of the title of
immovable property in any other manner ( not by way of sale or gift).
Such a transaction is excluded from the definition of 'service' and,
hence, not liable to service tax.
(7) We do not agree with the adjudicating authority that 'capital gains'
can be earned only against change in ownership, not otherwise. It is
now established law that any amount received on account of surrender
of tenancy rights is also liable to capital gains tax as per the Income
Tax Act, 1961 [ CIT vs D.P.Sandu Brothers-MANU/SC/0070/2005].
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(8) Further, in para 6.2.8 of the Service Tax Education Guide of the
CBEC it has been clarified that ownership is not necessary for transfer
of any right in an immovable property. The relevant portion is
reproduced below:-
6.2.8 If the person who has entered into a contract with the
builder for a flat for which payments are to be made in 12
installments depending on the stage of construction and the
person transfers his interest in the flat to a buyer after paying
7 installments, would such transfer be an activity chargeable
to service tax?
Ans: Such transfer does not fall in this declared service entry
as the said person is not providing any construction service.
In any case transfer of such an interest would be transfer of a
benefit to arise out of land which as per the definition of
immoveable property given in the General Clauses Act, 1897
is part of immoveable property. Such transfer would therefore
be outside the ambit of „service‟ being a transfer of title in
immoveable property. Needless to say that service tax would
be chargeable on the seven instalments paid by the first
allottee and also on subsequent instalments paid by the
transferee.
(9) The learned advocate for the appellants has also rightly relied on
the decision of the Chandigarh Bench of this Tribunal in the case of
DLF Commercial Projects Corporations Vs Commr. Of S.T., Gurugram [
2019 (27) G.S.T.L. 712 (Tri. - Chan.)] wherein it has been held that
any right relating to immovable property is a benefit arising out of
immovable property and, therefore, is immovable property itself. The
relevant part of the judgment is extracted below:-
15. As immovable property has not been defined in the
Finance Act, 1994, therefore, as per Section 3(26) of the
General Clauses Act, 1897, the immovable property means as
under :-
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77260 of 2019
(26) "immovable property" shall include land,
benefits to arise out of land and things attached to
the earth, or permanently fastened to anything
attached to the earth;
16. On going through the said definition, the immovable
property includes land benefit arising out of land. In the case
of transfer of development rights of the land, therefore, it is
to be seen in the legal aspect whether the benefit arising out
of land can be equated to transfer of development rights of
land or not?
The said issue has been examined by the Hon‟ble Allahabad
High Court in the case of Bahadur and Others v. Sikandar and
Others wherein the Hon‟ble Apex Court observed as under :-
"Therefore, the principal question we have to
consider is whether the right to collect dues upon a
given piece of land, the property of the alleged
lessor, is a benefit to arise out of land within the
purview of Section 3 of the Registration Act. In our
opinion, the right to collect dues upon a given spot
is such a benefit, and therefore, we are constrained
to find that the document in question purported to
convey that which falls within the definition of
immovable property. The so-called lease being an
unregistered instrument, it could not effect the
transfer and could not be admissible in evidence. We
are therefore of opinion that the Court of first
instance was right. We set aside the order of the
lower appellate Court and restore the decree of the
Court of first instance with costs in all courts."
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Service Tax Appeal Nos.77259 &
77260 of 2019
Further, in the case of Chheda Housing Development
Corporation v. Bibijan Shaikh Farid, the Hon‟ble High Court of
Bombay observed as under -
15. The question is whether on account of the term
in the clause which permits acquisition of slum TDR
the appellants in so far as the additional FSI is
concerned, are not entitled for an injunction to that
extent. An immovable property under the General
Clauses Act, 1897 under Section 3(26) has been
defined as under :-
(26) "immovable property‟ shall include land,
benefits to arise out of land, and things attached to
the earth, or permanently fastened to anything
attached to the earth." If, therefore, any benefit
arises out of the land, then it is immovable
peruperty. Considering Section 10 of the Specific
Relief Act, such a benefit can be specifically enforced
unless the respondents establish the compensation
in money would be an adequate relief.
Can FSI/TDR be said to be a benefit arising from the
land. Before answering that issue we may refer to
some judgments for that purpose. In Sikandar and
Ors. v. Bahadur and Ors. 27 ILR 462 a Division
Bench of the Allahabad High Court held that right to
collect market dues upon a given piece of land is a
benefit arising out of land within the meaning of
Section 3 of the India Registration Act, 1877. A
lease, therefore, of such right for a period of more
than one year must be made by resitered
instrument. A Division Bench of the Oudh High Court
in Ram Jiawan and Anr. v. Flanuman Prasad and
Ors. AIR 1940 Oud 409 also held, that bazaar dues,
constitute a benefit arising out of the land and
20
Service Tax Appeal Nos.77259 &
77260 of 2019
therefore a lease of bazaar dues is a lease of
immovable Allahabad High Court in Smt. Dropadi
Devi v. Ram Das and Ors. MANU/UP/0120/1974 :
AIR1974AII473 on a consideration of Section 3(26)
of General Clauses Act. From these judgments what
appears is that a benefit arising from the land is
immovable property. FSI/TDR being a benefit arising
from the land, consequently must be held to be
immovable property and an Agreement for use of
TDR consequently can be specifically enforced,
unless it is established that compensation in money
would be an adequate relief."
Further, the issue was examined by the Hon‟ble High
Court of Bombay again in the case of Shadoday Builders
Private Ltd. and Ors. v. Jt. Charity Commissioner and
Ors. (supra) wherein the issue was in respect of sale of
transferrable development right is immovable property or
not?
The Hon‟ble High Court observed as under :-
"5. The principal issue which arose before the
learned Joint Charity Commissioner as to whether
the TDR could be termed as a movable property, is
concluded and is no more res integra in view of the
judgment of the Division Bench of this court
reported in 2007(3) Mh.L.J. 402 in the matter of
Chheda Housing Development Corporation v. Bibijan
Shaikh Farid and ors. Para no. 15 of the said
judgment is material and is reproduced hereunder.
15. The question is whether on account of the term in
the clause which permits acquisition of slum TDR the
appellants insofar as the additional F.S.I. is concerned,
are not entitled for an injunction to that extent. An
21
Service Tax Appeal Nos.77259 &
77260 of 2019
immovable property under the General Clauses Act,
1897 under Section 3(26) has been defined as under :-
(26) "immovable property" shall include land,
benefits to arise out of land, and things attached to
the earth, or permanently fastened to anything
attached to the earth."
If, therefore, any benefit arises out of the land, then it
is immovable property. Considering section 10 of the
Specific Relief Act, such a benefit can be specifically
enforced unless the respondents establish that
compensation in money would be an adequate relief.
Can FSI/TDR be said to be a benefit arising from the
land. Before answering that issue we may refer to some
judgments for that purpose. In Sikandar and ors. v.
Bahadur and ors., XXVII Indian Law Reporter, 462, a
Division Bench of the Allahabad High Court held that
right to collect market dues upon a given piece of land
is a benefit arising out of land within the meaning of
section 3 of the Indian Registration Act, 1877. A lease,
therefore, of such right for a period of more than one
year must be made by registered instrument. A Division
Bench of the Oudh High Court in Ram Jiawan and anr.
v. Hanuman Prasad and ors., AIR 1940 Oudh 409 also
held, that bazaar dues, constitute a benefit arising out
of the land and therefore a lease of bazaar dues is a
lease of immovable property. A similar view has been
taken by another Division Bench of the Allahabad High
Court in Smt. Dropadi Devi v. Ram Das and ors., AIR
1974 Allahabad 473 on a consideration of section 3(26)
of General Clauses Act. From these judgments what
appears is that a benefit arising from the land is
immovable property. FSI/TDR being a benefit arising
from the land, consequently must be held to be
22
Service Tax Appeal Nos.77259 &
77260 of 2019
immovable property and an Agreement for use of TDR
consequently can be specifically enforced, unless it is
established that compensation in money would be an
adequate relief."
6. The Division Bench has held that since TDR is a benefit
arising from the land, the same would be immoveable
property and therefore, an agreement for use of TDR can be
specifically enforced. The said dictum of the Division Bench
is later on followed by a learned single Judge of this court in
2009(4) Mh.L.J. 533 in the matter of Jitendra Bhimshi Shah
v. Mulji Narpar Dedhia HUF and Pranay Investment and ors.
The learned judge relying upon the judgment of the Division
Bench in Chheda Housing Development Corporation (supra)
has held that the TDR being an immovable property, all the
incidents of immovable property would be attached to such
an agreement to use TDR. In view of the judgments of this
court (supra), in my view, the order of the Charity
Commissioner that no permission under Section 36 is
required as TDR is a movable property cannot be sustained
and therefore, the application filed by the respondent no. 2 -
Trust under Section 36 of the said Act would have to be
considered on the touch stone of the said Section 36 and
also on the touch stone of the principles applicable to such a
sale by a Trust."
As the Hon‟ble High Court observed in the case of Sadoday
Builders Private Ltd. and Ors. (supra) that transferrable
development right is immovable property, therefore, the
transfer of development rights in the case in hand is termed
as immovable property in terms of Section 3(26) of General
Clauses Act, 1897 and no service tax is payable as per the
exclusion in terms of Section 65B(44) of the Finance Act,
1994.
(10) Section 66E(e) of the Finance Act, 1994, reads as under:-
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Service Tax Appeal Nos.77259 &
77260 of 2019
"Section 66E. Declared services. -- The following shall
constitute declared services, namely :--
(a) renting of immovable property
(b) construction of a complex, building, civil structure or a
part thereof, including a complex or building intended for sale
to a buyer, wholly or partly, except where the entire
consideration is received after issuance of completion-
certificate by the competent authority.
.........
(c) temporary transfer or permitting the use or enjoyment of any intellectual property right;
(d) development, 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;
.............................."
(11) By the surrender of the agreement rights in the property by the appellants it cannot be said that the appellants agreed to refrain from an act or agreed to tolerate any act of the eventual buyer or tolerated any act or situation.
(12) The issue as to what types of case would be covered in clause (e) of section 66E of the Finance Act, 1994, came to be discussed in the case of South Eastern Coalfields Ltd vs CCE &ST [ 2020-TIOL-1711- CESTAT-DEL]. It was held as under:-
"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.24
Service Tax Appeal Nos.77259 & 77260 of 2019 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."
(13). Similar views have been taken in the decisions relied upon by the Appellants.
B. Shivshankar Logitex Pvt Ltd (1). In this case of purchase of agricultural land by the appellants at
the price of Rs 15,00,000/- earnest money was paid to the owner. In this case too another company by the name Shivshankar Logitex Pvt Ltd wanted to purchase the said land and after mutual discussion the appellants released their agreement rights to the property for Rs 36,50,000/-. In this case also, we hold that since the rights or 25 Service Tax Appeal Nos.77259 & 77260 of 2019 benefits of the appellants arose out of an immovable property the same was outside the scope of ' service' and, therefore, outside the scope of service tax.
(2). Further, in this case too, by the surrender of the agreement right in the property by the appellant it cannot be said that the appellant agreed to refrain from an act or agreed to tolerate any act of another person or tolerated any act or situation.
C. M/s Shanti Enterprise (1). In this case the appellants entered into an agreement with another buyer for purchase of non-agricultural land @ Rs.1,51,00,000/- and an advance payment was also made. Subsequently another company, M/s Shanti Enterprise wanted to purchase the said land for developing it and, accordingly, the appellants surrendered their agreement rights at a mutually agreed price of Rs 2,08,00,000/. On the same lines, we hold that in this case also, the transaction did not relate to any 'service' and, therefore, no service tax was leviable on the same.
(2). Further, in this case too, by the surrender of the agreement right in the property by the appellant it cannot be said that the appellant agreed to refrain from an act or agreed to tolerate any act of the eventual buyer or tolerated any situation.
D. Excelsior Services Pvt Ltd (1). In this case the appellants entered into an agreement with M/s Excelsior Services Pvt Ltd to purchase a built-up area of a building in Kolkata for Rs 25,10,00,000/- and advance money was also paid for the same. As per the agreement the possession of the said building, along with the car parking, was to be handed over to the appellants by September 2014. However, subsequently, M/s Excelsior Services Pvt Ltd expressed their inability to perform their agreement and a deal of cancellation was executed with the appellants on payment of Rs 8,78,50,000/- as compensation.
26Service Tax Appeal Nos.77259 & 77260 of 2019 (2) In the case of Amit Metalics Limited vs Commissioner of CGST, Bolpur (supra) it was held as under:-
"3. The appellant entered into a „Development Agreement‟ dated May 21, 2010 with 31 different companies for the development of land and construction of premises thereon. The said 31 company was the owners of the land specified in the said agreement and the appellant had entered into the said agreement as the developer of the land. The land owned by these companies was not contiguous parcel of the land and were as such not fit for the proper development. The owners of the land had given an assurance to the appellant that remaining intermittent pieces of land would be acquired and handed over to the appellant within a specific time frame so that the entire land becomes contiguous parcel of land which would fit for the development. As per the Development Agreement the appellant was to be provided by the companies a contiguous piece of land for the development, however, the same could not materialize and hence as per the Development Agreement. The appellant could not get the land as agreed upon and as per the agreements were entitled for a liquidated damage or compensation. The owners of the land has terminated Development Agreement, dated May 21, 2019 due to some other technical reasons also and confirmed that they were not in a position to meet the „Development Agreements‟ and agreed for the settlement with the appellant. Ultimately, the Development Agreement with the appellant was cancelled and the land owners agreed to pay the Appellant a sum of Rs. 21,90,00,000/- towards full and final settlement amount for terminating the said Development Agreement. In addition to this Development Agreement, four separate Development Agreements dated April 5, 2012, were entered into between various land owners and the appellant. This „Development Agreement‟ also could not materialise because of the similar difficulties. In these cases also the 27 Service Tax Appeal Nos.77259 & 77260 of 2019 appellant got the settlement amount of Rs. 23,18,09,200/- from the land owners. Accordingly, the appellant got a total amount of Rs. 45,08,09,200/- as the full and final settlement for the termination of Development Agreement from the various land owners. In addition to this, the Appellant also received an amount of Rs. 1,97,50,000/- as compensation from M/s. Amit Mines Limited towards the non-supply of agreed manganese ore. It is these settlement amounts, which the Department is trying to tax under the Finance Act in terms of provisions of Section 65B(44) of the Act under sub- heading 65B(44)(a)(iii) at the hand of appellant.
.......
20. Further, we also find that the all payments have been received towards the compensation for non-performance of contract and the same will not be within the definition of Section 66E(e) of the Act, which is for obligation to refrain from the Act or to tolerate [an] act [or] situation by the service provider. The appellant has not provided any service as the Development Agreement itself has been cancelled. So, there is no question of any liability towards the service tax on the payment. The compensation that was received by the appellant is more of an actionable claim placing reliance in the case of Kesoram Industries wherein paragraphs 13 to 23 are held as under;"
(3). The above decision has been upheld by the Hon'ble Supreme Court as reported in 2022(56)GSTLJ53(SC).
(4). We, therefore, hold that the compensation cannot be considered as the appellants agreeing to the obligation to refrain from an act or to tolerate an act or a situation or to do an act.
28
Service Tax Appeal Nos.77259 &
77260 of 2019
E. M/s Autocare Services
(1). Autocare Services owned a property in Vadodara which they developed and started construction of commercial office space. The appellants entered into 14 separate agreements for purchase of 14 office premises in the said building and advance amounts were also paid. Subsequently, it was mutually agreed between the appellants and M/s Autocare Services to cancel the sale agreements and relinquish the appellants rights on payment of consideration/profit of Rs 3,38, 24,939/-.
(2) Since this amount was also received in connection with surrender of rights or benefits arising out of immovable property the same is outside the scope of 'service' and, hence, not liable to service tax.
(3). Further, it also cannot be said that the appellants had agreed to an obligation to refrain from an act or tolerated an act or a situation or did an act.
F. Vijay Kumar Dalmia and STB Exports Pvt Ltd (1). In this case the appellants had purchased 204.75 satak of land from one Vijay Kumar Dalmia. Subsequently, out of this area of land 82 satak land was sold by the appellants to M/s STB Exports Pvt Ltd. In the whole transaction of sale/purchase of immovable property the appellants earned profit of Rs 64,31,000/-. This is a clear case of outright sale and purchase of immovable and is outside the scope of 'service' and hence, not liable to service tax.
G. M/s Thermax Ltd (1). The appellants entered into an agreement with M/s Thermax Ltd for supply of manpower to the appellants' plant . M/s Thermax Ltd, in turn, entrusted this job to M/s Ensol Power Pvt Ltd, their sub-vendor. M/s Ensol Power Pvt Ltd then supplied the manpower on behalf of M/s Thermax to the appellants. But since M/s Thermax had not released payments to M/s Ensol Power Pvt Ltd the appellants made payment to M/s Ensol Power Pvt Ltd and, in turn, booked the amount paid on M/s 29 Service Tax Appeal Nos.77259 & 77260 of 2019 Thermax account. Hence, the appellants issued a debit note on Thermax for Rs 2,00,000/-. Thus, it is seen that this Rs 2,00,000/- is nothing but the reimbursement by M/s Thermax for the amount paid by the appellants on their behalf to M/s Ensol Power Pvt Ltd.
(2) This cannot be considered as a 'service' provided by the appellants as this was nothing but reimbursement. No service of any sort had been rendered by the appellants to M/s Thermax Ltd.
H. Nilu Construction Pvt Ltd (1) The appellants were occupying a portion of godown space, as
tenant, owned by M/s Nilu Construction Pvt Ltd, Kolkata. M/s Nilu Constructions Pvt Ltd wanted to erect a new building on the said premises. The appellants agreed to vacate the said premises on payment of Rs 90,00,000/- as compensation for surrender of their tenancy rights.
(2) As per the decision of the Hon'ble Allahabad High Court in the case of Kanhiya Lal and Anr ( supra) the surrender of tenancy rights cannot be considered as 'service' and, hence, no tax is payable.
(3) As already discussed above, the surrender of tenancy rights is liable to capital gains tax as per the Income Tax Act, 1961 [ CIT vs D.P.Sandu Brothers-MANU/SC/0070/2005 ( supra)].
(4). Further, it also cannot be said that the appellants had agreed to an obligation to refrain from an act or tolerated an act or a situation or did an act.
I. M/s Siddhartha Land and Building Pvt Ltd (1). The appellants were in occupation, as a tenant, of 4,100 sq ft of space in a building in Kolkata, owned by M/s Siddhartha Land and Building Pvt Ltd. M/s Siddhartha Land and Building Pvt Ltd wanted to re-develop the land and construct a multi-storeyed building. They requested the appellants to vacate the premises. The appellants surrendered their tenancy rights on receipt of compensation of Rs 3,25,00,000.
30Service Tax Appeal Nos.77259 & 77260 of 2019 (2). As already discussed above surrender of tenancy rights on receipt of some compensation is subject to capital gains tax and is not covered under clause (e) of section 66E of the Finance Act 1994.
(3). Further, as per the decision of the Hon'ble Allahabad High Court in the case of Kanhiyalal and Anr ( supra) the tenancy rights are also benefits arising out of the immovable property and outside the definition of 'service' and, therefore, cannot be subjected to Service Tax .
J. M/s Madanlal Brijlal Pvt Ltd (1). The appellants were in occupation, as tenant, of a portion of the
building owned by M/s Madanlal Brijlal Pvt Ltd. The owner wanted to construct a building at the said premises and entered into a rehabilitation agreement with the appellants to vacate the premises on the condition that the appellants would be provided a larger area in the new building. However, subsequently the appellants surrendered their tenancy rights on payment of Rs 2.40 crores as compensation.
(2). As already discussed above surrender of tenancy rights on receipt of some compensation is subject to capital gains tax and is not covered under clause (e) of Section 66E of the Finance Act 1994.
(3). Further, as per the decision of the Hon'ble Allahabad High Court in the case of Kanhiyalal and Anr ( supra) the tenancy rights are also benefits arising out of the immovable property and outside the definition of 'service' and, therefore, cannot be subjected to Service Tax .
K. Jasmine Commercials Pvt Ltd (1). Jasmine Commercials Pvt Ltd was the owner of a building in Kolkata. The appellants entered into agreement with Jasmine
Commercials Pvt Ltd to buy a portion of the ground floor subject to the condition that the car parking space in the building would be converted for commercial use of the appellants. Out of Rs.4,00,00,000 being the price or the said property the appellants paid an advance of Rs 2.25 31 Service Tax Appeal Nos.77259 & 77260 of 2019 crores. However, since Jasmine Commercials Pvt Ltd failed to get permission from the Municipal Corporation to convert the seven car parking space for commercial use, the matter was referred for arbitration and an award of Rs 3.19 crores, as damages, was passed in favour of the appellants.
(2). This is nothing but receipt of compensation on account of the other party not being able to fulfil its obligations under a contract. These damages cannot be considered as agreeing 'to the obligation to refrain from an act or to tolerate an act or a situation or to do an act‟ as per clause (e) of section 66E of the Finance Act, 1994.
(3) The matter is clearly covered by the decisions in the case of Amit Metalics Limited vs Commissioner of CGST, Bolpur (supra) and M/s. South Eastern Coalfields Ltd. Vs. CCE and ST 2020-TIOL-1711-
CESTAT-DEL( supra) discussed above.
12. In view of the above we hold that the appellants were not required to pay service tax on any of the amounts received by them in the above enumerated cases.
13. We also find that in the instant case the show cause notice is dated 28.09.2018 whereas the period involved is 01.04.2013 to 31.03.2015. The demand has been raised by invoking the extended time limit under the proviso to section 73(1) of the Finance Act, 1994. The only ground for invoking the extended period is that the above amounts were not reflected in the Service Tax returns filed by the appellants and that had the DGGI not intervened and unearthed the facts the activities of the appellants would not have come to surface.
14. We find that this is not a case where service tax returns were not filed at all. The case of the department is that the amounts recovered from the 11 companies listed above were not reflected in the said returns. We note that the whole case is based on the balance sheets of the appellants. The appellants had declared all the transactions in their records and had even paid capital gains tax on the profit/compensation received. Hence, it cannot be said that the 32 Service Tax Appeal Nos.77259 & 77260 of 2019 appellants had resorted to wilful mis-statement or suppression of facts or had contravened of any of the provisions of service tax law with intent to evade payment of service tax. Courts have consistently held that the extended time limit can be invoked only if there is a positive act on the part of an assessee to conceal anything from the department. There must be a deliberate attempt to suppress information for invoking the extended period. We, therefore, hold that no ground has been made out to justify invoking the extended time limit. The demand is, therefore, barred by limitation.
15. In view of the above, both the appeals are allowed, on merits as well as on limitation.
(Pronounced in the open Court on 10.08.2022) Sd/ (P. K. Choudhary) Member (Judicial) Sd/ (P. Anjani Kumar) mm Member (Technical)