Custom, Excise & Service Tax Tribunal
National Aluminium Company Ltd vs -Bbsr Commissionerate on 21 March, 2024
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
EASTERN ZONAL BENCH : KOLKATA
REGIONAL BENCH - COURT NO. 1
Service Tax Appeal No. 75739 of 2021
(Arising out of Order-in-Original No.: PR.COMMR/BBSR/ST/18/2021 dated
30.06.2021 passed by the Principal Commissioner of C.G.S.T. and Central Excise,
Bhubaneshwar, C.R. Building, Rajaswa Vihar, Bhubaneshwar - 751 007)
M/s. National Aluminium Co. Limited : Appellant
Mines & Refinery Complex,
Damanjodi, Koraput, Orissa - 763 008
VERSUS
Principal Commissioner, C.G.S.T. & Central Excise : Respondent
Central Revenue Building, Rajaswa Vihar, Bhubaneshwar - 751 007 (Orissa) APPEARANCE:
Shri Jnanesh Mohanty, Advocate Smt. Shreya Mundhra, Advocate For the Appellant Shri K. Chowdhury, Authorized Representative For the Respondent CORAM:
HON'BLE SHRI ASHOK JINDAL, MEMBER (JUDICIAL) HON'BLE SHRI K. ANPAZHAKAN, MEMBER (TECHNICAL) FINAL ORDER NO. 75658 / 2024 DATE OF HEARING / DECISION: 21.03.2024 Order : [PER SHRI ASHOK JINDAL] The appellant is in appeal against the impugned order wherein the demand of Service Tax has been confirmed under Section 66E(e) of the Finance Act, 1994.
2. The facts of the case are that the appellant received certain amount as Liquidated Damages, Security Deposit (SD), Earnest Money Deposit (EMD), Retention Money withheld from the contractors on account of breach of terms and conditions of the contract in the event of unsatisfactory or late 2 Appeal No.: ST/75739/2021-DB execution of service contract / supply contract causing deviation from the stipulated terms and conditions of the contract for agreement with the sales and service vendors. In the event of non-execution of the awarded contract, the said amount paid by the contractors were forfeited by the appellant.
3. An investigation was conducted against the appellant and thereafter, a Show Cause Notice dated 12.04.2019 was issued to the appellant for the period from October 2013 to June 2017, to demand Service Tax on the above said amount forfeited / received by the appellant on the ground that such amount received is a consideration against tolerating an act, which is a "declared service" under Section 66E(e) of the Finance Act, 1994 and therefore liable for Service Tax.
4. The appellant contested the issue on merits as well as on limitation. Demand of Service Tax was confirmed against the appellant vide adjudication order. Aggrieved from the said order, the appellant is before us.
5. The Ld. Counsel appearing on behalf of the appellant submits that the said issue has been settled by the Tribunal in the case of M/s. South Eastern Coalfields Ltd. v. Commissioner of Central Excise and Service Tax, Raipur [2020 (12) TMI 912 - CESTAT, New Delhi=2021 (55) G.S.T.L. 549 (Tri. - Del.)] and thus, the issue is no longer res integra; in view of that, he submits that the impugned order is to be set aside.
6. On the other hand, the Ld. Authorized Representative appearing on behalf of the respondent reiterated the findings in the impugned order.
3Appeal No.: ST/75739/2021-DB
7. Heard the parties and considered their submissions.
8. We find that an identical issue had come up before the Tribunal for consideration in the case of M/s. South Eastern Coalfields Ltd. (supra) wherein the Tribunal held as under: -
HELD THAT- Liability has been fastened upon the appellant under section 65B read with section 66E(e) of the Finance Act for the period from July 2012 till March 2016 for the reason that by collecting the said amount the appellant had agreed to the obligation to refrain from an act or to tolerate the non- performance of the terms of the contract by the other party - Section 65B (44) defines 'service' to mean any activity carried out by a person for another person for consideration, and includes a declared service. Under section 66E (e), a declared service shall constitute agreeing to the obligation to refrain from an act, or to tolerate an act or situation, or to do an act. Section 66 B provides that service tax shall be levied at the rate of 12 per cent on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed. Section 66D contains a negative list of services, while section 66E contains a list of declared services.
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 - 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 subsection (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 wholly or partly consisting of money, or where it is not ascertainable. In either of the cases, there has to be a "consideration" for the provision of such service. Explanation to sub-section (1) of section 67 clearly provides that only an amount that is payable for the taxable service will be considered as "consideration". This apart, what is important to note is that the term "consideration" is couched in an "inclusive" definition.
The Supreme Court in COMMISSIONER OF SERVICE TAX ETC. VERSUS M/S. BHAYANA BUILDERS (P) LTD. ETC. (2018 (2) TMI 1325-SUPREME COURT), while deciding the appeal filed by the Department against the aforesaid decision of the Tribunal, also explained the scope of Section 67 of the Act. The Supreme Court observed that 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 67.4
Appeal No.: ST/75739/2021-DB It would also be pertinent to refer to TRU Circular dated 20 June, 2012 issued by the Central Board of Excise and Customs as an Education Guide when the Negative List based taxation regime was introduced from July 2012 to clarify various aspects of the levy of service tax. The Board dealt with "consideration" in paragraph 2.2 of this Circular and pointed out that since the definition was inclusive, it will not be out of place to refer to the definition of "consideration" as given in section 2(d) of the Indian Contract Act, 1872.
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) - 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.
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 - In the present case, the agreements do not specify what precise obligation has been cast upon the appellant to refrain from an act or tolerate an act or a situation. It is no doubt true that the contracts may provide for penal clauses for breach of the terms of the contract but, as noted above, there is a marked distinction between 'conditions to a contract' and 'considerations for a contract'.
It is, therefore, not possible to sustain the view taken by the Principal Commissioner that penalty amount, forfeiture of 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 - Appeal allowed decided in favor of appellant. (head notes) 5 Appeal No.: ST/75739/2021-DB 8.1 As it has been held by the Tribunal that on the said forfeited amount or amount received by an appellant, the appellant is not liable to pay Service Tax, in these circumstances, we hold that the appellant is not liable to pay Service Tax under Section 66E(e) of the Finance Act, 1994.
9. Therefore, we do not find any merit in the impugned order and accordingly, the same is set aside.
10. In the result, the appeal is allowed with consequential relief, if any.
(Operative part of the order was pronounced in open court) Sd/-
(ASHOK JINDAL) MEMBER (JUDICIAL) Sd/-
(K. ANPAZHAKAN) MEMBER (TECHNICAL) Sdd