Custom, Excise & Service Tax Tribunal
Hindustan Zinc Ltd vs Commissioner, Central Excise & ... on 30 September, 2025
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
NEW DELHI
PRINCIPAL BENCH - COURT NO.4
Service Tax Appeal No. 50694 Of 2021
[Arising out of Order-in-Appeal No. 37/(CRM)ST/JDR/2021 dated 09.02.2021
passed by the Commissioner (Appeals) of Central Excise and Central Goods, Service
Tax, Jodhpur]
Hindustan Zinc Limited : Appellant
Rajpura Dariba Mines, Dariba, Distt.
Rajsamand (Rajasthan)
Vs
Commissioner of Central Excise and : Respondent
CGST-Udaipur 142-B, Sector-11, Hiran Magri Udaipur, Rajasthan-313002 APPEARANCE:
Shri Shivam Bansal, Ms. Aarushi Prabhakar, Advocates for the Appellant Shri Shashank Yadav, Authorised Representative for the Respondent CORAM :
HON'BLE DR. RACHNA GUPTA, MEMBER (JUDICIAL) HON'BLE MS. HEMAMBIKA R. PRIYA, MEMBER (TECHNICAL) FINAL ORDER No. 51523/2025 Date of Hearing:30.09.2025 Date of Decision:30.09.2025 DR. RACHNA GUPTA In the present appeal, M/s Hindustan Zinc Limited, the appellant is engaged in manufacture of various chemicals and is also registered under Service Tax Act being engaged in providing/receiving various taxable services. Department observed that the appellant has forfeited the amount received due to various reasons like, earnest money and security deposit of contractors. An amount of Rs. 96,58,076/- was observed to be forfeited during the period April 2016 2 Service Tax Appeal No. 50694 Of 2021 to June 2017. Alleging that the appellant was liable to pay service tax on the said amount, the activity being declared service in terms of Section 66E of Finance Act, 1994 that a Show Cause Notice No. 44/2018 dated 16.05.2019 was served upon the appellant proposing recovery of service tax amounting to Rs. 14,96,777/- along with interest and the appropriate penalties. The original Adjudicating Authority had confirmed the proposal vide Order-in-Original No. 21/2020 dated 07.09.2020. Appeal against the said order has been rejected by the Commissioner (Appeals) vide Order-in-Appeal No. 37/(CRM)ST/JDR/2021 dated 09.02.2021. Being aggrieved, the appellant is before this Tribunal.
3. We have heard the learned counsel for the appellant and the learned Authorized Representative for the Department.
4. Learned counsel for the appellant submitted that the demand of service tax has been confirmed vis-a-vis penal charges recovered by the appellant on account of breach or non-performance of contract.
The issue is no longer res-integra that such an amount is not the consideration in lieu of any service, hence, is not subject to service tax. Decision in the case of South-Eastern Coalfields Limited vs. Commissioner of Central Excise and Service Tax reported as 2021 (55) GSTL 549 (Tri.-Del.), is relied upon. Several earlier decisions of this Tribunal in appellant's own case have also been relied upon. It is also submitted that earlier also similar show cause notices were issued to the appellant for the previous period. Those show cause notices stands already decided in favour of the appellant. The decisions have been accepted by the Department. Hence, the show cause notice of May 2009 raising the demand for the period April 2016 3 Service Tax Appeal No. 50694 Of 2021 to June 2017 has wrongly invoked the extended period of limitation. The demand confirmed is liable to be set-aside on this ground also. For the same reason, penalties have also not imposable. While praying for cum-tax benefit, the order under challenge is prayed to be set-aside and the appeal is prayed to be allowed.
5. While rebutting these submissions, learned DR has acknowledged that the issue of taxability of security deposit/earnest money/amount of fines/penalties forfeited stands already decided in favour of the assessee. However, while reiterating the findings arrived at by the adjudicating authority, learned DR has prayed for the dismissal of the appeal.
6. Having heard the parties and perusing the records of the appeal. We observe that the liability has been fastened upon the appellant under Section 66E(e) of the Finance Act, for the reason that by collecting an amount in the form of fines/penalties/liquidated damages/earnest money/security deposits forfeiture, the appellant had agreed to the obligation to refrain from an Act or to tolerate the non- performance of the terms of contract by the other party. To adjudicate the same, following issue is framed:
whether the appellant is providing declared service defined under Section 66E(e) of Finance Act, 1994.
7. We have seen the provision which reads as follows:-
―66E. Declared Services The following shall constitute declared services, namely:-
xx xx xx xx xx
(e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act,‖ 4 Service Tax Appeal No. 50694 Of 2021 Definition of Service under Section 65(B)(44) of Finance Act, 1994 has also to be perused which reads as follows:-
Section 65B(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) (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;
(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.
Also whenever service tax is chargeable on aforementioned any activity, such value has to be determined in terms of Section 67 of the Act. From the perusing of the said section, it becomes abundantly clear that only an amount i.e. payable for taxable service will be considered as ―consideration‖. The meaning of terms ―consideration‖ has been elaborated by the larger bench of the Tribunal in the case of Commissioner of Service Tax vs. M/s Bhayana Builders reported as 2018 (2) TMI 1325 which has affirmed by the Hon'ble Supreme Court in the decisions cited as 2018 (10) GSTL 118 (S.C.) wherein it was held as follows:-
"The amount charged should be for "for such service provided:
Section 67 clearly indicates that the gross amount changed by the service provider has to be for the service provided. Therefore, it is not any amount charged which can become the basis of value on service tax becomes payable but the amount charged has to be necessarily a consideration for the service provided which is taxable under the Act. By using the words "for such service 5 Service Tax Appeal No. 50694 Of 2021 provided‖ the Act has provided for a nexus between the amount charged and the service provided. Therefore, 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. The cost of free supply of goods provided by the service recipient to the service provider is neither an amount "charged" by the service provider nor can it be regarded as a consideration for the service provided by the service provider. In fact, it has mo nexus whatsoever with the taxable services for which value is sought to be determined."
It becomes clear from the above discussion that any amount which has no nexus with the taxable service cannot be the consideration for the service provider and thus does not become the part of the value which is taxable. Otherwise also there is a marked distinction between ―conditions to a contract‖ and ―consideration for the contract‖. When a service recipient is required to fulfil certain conditions contained in the contract and to let some amount to be forfeited but that would not necessarily mean that value of forfeited amount would form part of taxable value. Such activity cannot be called as rendering of any service not even the declared service.
8. Reverting to the facts of the present case, it is observed that the amount in question is the forfeited amount of earnest money, security deposit, fines and penalties received from the contractor on account of poor or unsatisfactorily delay in work as per the terms of the contract. The said act of forfeiture cannot be called as consideration for an act of tolerating in or in question (66E) (e) as the said activity is not resulting in extinguishment or forbearance of any right of the parties. Amount so collected/forfeited by the appellant was merely penal in nature to ensure full compliance, in future, of the terms and conditions of the contract between the appellant and its contractors. In appellant's own case, following decisions have been referred to and it has been held as follows:-
6
Service Tax Appeal No. 50694 Of 2021 ―8. We have also perused the decisions relied upon by the appellant. We observe that this Tribunal in the case of South Eastern Coal Fields Ltd. vs. CCE & ST, Raipur reported in 2021 (55) GSTL 549 has considered the same issue as above. It has already been held as follows:-
―There is marked distinction between ―conditions to a contract‖ and ―considerations for the contract‖. A service recipient may be required to fulfill certain conditions contained in the contract but that would not necessarily mean that this value would form part of the value of taxable services that are provided. Hence, payment of the impugned „compensation charges‟ in the present case merely amounts to fulfillment of the condition envisaged in Para No. 6.5.3 of the Agreement dated 12-7-2011 and not consideration for the said contract [Agreement dated 12-7-2011].
12.Further, the issue of leviability of Service tax on penalty, liquidated damages, compensation, forfeiture amounts, cancellation charges etc. stands settled by various pronouncements wherein it has consistently been held that the said amounts recovered as charges for breach or non-
compliance of contractual terms and conditions cannot be construed as „consideration‟ for „refraining or tolerating an act‟ and were thus not leviable on Service Tax in terms of Section 66E(e) of the Finance Act, 1994. Reliance in this regard is placed on the following decisions :
(i) M/s. K.N. Food Industries Pvt. Ltd. v. Commissioner of CGST & Central Excise, Kanpur [2019-VIL-731-CESTAT-ALH-
ST] wherein it was held that if a contract provides for an eventuality which is uncertain and also remedy if that eventuality occurs, such charges made towards making good the damages, losses or injuries arising from unintended events cannot be considered to be the payments for any services under Section 66E(e) of Finance Act, 1994.
(ii) M/s. Monnet Ispat & Energy Ltd. v. CCE & ST, Raipur [2018 (9) TMI 1514] - while deciding whether Service Tax liability arises on the UI Charges received by the Company in terms of Section 66E(e) of the Finance Act, 1994, the Court held that UI Charges have been received by the Appellant only in those cases where the buyer has drawn more electricity than what was scheduled for him and does not amount to consideration for declared service.
(iii) 7 ST/51462 /2019 M/s. Lemon Tree Hotels v. Commissioner, GST, Central Excise & Customs - 2020 (34) 7 Service Tax Appeal No. 50694 Of 2021 G.S.T.L. 220 (Tri. - Del.)/[2021] 127 taxmann.com 247 (New Delhi - CESTAT) [2019 (7) TMI 676] wherein it was held that „cancellation charges‟ collected in lieu of cancellation of booking of hotel room does not attract Service Tax in terms of Section 66E(e) of the Finance Act.
(iv) In M/s. South Eastern Coalfields Ltd. v. CCE & ST, Raipur [supra]-The Tribunal held that 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 cannot be sustained and also relied on the following decisions of the Hon‟ble Supreme Court :
(a) Commissioner of Service Tax v. M/s. Bhayana Builders (P.) Ltd. [2018 (2) TMI 1325] = 2018 (10) G.S.T.L. 118 = [2018] 91 taxmann.com 109/66 GST 320 wherein the Apex 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 the Finance Act.
(b) Union of India v. International Consultants and Technocrats [2018 (10) G.S.T.L. 401 (S.C.)] - since Service Tax is with reference to the value of service, as a necessary corollary, it is the value of the services which are actually rendered, the value whereof is to be ascertained for the purpose of calculating the Service Tax payable thereupon.
(v) M/s. M.P. Poorva Kshetra Vidyut Vitran Co. Ltd. v.
Principal Commissioner CGST and CE, Bhopal [2021 (2) TMI 821]/2021 (46) G.S.T.L. 409 (Tri. - Del.), wherein the ratio of the decision in the case of M/s. South Eastern Coalfields (supra) was followed and the order confirming the demand of Service Tax on the amount collected towards liquidated damages and theft of electricity was set aside.‖
9. From the perusal of these decisions it becomes abundantly clear that the issue of considering a forfeited amount as an amount of consideration towards declared services stands already settled in favour of the assessee. The same is already held to not to be the consideration towards rendering declared service defined under section 66E(e) of the Finance Act, 1944. In fact the cancellation of contract itself is 8 Service Tax Appeal No. 50694 Of 2021 held to not to be a service. We find no reason to differ from these findings.
10. We further observe that department also vide Circular No.214/1/2023-ST dated 28th February, 2023 has clarified about leviability of service tax on the declared services, ―agreeing to the obligation to refrain from an act or to tolerate an act or a situation, or to do an act‖ under clause (e) of section 66E of Finance Act, 1994 and has clarified that the activities contemplated under section 66 E (e) i.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 agreements specifically refers to such an activity and there is a flow of consideration for this activity. The decision of this Tribunal in the case of Dy. General Manager (Finance), Bharat Heavy Electricals Limited in appeal No.50080 of 2019 wherein the earlier decision of the Tribunal in the case of M/s. South Eastern Coalfields (supra) was dealt with, has been referred in this Circular.
11. The Board has decided to not to file any appeal against the decision in M/s. South Eastern Coalfields (supra). The said decision has also been upheld by Hon'ble Supreme Court vide its order dated 11.07.2023 passed in the case of Commissioner of Central Excise and Service Tax vs. South Eastern Coal Fields Limited in Civil Appeal No. 2372/2021.
12. In appellant's own case vide Final order No. 59733/2024 dated 04.11.2024, CESTAT Delhi, while relying upon the decision of South Easter Coal (supra), this Tribunal has set aside the demand 9 Service Tax Appeal No. 50694 Of 2021 of service tax confirmed on the identical allegations holding that the penalties, fines and forfeited amounts cannot be treated as consideration towards declared services defined under section 66 E(e) of the Finance Act.
13. In light of this discussion, we observe that adjudicating authorities below have ignored the earlier decisions. Hence, the act of the authority is held to be an act of judicial indiscipline. The authorities below are warned to be careful in future. Such an order of reflecting judicial indiscipline is otherwise not sustainable. We draw our support from the decision in the case of Vishnu Traders vs. State of Haryana and Others 1995 Suppl. (1) SCC 461.
―In the matter of interlocutory orders principle of binding precedents cannot be said to apply. However, the need for consistency of approach & uniformity in the exercise of judicial discretion respecting similar course and desirability to eliminate occasions for grievances of discriminating treatment requires that all similar matters should receive similar treatment except when factual differences require a different treatment so that there is assurance of consistency. Uniformity, predictability and certainty of judicial approach.‖
14. In view of the above discussion, the order under challenge is set-aside. Consequent thereto, the appeal is allowed.
(Dictated & pronounced in the open Court) (DR. RACHNA GUPTA) MEMBER (JUDICIAL) (HEMAMBIKA R. PRIYA) MEMBER (TECHNICAL) G.Y.