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2021 (2) TMI 821 - AT - Service TaxLevy of Service Tax - amount of liquidated damages/penalty collected by the appellant for non-compliance of the terms of the procurement contracts - amount collected towards theft charges from consumers for un-authorized use of electricity or for tampering of meters - period of dispute is from July, 2012 to March, 2016 - whether the appellant is providing a “declared service” contemplated under section 66E(e) of the Finance Act, which service became taxable w.e.f July 1, 2012? - 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. This precise issue was considered by a Division Bench of this Tribunal in M/S SOUTH EASTERN COALFIELDS LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX, RAIPUR [2020 (12) TMI 912 - CESTAT NEW DELHI] wherein certain clauses providing penalty for non-observance/breach of the terms of the contract entered during the course of business came up for consideration. The case of Department was that the amount collected by the appellant towards compensation/penalty was taxable as a " declared service" under section 66E(e) of the Finance Act. After considering the decision of a Larger Bench of the Tribunal in M/S BHAYANA BUILDERS (P) LTD. & OTHERS VERSUS CST, DELHI & OTHERS. [2013 (9) TMI 294 - CESTAT NEW DELHI (LB)] and the decisions of the Supreme Court in COMMISSIONER OF SERVICE TAX ETC. VERSUS M/S. BHAYANA BUILDERS (P) LTD. ETC. [2018 (2) TMI 1325 - SUPREME COURT]and UNION OF INDIA AND ANR. VERSUS M/S. INTERCONTINENTAL CONSULTANTS AND TECHNOCRATS PVT. LTD. [2018 (3) TMI 357 - SUPREME COURT] where it was held that What follows from the aforesaid decisions of the Supreme Court in Bhayana Builders and Intercontinental Consultants, and the decision of the Larger Bench of the Tribunal in Bhayana Builders is that “consideration” must flow from the service recipient to the service provider and should accrue to the benefit of the service provider and that the amount charged has necessarily to be a consideration for the taxable service provided under the Finance Act. 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. It should also be remembered that there is marked distinction between “conditions to a contract” and “considerations for the contract”. A service recipient may be required to fulfil 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.” The issue that arose for consideration in M/S LEMON TREE HOTEL VERSUS COMMISSIONER, GOODS & SERVICE TAX, CENTRAL EXCISE & CUSTOM [2019 (7) TMI 767 - CESTAT NEW DELHI] was whether forfeiture of the amount received by a hotel from a customer on cancellation of the booking would be leviable to service tax under section 66E(e). The Tribunal held that the retention of the amount on cancellation would not attract service tax under section 66E (e). Learned Authorized Representative has, however, referred to the decision of the Delhi High Court in XL ENERGY LIMITED VERSUS MAHANAGAR TELEPHONE NIGAM LIMITED.[2018 (5) TMI 2036 - DELHI HIGH COURT]. This decision refers to the decision of the Supreme Court in Oil & Natural Gas Corporation Ltd. Vs. Saw Pipes Ltd., which in turn referred to a decision of the Supreme Court in Fateh Chand. The decision of the Supreme Court in Fateh Chand was also relied upon by learned Authorized Representative of the Department in M/S SOUTH EASTERN COALFIELDS LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX, RAIPUR [2020 (12) TMI 912 - CESTAT NEW DELHI] but it was found not to applicable to the facts of the case. Likewise, the decision of the Delhi High Court in XL ENERGY LIMITED VERSUS MAHANAGAR TELEPHONE NIGAM LIMITED, would not help the Department. Thus, it is not possible to sustain the order passed by the Principal Commissioner confirming the demand of service tax on the amount collected towards liquidated damages and theft of electricity - appeal allowed.
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