Levy of Service Tax - Collection of penalties or liquidated damages - levy of penalty and liquidated damages collected by the appellant towards late supply of service or goods on the ground that the said amount is collected for ‘agreeing to tolerate the act’ of late supply of goods by the suppliers - declared service or not - 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 June 2017 for the reason that by collecting the said amount the appellant agreed to the obligation to refrain from an act or to tolerate the nonperformance 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 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 the 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.
Two Division Benches of the Tribunal in M.P. POORVA KSHETRA VIDYUT VITRAN CO. LTD. VERSUS PRINCIPAL COMMISSIONER CGST AND CENTRAL EXCISE BHOPAL [2021 (2) TMI 821 - CESTAT NEW DELHI] and M/S SOUTH EASTERN COALFIELDS LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX, RAIPUR [2020 (12) TMI 912 - CESTAT NEW DELHI] have held that the amount recovered towards penalties/liquidated damages cannot be included as ‘consideration’ towards any service or declared service.
Levy of service tax - Wheeling charges and Cross Subsidy Charges - levy of service tax on the ground that they are consideration towards provision of ‘declared service’ as defined under section 66E(e) of the Finance Act - HELD THAT:- ‘Wheeling’ is nothing but transmission of electricity undertaken by the appellant Discom using its infrastructure as the power producer is not permitted to transmit electricity. Transmission is not leviable to service tax. Even assuming that the ‘wheeling charges’ are collected as charges for permitting the power producer to transmit its electricity using the infrastructure of the appellant, since it is an activity related to transmission of electricity and also that the main activity of transmission is done by the appellant, ‘wheeling charges’ would not be leviable to service tax in view of the decision of the Gujarat High Court in Torrent Power.
Collection of cross subsidy charges is provided under the Electricity Act and the Regulations to meet the requirements of current level of cross subsidy within the area of supply of the distribution licencee. It is also in relation to transmission and distribution of electricity and cannot be treated as a ‘declared’ service since it is not for agreeing to tolerate an act of any other person - It is not generated out of any service provided by the appellant and, therefore, service tax cannot be levied.
Levy of service tax - Supervisory charges and Testing charges, and Transformer and Meter Testing Charges - HELD THAT:- The appellant collects supervision charges in relation to service connection or any other works as a part of the amount paid by it to the contractors to ensure that the network being provided is as per the standards fixed under the Electricity Act and Regulations framed thereunder. Under rule 45 of Indian Electricity Rules, 1956, no electrical insulation work shall be carried out for the purpose of distribution of electricity except by the licensed contractor under the direct supervision of a Department person to ensure that the quality of line/ instrument and safety checks for protection/ safety of consumers - In M.P. POORVA KSHETRA VIDYUT VITRAN CO. LTD. VERSUS PRINCIPAL COMMISSIONER CGST AND CENTRAL EXCISE BHOPAL [2021 (2) TMI 821 - CESTAT NEW DELHI], it has been held that the amount collected towards these charges cannot be subjected to levy of service tax. The same would be the position for the other charge under this head.
Extended period of limitation - suppression of facts or not - HELD THAT:- Even when an assessee has suppressed facts, the extended period of limitation can be evoked only when ‘suppression’ is shown to be willful and with an intent to evade payment of service tax.
In the present case, the Department could not establish conclusively that the appellant had suppressed material facts with an intention to evade payment of service tax. Only a general statement has been made by the Commissioner that the appellant had willfully mis-stated that the consideration received by the appellant for providing the services was not leviable to service tax. Thus, it is not possible to sustain the demand made for the extended period of limitation - The demand under this head for the normal period of imitation is sustained. The Department shall calculate the amount of service tax for the normal period of limitation as the demand made for the extended period of limitation cannot be sustained.
The impugned order passed by the Commissioner is, accordingly, set aside except in so far is it seeks to confirm the demand of service tax for the amount collected towards rent from the contractors for the normal period of limitation - Appeal allowed in part.