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2023 (5) TMI 11 - AT - Service TaxTaxability - Liquidated damages/ penalties recovered by the appellant from its suppliers and contractors for delayed completion of the assigned work - Section 65E(e) of the Finance Act, 1994 - HELD THAT:- The provision of the taxable services, the appellant had paid the service charges along with service tax amount as per the claims made in the invoices. The liquidated damages / penalties recovered by the appellant for delay in completion of the work or supply of goods cannot be considered as ‘Service’, for the purpose of levy of service tax. Further, the amount received by the appellant cannot also be termed as ‘Consideration’ for provision of the taxable service. Thus, the amount charged by the appellant towards liquidated damages / penalty cannot form part of the taxable value for payment of service tax thereon. Reliance can be placed in appellant own case BHEL Bhopal Vs. CCE [2022 (9) TMI 1005 - CESTAT NEW DELHI] - the order passed by this Tribunal in the case of the appellant itself has also been accepted by Service Tax Department inasmuch as no appeal against the said order was filed before the Hon’ble Supreme Court. Leviability of service tax on the declared service under the category “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 the Finance Act, 1994” - HELD THAT:- The CBIC vide Circular No. 214-1-2023-ST dated 28.02.2023 has clarified that the above expression has three limbs namely, agreeing to the obligation to refrain from an act; agreeing to the obligation to tolerate an act or a situation; and agreeing to the obligation to do an act. It has further been clarified that in order to be covered under such phrase, there must be independent contractual arrangements and must have necessary and sufficient nexus between the supply (agreement to do or to abstain from doing something) and the consideration. In the present case, it is not a matter of routine that the appellant had invariably collected the amount towards liquidated damages / penalties from each and every contract entered into between it and the service provider. Since, collection of such amount is towards delayed completion of work, which is not a regular phenomenon and arises out of non-performance of the contract in the manner prescribed, on rare occasions, it cannot be said that there are sufficient nexus between the parties on a regular basis for payment of such charges in order to abstain in proper performance of the assigned task within the scheduled time frame - such amount should not be equated with ‘consideration’, for the purpose of rendering any taxable service. Appeal allowed.
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