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2023 (6) TMI 589 - AT - Service TaxLevy of Service tax - declared service or not - amount received towards damages in arbitration proceedings in connection with the purchase order dated 23.10.2007 issued for Pressure Filter Model HOSESCH FFP along with spares - section 66E (e) of the Finance Act, 1994 - period of dispute in the present appeal is post July 1, 2012 - HELD THAT:- 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 - One of the declared services contemplated under section 66E is a service contemplated under clause (e) which service is agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act. There has, therefore, to be a flow of consideration from one person to another when one person agrees to the obligation to refrain from an act, or to tolerate an act, or a situation, or to do an act. Thus, 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) of the Finance Act and would be taxable under section 68 of the Finance Act 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 would also be pertinent to refer to the Circular dated 03.08.2022 issued by the Department of Revenue regarding the applicability of goods and service tax on liquidated damages, compensation and penalty arising out of breach of contract in the context of ‘agreeing to the obligation to refrain from an act or to tolerate an act or a situation, or to do an act’. This Circular emphasizes that there has to be an express or implied agreement to do or abstain from doing something against payment of consideration for a taxable supply to exist and such an act or a situation cannot be imagined or presumed to exist merely because there is a flow of money from one party to another. It also mentions that unless payment has been made for an independent activity of tolerating an act under an independent arrangement entered into for such activity or tolerating an act, such payment will not constitute ‘consideration’ and such activities will not constitute ‘supply’. The demand could not have been confirmed as the appellant had not provided the ‘declared service’ contemplated under section 66 (E) (e) of the Finance Act. It is, therefore, not possible to sustain the order dated 07.08.2017 passed by the Commissioner - Appeal allowed.
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