TMI Blog2022 (1) TMI 909X X X X Extracts X X X X X X X X Extracts X X X X ..... o that the employee can resign and leave the service. However, often, for various reasons the employer may decide to terminate the services of the employee which puts the employee to inconvenience and he has to find another job - If the employer decides to terminate the services without giving the required notice, the employment contract itself provides for a compensation to be paid. Similarly, if the employee resigns without notice, compensation is paid by the employee or recovered from his dues. Both the notice period and the compensation are incorporated in the employment contact itself but these are not the purpose of the contract. Consequently, any compensation paid is not a consideration for the contract. The compensation for failure under a cannot is NOT consideration for service under the contract and also following the law laid down by Madras High Court in GE T D INDIA LIMITED VERSUS DEPUTY COMMISSIONER OF CENTRAL EXCISE, CHENNAI [ 2019 (12) TMI 1566 - MADRAS HIGH COURT] that Notice pay, in lieu of termination, however, does not give rise to the rendition of service either by the employer or the employee, the impugned order upholding confirmation of a demand of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 66B on all services, other than those included in the negative list. Service was defined to mean any service carried out for a consideration and included declared services . Declared services were defined to mean any activity carried out by a person for another person for consideration and declared as such under section 66E. Section 66E included agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act . The legal provisions as applicable during the relevant period were as follows: SECTION 65B.Interpretations. - In this Chapter, unless the context otherwise requires,- .. (22) Declared service means any activity carried out by a person for another person for consideration and declared as such under section 66E; (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) such transfer, delivery or supply of any goods which is deemed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is the object of the contract and compensation is not. The party which suffers because of the reneging or non-performance by the other can get compensated either in the form of unliquidated damages (where the court decides the quantum of damages) or liquidated damages (where the contract itself provides that damages of such and such amount will be paid in case of non-performance of the contract). While a contract for any service specifies both the service to be rendered and the consideration to be paid for such service, it also has other clauses which define the conditions of the contract which include details of how the parties must fulfil their parts of the contract. These conditions, often include a clause on liquidated damages if a party fails to fulfil its obligations under the contract as laid down in the conditions. Consideration is the result of successful performance of the contract while compensation is paid by the party frustrating the contract to the other. Compensation is also paid, if the contract so provides, when one party performs under the contract but not within the conditions laid down, such as delays in performance. A few illustrations will make this point ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... situation in return for the amount to be paid as decided in the contract. This, according to the Revenue is an agreement to tolerate a situation and hence constitutes a Declared Service under Section 66E(e) and is exigible to service tax. 11. This, in our view, is not the correct reading of the contract. Contract, is an agreement enforceable by law. Section 2 of The Indian Contract Act, 1872 is reproduced below: 2. Interpretation-clause .-In this Act the following words and expressions are used in the following senses, unless a contrary intention appears from the context: (a) When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal; (b) When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise; (c) The person making the proposal is called the promisor , and the person accepting the proposal is called the promisee ; (d) When, at the desire of the promisor, the promisee or any other person has done or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the agreement or if there is no consideration for such an agreement, it does not fall within the ambit of Section 66E(e). If the agreement is for something else and if one of the parties fails to perform as per the agreement and pays to the other a compensation as pre-decided in the agreement, it does not fall under Section 66E(e). This view was taken by this Tribunal in several cases. In M/s. Repco Home Finance Ltd. [ Service Tax Appeal No. 511 of 2011-LB decided by MISCELLANOUS ORDER NO. 40053/2020 dated 8.6.2020 ], the larger bench of this Tribunal held that no service tax can be charged on loan pre-payment charges. In South Eastern Coalfields Ltd. [ 2020-TIOL-1711-CESTAT- DEL ], the amounts received by the appellant as penalty from other parties for non-observance or breach of terms of contract in the commercial contracts it entered into were held to be not chargeable to service tax under section 66E(e). In MNH Shakti Ltd. [ 2021-TIOL-732-CESTAT-KOL ], Revenue s demand of service tax under section 66E(e) on the compensation which the appellant received from the Government for cancellation of the coal blocks was set aside. In the case of Ruchi Soya Ltd. [ 2021-TI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence, amounts so paid would not be chargeable to service tax. However any amount paid for not joining a competing business would be liable to be taxed being paid for providing the service of forbearance to act. 17. Referring to the above clarification by the CBEC, High Court of Madras has, in GE T D India Ltd. [ 2019 (12) TMI- 1566- Madras High Court ] held that notice pay, in lieu of sudden termination, does not give rise to the rendition of service either by the employer or the employee and allowed the writ petitions. Thus, the specific issue in this case is no longer res integra. GE T D India Ltd. was followed in Intas Pharmaceuticals [ 2021-TIOL-367- CESTAT-AHM ], State Street Syntel Services Pvt. Ltd. [ 2021- TIOL- 152-CESTAT-MUM ] , Shri Ram Pistons and Rings Ltd. [ 2020 (42) GSTL 79 (Tri-All) ] and HCL Learning Ltd. [ 2019-TIOL-3545-CESTAT- All ]. 18. Learned Departmental Representative submitted that the clarification by the CBEC was clear and it was held that the termination pay received by the employee is not exigible to tax because in such as case, it is the employee who is the service provider and the service provided by him in the course ..... X X X X Extracts X X X X X X X X Extracts X X X X
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