TMI Blog2023 (5) TMI 863X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the Tax Research Unit of the Department of Revenue in the Ministry of Finance vide Circular dated 3rd August, 2022 has specifically clarified that the compensation received on account of breach of contract should not form part of declare service for the purpose of payment of service tax by the assessee. There are no merits in the impugned order passed by the Learned adjudicating authority - appeal allowed. - SERVICE TAX APPEAL NO : 86225 OF 2021 - FINAL ORDER NO : A / 85026 / 2023 - Dated:- 2-1-2023 - HON BLE MR S. K. MOHANTY , MEMBER ( JUDICIAL ) And HON BLE MR C J MATHEW , MEMBER ( TECHNICAL ) Shri Vishal Agarwal with Shri Abhishek Deodhar , Advocates for the appellant Shri Anand Kumar, Additional Commissioner ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsideration for the purpose of levy of service tax on the amount so collected from the service receivers/service providers. He has relied upon the decisions of this Tribunal in the case of Madhya Pradesh Poorva Kshetra Vidyut Vitaran Company Ltd v. Commissioner of CGST Central Excise [Final Order No. 50329- 50333/2022 dated 12th April 2022 in appeal No. 50289 of 2019 and others], Western Coalfields Ltd v. Commissioner of CGST Central Excise [2022 (9) TMI 741 CESTAT MUMBAI] and South Eastern Coalfields Ltd v. Commissioner of Central Excise Service Tax, Raipur [2021 (55) GSTL 549 (Tri.-Del.)] to strengthen the case of the appellant that the amount received from the service providers as per the contractual norms should not form part o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that when a contract has been broken, the party which suffers by such breach is entitled to receive from the other party compensation for any loss or damage caused to him by such breach. The compensation is not by way of consideration for any other independent activity; it is just an event in the course of performance of that contract. 7.1.1 It is common for the parties entering into a contract, to specify in the contract itself, the compensation that would be payable in the event of the breach of the contract. Such compensation specified in a written contract for breach of non-performance of the contract or parties of the contract is referred to as liquidated damages. Black s Law Dictionary defines Liquidated Damages as cash compe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at can be taken with regard to taxability of liquidated damages is that where the amount paid as liquidated damages is an amount paid only to compensate for injury, loss or damage suffered by the aggrieved party due to breach of the contract and there is no agreement, express or implied, by the aggrieved party receiving the liquidated damages, to refrain from or tolerate an act or to do anything for the party paying the liquidated damages, in such cases liquidated damages are mere a flow of money from the party who causes breach of the contract to the party who suffers loss or damage due to such breach. Such payments do not constitute consideration for a supply and are not taxable. 7.1.5 Examples of such cases are damages resulting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is not a supply . 7.1.6 If a payment constitutes a consideration for a supply, then it is taxable irrespective of by what name it is called; it must be remembered that a consideration cannot be considered de hors an agreement/contract between two persons wherein one person does something for another and that other pays the first in return. If the payment is merely an event in the course of the performance of the agreement and it does not represent the object , as such, of the contract then it cannot be considered consideration . For example, a contract may provide that payment by the recipient of goods or services shall be made before a certain date and failure to make payment by the due date shall attract late fee or penalty. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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