TMI Blog2023 (7) TMI 882X X X X Extracts X X X X X X X X Extracts X X X X ..... n for this activity. The Circular dated February 28, 2023 issued by Board also provides that service tax cannot be levied on the amount collected towards liquidated damages. In view of the decisions of the Tribunal and the Circular, it is not possible to sustain the view taken by the Commissioner that since the task was not completed within the time schedule, the appellant agreed to tolerate the same for a consideration in the form of liquidated damages, which would be subjected to service tax under section 66E(e) of the Finance Act - As service tax could not be levied, the imposition of interest and penalty also cannot be sustained. Appeal allowed. - Service Tax Appeal No. 50528 of 2018 - FINAL ORDER NO. 50898/2023 - Dated:- 6- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Delay in completion of work beyond the scheduled time Delay in supply of stores, spares and raw materials 2. Penalty Poor performance or where job done is not as per specifications Supply of poor quality of raw materials, i.e., variation from contract specification 3. Forfeiture of Security Deposits Non-performance of the contract 3. The department entertained a view that the collection of the said amount by the appellant under the head of liquidated damages, penalty and forfeiture of security deposits due to non-fulfillment of contractual obligation(s) would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of the Tribunal in M/s. South Eastern Coalfields Ltd. vs. Commissioner of Central Excise and Service Tax, Raipur [2020 (12) TMI 912-CESTAT, New Delhi] . 11. In South Eastern Coalfields Ltd. , the Tribunal observed as follows: 25. It is in the light of what has been stated above that the provisions of section 66E(e) have to be analyzed. Section 65B(44) defines service to mean any activity carried out by a person for another for consideration and includes a declared service. One of the declared services contemplated under section 66 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uard to the commercial interest of the appellant and it cannot, by any stretch of imagination, be said that recovering any sum by invoking the penalty clauses is the reason behind the execution of the contract for an agreed consideration. It is not the intention of the appellant to impose any penalty upon the other party nor is it the intention of the other party to get penalized . 28. It also needs to be noted that 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 other party cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quidated damages. It is reproduced below: 4. As can be seen, the said expression has three libs: -i) Agreeing to the obligation to refrain from an act, ii) Agreeing to the obligation to tolerate an act or a situation, iii) Agreeing to the obligation to do an act. Service of agreeing to the obligation to refrain from an act or to tolerate an act or a situation, or to do an act is nothing but a contractual agreement. A contract to do something or to abstain from doing something cannot be said to have taken place unless there are two parties, one of which expressly or impliedly agrees to do or abstain from doing something and the other agrees to pay consideration to the first party for doing or abstaining from such an act. Such contractua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jurisprudence that has evolved over time, may be followed in determining whether service tax on an activity or transaction needs to be levied treating it as service by way of agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act. Contents of Circular No. 178/10/2022-GST dated 3rd August, 2022, may also be referred to in this regard. (emphasis supplied) 13. In view of the aforesaid decisions of the Tribunal and the Circular, it is not possible to sustain the view taken by the Commissioner that since the task was not completed within the time schedule, the appellant agreed to tolerate the same for a consideration in the form of liquidated damages, which would be subjected to servic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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