TMI Blog2023 (9) TMI 650X X X X Extracts X X X X X X X X Extracts X X X X ..... o be received for a service provided by the appellant which will attract service tax. We find that the issue is no longer res intigra and has been clarified by the CBIC itself as per the Circulars cited by the appellant. In the case of the CMRL, Revenue has not pointed out any such contractual arrangement which is an independent arrangement in its own right to receives damages by tolerating breach of contract. The amounts retained towards liquidated damages and also invoked as bank guarantee are not a consideration for tolerating breach of contract. Any amount, which is not a consideration for provision of service, cannot be subjected to service tax - It cannot be agreed that CMRL had received a consideration for tolerating the delay in execution of the projects contracted by them. A demand for service tax on the monies received through encashment of performance Guarantee / Bank Guarantee and that collected/ retained as liquidated damages for non-performance and failure to comply with the agreed obligation by various contractors / sub-contractors, hence fails. This being so the demands for duty along with interest made and the penalties imposed by the impugned order are requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 29.9.20218 was issued to demand the service tax amount of Rs.14,31,75,822/- received through encashment of performance Guarantee / Bank Guarantee and Rs.23,72,71,674/- towards collected/ retained as liquidated damages during the period along with interest and for imposition of penalties under various sections of Finance Act, 1994 on the appellant as well as the Joint Managing Director shri P.K. Parthiban. After due process of law, the Adjudicating Authority vide the order impugned dropped the proceedings relating to Performance Guarantee holding that the amount of Rs.115.8 crores is a compensation for the huge default of the contractors and no service tax is payable on the same and that the argument of the assessee claiming it to be an actionable claim is sustainable. As regards the activity of collecting liquidated damages, the Adjudicating Authority held that it is an act of agreeing to an obligation to tolerate the act and situations created by the contractors, the appellant is liable to pay service tax being a declared service under section 66E(e) read with Section 65B(22) of the Finance Act, 1994 confirmed the demand of Rs.20,81,25,159/- being the service tax payable on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amages and invoked bank guarantees for the slippage of the scheduled performance on the civil contracts. The Service Tax Department has sought to recover service tax on the amount retained by CMRL as damages from the contractor on the basis that the amount retained as damages was consideration for tolerating breach of contract and was allegedly liable to service tax under section 66E(e) of Finance Act 1994. The Appellants are now in Appeal before the Hon ble Tribunal. He further submitted that out of the sum of Liquidated damages involved in the SCN of Rs. 170,72,40,005/-, the balance of liquidated damages as on date is Rs. 27,46,21,489/-. The contractor-wise details are as follows Sl. No. Name of the Contractor Liquidated damages amount as per SCN Liquidated damages amount adjusted against CAPEX Liquidated damages balance as on 09-08-2023 1 ALSTOM TRANSPORT INDIA LIMITED 7,12,81,442 - 8,51,948 2 CONSOLIDATED CONSTRUCTION CONSORTIUM LTD 17,70,75,188 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... portant legal developments since filing of the Appeal. The Central Board of Indirect tax Customs (CBIC) has issued Circular 178/10/2022-GST dated 3-8-2022 Circular No. 214/1/2023-Service Tax dated 28-02-2023 (covering service tax GST) accepting non-taxability of damages recovered on account of breach of contract. Further the ratio of a catena of case laws was in favour of the Appellant, as listed: a) Neyveli Lignite Corporation Ltd. Vs. Commissioner, Chennai -2021 (53) G.S.T.L. 401 (Tri. - Chennai) b) Northern Coalfield Ltd. Vs. Commissioner, Jabalpur - 2023 (71) G.S.T.L. 63 (Tri. - Del.) c) South Eastern Coalfields Ltd. Vs. Commissioner, Raipur - 2021 (55) G.S.T.L. 549 (Tri. - Del.) d) Commissioner of Service Tax Vs. Repco Home Finance Ltd. - 2020 (42) G.S.T.L. 104 (Tri. - LB) e) Northern Coalfields Ltd. Vs. Commissioner, Jabalpur - 2023 (71) G.S.T.L. 63 (Tri. - Del.) f) Paradip Port Trust Vs. Commissioner - 2022 (62) G.S.T.L. 186 (Tri. - Kolkata) g) Krishnapatnam Port Co. Ltd. Vs Commissioner of GST, Guntur -2023 (72) G.S.T.L. 259 (Tri. - Hyd.) h) Steel Authority of India Ltd. Vs Commissioner of GST, Salem - 2021 (55) G.S.T.L. 34 (Tri. - Chennai) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son for another for consideration and includes a declared service. The contract entered into by the appellant with the contractors/ sub-contractors is not aimed at any activity to receive compensation by a breach of contract, similarly it cannot be said that it was the intention of the contractors to breach or violate the contract and incur a loss. Hence there is no agreement/ contract between the parties involving a consideration to be received for a service provided by the appellant which will attract service tax. We find that the issue is no longer res intigra and has been clarified by the CBIC itself as per the Circulars cited by the appellant. The relevant portion of Circular No. 214/1/2023-Service Tax dated 28-02-2023 is reproduced below. 2. It may be seen that Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act is a Declared Service as per clause (e) of section 66E of the Finance Act, 1994. A service conceived in an agreement where one person agrees to an obligation to refrain from an act or to tolerate an act or to do an act, would be a 'declared service' under section 66E(e) read with section 65B(44) and w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eating 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 3 rd August, 2022, may also be referred to in this regard. (emphasis added) In the case of the CMRL, Revenue has not pointed out any such contractual arrangement which is an independent arrangement in its own right to receives damages by tolerating breach of contract. The amounts retained towards liquidated damages and also invoked as bank guarantee are not a consideration for tolerating breach of contract. Any amount, which is not a consideration for provision of service, cannot be subjected to service tax. We hence do not agree that CMRL had received a consideration for tolerating the delay in execution of the projects contracted by them. The benefit of the CBIC circular and the judgments mentioned in the circular and by the appellant are applicable to this case. A demand for service tax on the monies received through encashment of performance Guarantee / Bank Guarantee and that collected/ retained as liquidated damages for non-performance and failure to comply with the agreed obligation by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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