TMI Blog2023 (12) TMI 903X X X X Extracts X X X X X X X X Extracts X X X X ..... of the delivered goods is reduced if it falls short in quantity or quality. Such price reduction is effected through debit notes issued by the appellant to the suppliers. It is apparent that no consideration is paid. The Tribunal in M/S FUTURA POLYESTER LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE. CHENNAI-I [ 2013 (1) TMI 658 - CESTAT CHENNAI] also held that no tax can be levied merely because of the entries made in the books of account. In the present case, there is no separate agreement and the provisions of section 66E(e) have been applied in terms of the purchase order, as is clear from paragraph 3 of the show cause notice. Notice pay recovery - HELD THAT:- The Madras High Court in GE T D INDIA LIMITED (FORMERLY ALSTOM T D INDIA LIMITED) VERSUS DEPUTY COMMISSIONER OF CENTRAL EXCISE [ 2020 (1) TMI 1096 - MADRAS HIGH COURT] in no uncertain terms, also held that notice pay recovery is not subject to service tax. Cheque bounce penalty - HELD THAT:- Circular No. 178/10/2022-GST dated-3-8-2022 has clarified that cheque bounce penalty is not subject to Goods and Service Tax and the reasoning would also be applicable to service tax - The Tribunal in M/S. ROHAN MOTOR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 08.03.2018, confirmed the demand with penalty and interest. 5. The four activities on which service tax has been demanded from the appellant by treating them to be declared services under section 66E(e) of the Finance Act are as follows: (i) Debit notes raised to offset the excess credit in the ledger account (ii) Notice pay recovery (iii) Cheque return penalty (iv) Liquidated damages 6. Declared service has been defined under section 65B(22) of the Finance Act as follows: 65B(22) Declared service means any activity carried out by a person for another person for consideration and declared as such under section 66E. 7. Section 66E(e) of the Finance Act is reproduced below: 66E. Declared services: The following shall constitute declared service, namely:- (e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; 8. The aforesaid four activities on which service tax has been demanded have been described by the appellant. Debit Notes In the business of the appellant, the quality and quantity of the raw materials supplied by the suppliers are checked at the time of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the agreement should not only specify the activity to be carried to by a person for another person but should specify the: (i) consideration for agreeing to the obligation to refrain from an act; or (ii) consideration for agreeing to tolerate an act or a situation; or (iii) consideration to do an act. 10. 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) and would be taxable under section 68 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). 11. The provision of section 66E(e) of the Finance Act were analysed by a Division Bench of this Tribunal in South Eastern Coalfields Ltd vs. Commissioner of Central Excise and Service Tax, Raipur [2021 (55) G.S.T.L. 549 (Tri.-Del.)] and the relevant portion of the decision is reproduced below: 27. It is trite that an agreement has to be read as a whole so as to gather the intention of the parties. The intention of the appellant and the parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refers to such an activity an there is a flow of consideration for this activity. 12. The Circular dated February 28, 2023 issued by Board also provides that service tax cannot be levied on the amount collected towards liquidated 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 contractual arrangement must be an independent arrangement in its own right. There must be a necessary and sufficient nexus between the supply (i.e. agreement to do or to abstain from doing something) and the consideration . 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as, however, supported the impugned order. 16. The submissions advanced by the learned counsel for the appellant deserve to be accepted as no consideration is paid. The debit notes are mere book adjustments to balance the ledger. The appellant has merely followed the price reduction method with the suppliers. In terms of the agreement price is agreed upon on the commitment by the supplier to supply the goods. However, upon delivery, the price of the delivered goods is reduced if it falls short in quantity or quality. Such price reduction is effected through debit notes issued by the appellant to the suppliers. It is apparent that no consideration is paid. The Tribunal in Futura Polyster also held that no tax can be levied merely because of the entries made in the books of account. In the present case, there is no separate agreement and the provisions of section 66E(e) have been applied in terms of the purchase order, as is clear from paragraph 3 of the show cause notice. 17. Regarding the notice pay recovery, learned counsel for the appellant submitted that there is no consideration paid for tolerating the termination of the contract. The amount recovered is not for tolerat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n-compete. Notice pay, in lieu of sudden termination however, does not give rise to the rendition of service either by the employer or the employee. 21. The Tribunal has also upheld this view in Shriram Pistons And Rings Ltd. vs. Commissioner of C.T., Ghaziabad [2020 (42) G.S.T.L.79 (Tri. All.)]. 22. Regarding cheque bounce penalty, learned counsel for the appellant submitted that there is no consideration for tolerating the activity of cheque bounce. According to the learned counsel, it is a penalty to deter the possibility of cheque bounce. 23. There is force in this submission advanced by the learned counsel for the appellant. Circular No. 178/10/2022-GST dated-3-8-2022 has clarified that cheque bounce penalty is not subject to Goods and Service Tax and the reasoning would also be applicable to service tax. The relevant extract of the Circular is as follows: Cheque dishonor fine/penalty 7.3 No supplier wants a cheque given to him to be dishonoured. It entails extra administrative cost to him and disruption of his routine activities and cash flow. The promise made by any supplier of goods or services is to make supply against payment within an agreed time (i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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