TMI Blog2023 (12) TMI 904X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal held that since liquidated damages recovered on account of breach or non-performance of contract are not consideration for any service, but are in the nature of deterrent imposed so that such a breach or non-performance is not repeated service tax would not be leviable on the amount so collected. The Circular dated 28.02.2023 issued by the Central Board of Indirect Tax and Customs also provides that service tax cannot be levied on the amount collected for the said purpose. In view of the aforesaid decision of the Tribunal in South Eastern Coalfields and the Circular dated 28.02.2023 issued by the Central Board of Indirect Tax and Customs, the contention advanced by the learned counsel for the appellant has to be accepted. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailed to meet the requirements stipulated in the contracts, such as non-performance of the contracts or delay in performance of the contracts. 4. A show cause notice was issued to the appellant contending that the earnest money deposit/security deposit and liquidated damages collected by the appellant would be against rendering of a service in the nature of agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act as defined under section 66E (e) of Finance Act and so would be leviable to service tax. The appellant filed a detailed reply to the show cause notice and denied the allegations made therein. The Additional Commissioner, by order dated 28.12.2018, confirmed the demand of service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontract or violating the conditions of the contract, it would be taxable under clause (e) of section 66E of the Finance Act. 9. In South Eastern Coalfields, the Tribunal held that since liquidated damages recovered on account of breach or non-performance of contract are not consideration for any service, but are in the nature of deterrent imposed so that such a breach or non-performance is not repeated service tax would not be leviable on the amount so collected. The relevant paragraphs of the decision of the Tribunal are 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 parties was for supply of coal; for supply of goods; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration of the defaulting party . The expectation of the appellant is that the other party complies with the terms of the contract and a penalty is imposed only if there is non-compliance. 29. The situation would have been different if the party purchasing coal had an option to purchase coal from A or from B and if in such a situation A and B enter into an agreement that A would not supply coal to the appellant provided B paid some amount to it, then in such a case, it can be said that the activity may result in a deemed service contemplated under section 66E (e). 30. The activities, therefore, that are contemplated under section 66E (e), when one party agrees to refrain from an act, or to tolerate an act or a situation, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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. The issue also came up in the CESTAT in Appeal No. ST/50080 of 2019 in the case of M/s Dy. GM (Finance) Bharat Heavy Electricals Ltd in which the Hon'ble Tribunal relied on the judgment of divisional bench in case of M/s South Eastern Coal Fields Ltd Vs. CCE Raipur (2021 (55) G.S.T.L 549(Tri-Del)). Board has decided not to file appeal against the CESTAT order ST/A/50879/2022-CU[DB] dated 20.09.2022 in this case and also against Order A/85713/2022 dated 12.8.2022 in case of M/s Western Coalfields Ltd. Furth ..... X X X X Extracts X X X X X X X X Extracts X X X X
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