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TMI Blog2024 (1) TMI 937X X X X Extracts X X X X X X X X Extracts X X X X ..... 17 from M/s Bharat Heavy Electricals Ltd. Plot No 7, Tower A, Advan6t IT Park, Floor 5, Sector 142, Noida. (iii) I impose a penalty of Rs 3,14,05,595/- (Rs Three Crore Fourteen Lakh Five Thousand Five Hundred and Ninety Five only) upon M/s Bharat Heavy Electricals Ltd. Plot No 7, Tower A, Advan6t IT Park, Floor 5, Sector 142, Noida under Section 78 of the Finance Act, 1994 read with Section 174 of the CGST Act, 2017 for contravention of the provisions as discussed supra. In terms of clause (ii) of 2nd proviso to Section 78 (1) supra, if the service tax and interest is paid within a period of thirty days of the date of receipt of this order, the penalty payable by them shall stand reduced to twenty five percent of the Service Tax so determined subject to the condition that the amount of such reduced penalty is also paid within thirty days of the date of receipt of this order." 2.1 We have heard Shri Z U Alvi, advocate for the appellant and Shri Sandeep Pandey, Authorized Representative for the revenue. 2.2 Arguing for the appellant learned counsel submits: * Appellant is a Public Sector Undertaking, having its units located across India. * On the basis of investigations c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d liquidated damages penalty while making payment to suppliers/service contractors. 8.2. /s. BHEL had shown the amounts recovered as damages from their suppliers/contractors. In respect of all the supplies/contracts wherever there is a delay/slippage of delivery schedule, the damages amounts recovered are recognized and charged on such slippage for the period of delay between the due date of supply of goods / services as per the contractual terms and conditions against the actual date of supply of goods/services. M/s. BHEL has placed purchase orders conscientiously well in advance, and they also knew that if any delay occurs in supply of goods / services liquidated damages have to be paid. These damages are intended as a pre-agreed way to compensate purchaser, who has suffered loss as a result of actions (or in actions) by the supplier. in the instant case, such damages collected/charged from the suppliers/contractors are separately identified as Income under separate nead "Recovery from suppliers/contractors towards penalty damages". So, it cannot be considered as renegotiated price/consideration of goods/service. Hence, it appears that the impugned liquidated damages are square ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvice tax was paid on liquidated damages recovered, they have stated that the liquidated damages are one kind of loss to BHEL for non completion of the service / supply contracts and the same being in form of loss / damages, the same does not appears liable to pay service tax. We show the recovery of liquidated damages (LD) as our income under the head of "Recovery from sub contractors / vendors". Thus. it is quite evident that there is additional income generated in the course of provision of services, however the same is not taken into account while calculating their service tax liability under the mistaken belief that it is not taxable, Moreover the liquidated damages falls squarely within the ambit of Declared services. In the instant case, only on specific intelligence collected by the Departmental Officers the fact of non-payment of service tax, as mentioned supra, has come to light. The non-payment of service tax would have gone unnoticed causing loss to the exchequer but for verification of records which was collected based on intelligence. Thus, it appears that M/s. BHEL have willfully suppressed the facts about the taxable services provided with intention to evade payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould not be imposed on them under Section 76, Section 77 and Section 78 of the Finance Act, 1994 read with Section 174 of CGST Act 2017. 14. M/s. BHEL is also informed that in terms of clause (i) of proviso (2) to Section 78(1) of the Finance Act, 1994 read with Section 174 of CGST Act, 2017, if the amount of Service Tax demanded in the Show Cause Notice is paid along with applicable interest, as prescribed under Section 75 of the Finance Act, 1994 read with Section 174 of CGST Act, 2017, within 30 (thirty) days from the date of communication of the notice, the amount of penalty liable to be paid shall be fifteen percent of the Service Tax demanded, provided that such reduced penalty is also paid within the above period of 30 days from the date of communication of the notice, in which case, all proceedings in respect of the said Service Tax, interest and penalty shall be deemed to be concluded." 3.3 This show cause notice has been adjudicated as per the impugned order referred in para 1 above. 3.4 We find that the same very issue has been considered by the tribunal in the decisions referred to be the counsel for appellant in the case of appellant's different unit, and the matte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CESTAT NEW DELHI] . 7. Learned counsel for the respondent is justified in submitting that the issue stands covered by the Division Bench judgement of the Tribunal in M/s South Eastern Coal Fields Ltd. The Division Bench 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 66E 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 be a flow of consideration from one person to another when one person agrees to the obligation to refrain from an act, or to tolerate an act, or a situation, or to do an act. In other words, the agreement should not only specify the activity to be carried out 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... text of Section 74 of the Contract Act, that the Supreme Court observed : "20. Section 74 declares the law as to liability upon breach of contract where compensation is by agreement of parties pre-determined, or where there is a stipulation by way of penalty. But the application of the enactment is not restricted to cases where the aggrieved party claims relief as a plaintiff. The section does not confer a special benefit upon any party; it merely declares the law that notwithstanding any term in the contract for predetermining damages or providing for forfeiture of any property by way of penalty, the court will award to the party aggrieved only reasonable compensation not exceeding the amount named or penalty stipulated." 8. The aforesaid decision of the Tribunal in M/s South Eastern Coal Fields Ltd. was followed by a Division Bench of the Tribunal in M.P. Poorva Kshetra Vidyut Vitran Co. Ltd. 9. It, therefore, follows that the liquidated damages collected by the respondent as penalty/late delivery charges cannot be subjected to service tax under section 66E (e) of the Finance Act." 3.5 In view of the above decision and subsequent decisions of the tribunal we do not fin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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