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TMI Blog2024 (5) TMI 1114X X X X Extracts X X X X X X X X Extracts X X X X ..... ssail the order dated 27.05.2019 passed by the Commissioner (Appeals), GST, Customs and Central Excise, Bhopal the Commissioner (Appeals). This order sets aside the demand of Rs. 1,22,75,714/- confirmed by the Additional Commissioner by order dated 19.02.2019 for the period from October 2015 to June 2017. 3. It transpires that the appellant is engaged in the generation of electricity and an audit of the records of the appellant was conducted wherein it was noticed that an amount of Rs. 19,22,88,556/- was shown as 'miscellaneous income not pertaining to revenue' for the period from July 2012 to September 2015 which income pertained to recovery from the supplies on account of late delivery of the materials/goods and non-execution of work within the stipulated time and adherence to the stipulated standards. 4. A show cause notice dated 14.07.2016 was issued to the appellant proposing to levy service tax for a declared service contemplated under section 66E(e) of the Finance Act that provides that agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act would be a 'declared service'. The appellant filed a reply to the show cause notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant portion of the definition of 'service' is reproduced below: "Section 65B(44) "service" means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include - (a) an activity which constitutes merely,- (i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or (ii) such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of article 366 of the Constitution; or (iii) a transaction in money or actionable claim; (b) a provision of service by an employee to the employer in the course of or in relation to his employment; (c) fees taken in any Court or tribunal established under any law for the time being in force.?" 9. 'Declared services' have been defined in section 66E and sub-section (e) of section 66E, which is involved in this appeal, is as follows: "66E. Declared services The following shall constitute declared services, namely:- ***** (e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act;" 10. Liability has been fastened upon the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and the parties was for supply of coal; for supply of goods; and for availing various types of services. The consideration contemplated under the agreements was for such supply of coal, materials or for availing various types of services. The intention of the parties certainly was not for flouting the terms of the agreement so that the penal clauses get attracted. The penal clauses are in the nature of providing a safeguard 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 be said to be towards any se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions that unless payment has been made for an independent activity of tolerating an act under an independent arrangement entered into for such activity or tolerating an act, such payment will not constitute 'consideration' and such activities will not constitute 'supply'. The relevant portion of the Circular is reproduced below : "Agreement to do or refrain from an act should not be presumed to exist 16. There has to be an express or implied agreement: oral or written, to do or abstain from doing something against payment of consideration for doing or abstaining from such act, for a taxable supply to exist. An agreement to do an act or abstain from doing an act or to tolerate an act or a situation cannot be imagined or presumed to exist just because there is a flow of money from one party to another. Unless there is an express or implied promise by the recipient of money to agree to do or abstain from doing something in return for the money paid to him, it cannot be assumed that such payment was for doing an act or for refraining from an act or for tolerating an act or situation. Payments such as liquidated damages for breach of contract, penalties under the mining act for exce ..... X X X X Extracts X X X X X X X X Extracts X X X X
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