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TMI Blog2024 (10) TMI 1544X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Finance Act, 1994 this fact is covered by the category of 'Agreeing to an obligation to refrain from an act, or to tolerate an act or a situation or to do an act." 2. The department was of the view that the incident of recovering amount (notice pay from the employees) is covered under category of the declared service and therefore the appellant should have paid service tax of Rs.5,42,310/- on the bond amounts secured by them from their employees. A show cause notice dated 13.03.2018 came to be issued demanding service tax of Rs.5,42,310/- under section 73(1) of the Finance Act, 1994 interest and penal provisions as provided under Finance Act, 1994 have also been invoked in the impugned show cause notice. The matter was adjudicated vide impugned order-in-original 13.02.2019 and all the charges as invoked in the show cause notice has been confirmed by the learned adjudicating authority. 3. The appellant has filed an appeal before the Commissioner (Appeals) who vide his impugned order-in-appeal dated 23th May, 2019 has upheld the impugned order-in-original. Holding that the impugned order-in-original is legally sustainable and the appellant are required to pay service tax as p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er referred to as the service tax) at the rate of fourteen percent. on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed. SECTION 66E. Declared services. The following shall constitute declared services, namely - (a) ............. (e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act;" 7. The case of the Revenue is that the appellant had tolerated its employees resigning without the requisite notice period in return for a consideration and therefore, the amounts received or recovered from such of its employees is exigible to Service Tax under Section 66E(e). The case of the appellant is that it did not render any service nor has it entered into any agreement to tolerate its employees leaving without notice It has only collected compensation for such an act of its employees. Therefore, the amounts received or recovered by it cannot be charged to service tax. 8. We find that both Service' as defined in Section 658(44) and 'Declared Service' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it cannot be said that the doctor and patient agreed that the patient would lose his sight and as a consideration for taking away the sight of the patient, doctor paid an amount. Similarly, a lawyer is expected to defend his client and pursue his best interests. If the lawyer is grossly negligent and the client suffers and gets paid compensation, it is for frustration of the contract which the client had with the lawyer It cannot be said that there is either a written or implicit agreement that the advocate will be negligent and in allowing the lawyer to be negligent and cause loss, a consideration has been paid to the client. If a bank enters into a loan agreement, the essence of the contract is that the borrower would borrow the amount on interest for an agreed period. If the borrower wants to pre-pay the loan, it frustrates the contract from the point of view of the bank and loan pre-payment charges (in the form of liquidated damages) are charged by the bank as per the loan agreement. These charges are not paid for rendering the service but as a penalty for the borrower reneging on his contract and not borrowing money for the entire period as originally agreed. When a telephon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contract; (i) An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others, is a voidable contract, (j) A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable." 12. The agreement is a set of promises which form consideration for each other. Evidently, the promises have to be for performance under the contract and not for frustrating it Consideration, correspondingly, is at the desire of the promise. It must be something which the promisee desires and not something which he does not want. Each party to a contract desires the other to perform his part of the deal and not that the other party does not perform so that it can get a compensation. For instance, the patient desires the doctor to perform surgery with due care and does not desire that the doctor should be negligent and cause harm so that he can get compensation. The fact that the quantum of penalty or compensation is not decided by a court of law but is pre-agreed and built into the contract for the service itself in the form of liquidated damages does not make it a consideration, it remains compensatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill perform his duties diligently. They are not entered into so that the employer can remove the employer from service or so that the employee can resign and leave the service However, often, for vanous reasons the employer may decide to terminate the services of the employee which puts the employee to inconvenience and he has to find another job. Conversely, the employee may decide to resign and leave the service which inconveniences the employer who will have to make alternative arrangements such as finding a substitute. A notice period on both sides is provided for so that the other party can make arrangements. If the employer decides to terminate the services without giving the required notice, the employment contract itself provides for a compensation to be paid. Similarly, if the employee resigns without notice, compensation is paid by the employee or recovered from his dues. Both the notice period and the compensation are incorporated in the employment contact itself but these are not the purpose of the contract. Consequently, any compensation paid is not a consideration for the contract. 16. Since the provision of section 66E(e) appears to have given ise to some confusion ..... X X X X Extracts X X X X X X X X Extracts X X X X
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