9911796707
TMI Blog2025 (5) TMI 486X X X X Extracts X X X X X X X X Extracts X X X X ..... es from various contractors/ suppliers etc. and showing the same as their income, but were not paying service tax on such amount w.e.f. 01.07.2012. They conducted investigation by recording statements of Shri Pankajkumar J. Sheth AGM (Finance) of the Party No.1. After scrutiny of the documents and going through the sample copies of the work orders/ agreements/ letter of intents (LOI) of various contractors/ vendors, they ascertained that an amount of Rs.40,43,92,244/- (in the case of Party No.1) has escaped payment of service tax during the period from 01.07.2012 to June 2017. The revenue issued a show cause notice dated 28.03.2018 proposing demand of service tax of Rs.4,99,97,827/- from the Party No.1 along with the applicable interest. It also proposed invocation of Sections 76, 77 and 78 of the Finance Act, 1994 for imposition of penalty on the Party. A sperate penalty under Section 78 A of the Finance Act, 1994 was proposed on Shri Pankajkumar J. Sheth AGM (Finance). 1.2 The revenue also initiated investigation against Party No.2 (i.e. M/s. Gujarat Industries Power Company Limited, Vadodara) on the same issue. After conducting the investigation, by way of recording the stateme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;s default then the contractor has to pay the owner compensation for delay @ rate of 0.5%(half percent) of total contract value per week of delay subject to maximum of 10%(ten percent) of the contract value(value of Land, equipment supply, erection and commissioning i.e. without value of O&M). The decision of the Owner/Engineer-in-charge in regard to the amount to be recovered from the Contactor will be final and binding on the Contractor. M/s. LSML is liable to pay compensation over and above Liquidated damages for shortfall in Performance, Guarantee/Warrantee/Defects etc., as per terms of RFP." c) Such contractual obligation mandates/authorizes M/s GIPCL to terminate the service/ the order for supply of goods, if the said suppliers/ contractors commit breach of the terms and conditions contained therein. In cases where the said suppliers/contractors willfully defaulted in terms of making the supply of goods or execution of the work within the time frame and/or within the quality parameters prescribed on the Supply/ work order, M/s GIPCL is authorized to recover an amount which they labelled as 'liquidated damages/penalties charges' which they collected at the applicable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bligation to refrain from an act: It means any act which binds a person, of not to do or not doing a particular manner. ii) Agreeing to the obligation to tolerate an act or a situation. It means to accept an act or a particular situation which is imposed by a condition or circumstance in a legally enforceable contract, agreement or any other document. iii) Agreeing to the obligation to do an act: It means to perform or to do something as necessarily mandated in an agreement, contract, or any other document which is required under any law for the time being in force. h) In the present case, the Party No.1 has entered into agreements/contracts with various Vendors/Service Providers with a time clause stipulating that the activity under the agreement/contract has to be completed within a specified time frame and failing the schedule would attract penalty In pursuance to these agreements/contacts, the Noticee have deducted certain portion from payments of various Vendors/Service Providers who failed to act as per time-clause/terms of agreements/contracts, thereby the Party tolerated the act of vendor in lieu of penalty, thus provided services under the category of 'Agreeing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the way parties wanted and intended them to be. The Court can not interpret the contract between two parties like interpreting a statute. He also mentioned that it is not only merely tolerating or agreeing to tolerate an act or situation but agreeing to the obligation to tolerate an act or situation which is liable to facts under Section 66 E (e ). They never agreed to tolerate the delayed or non- performance of contract by their vendors. 3.3 The views expressed by Principal Commissioner, CGST, Surat in his order dated 04.03.2019 have been upheld by this Tribunal in the cases of Lende Engineering India Private Limited V. CCE & ST, Vadodara 2024 (10) TMI 1544 - CESTAT AHD, Gujarat State Electricity Corporation Limited V. CCE & ST, Surat 2024 (11) TMI 473 - CESTAT AHD and South Eastern Coalfields Ltd - 2020 (12(TMI)912 - CESTAT Del. 3.4 The learned Advocate also mentioned that the extended period of limitation cannot be invoked in the present case as there was no deliberate and wilful suppression on their part with an intention to evade the payment of tax. It is settled law that when the dispute is regarding interpretation of law and there are conflicting decisions, neither any e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of not performing the contractual obligation by the service provider is liable to service tax. 4.3 The word "Tolerate" is defined as; "a to suffer' as per Black's Law Dictionary b. to allow to be done or exist' as per Chambers Dictionary c. 'allow the existence or occurrence of anything' as per Law Lexicon Dictionary." 4.4 He therefore, justified confirmation of service tax demand and penalty against M/s. GIPCL, Vadodara. On the same ground, he pressed that the prayer of the department in the case of M/s. GIPCL, Surat may be allowed in the interest of justice. 5. On the other hand, Learned Advocate on behalf of M/s. GIPCL, mentioned that what the company has recovered liquidated damages from their Contractors/ Vendors due to non-fulfilment / delayed fulfilment of work order/service. Such income cannot be said to be out of any service, and therefore, the demand of service tax by Revenue on this income in respect of both the companies is not correct. He also highlighted the decision taken by the Pr. Commissioner, Customs and Central Excise, Surat, wherein, he had dropped the demand on the same issue. He also quoted various case laws in his support and pra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t completing the work within the stipulated time period. Therefore, such penalty is not the consideration towards any service. Accordingly, the same does not fall under the declared service as provided under Section 66 E (e) of Finance Act, 1994. This issue is no longer res-integra in the light of the decision cited by the appellant in the case of South Eastren Coalfields Ltd wherein, the principal bench of the Tribunal, New Delhi has disposed of a bunch of appeals by passing following order:- 12. "Declared services" has been defined sub-section(e) of Section 66E, as follows : Declared services "66E. The following shall constitute declared services, namely :- xx xx xx (e) agreeing to the obligation to refrain from anact, or to tolerate an act or a situation, or to do an act;" 13. The show cause notice and the impugned order indicate that the appellant was charging and collecting an amount under the following three heads : (i) Compensation/Penalty from the buyers of coal on the short- lifted/unlifted quantity of coal and non-compliance of the terms and conditions of the Coal Supply Agreement, including forfeiture of earnest money deposit/security deposit; (ii) Compensa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that every person providing taxable service to any person shall pay service tax at the rate specified in Section 66B in such manner and within such period as may be prescribed. 18. It is, thus, clear that where service tax is chargeable on any taxable service with reference to its value, then such value shall be determined in the manner provided for in (i), (ii) or (iii) of sub-section (1) of Section 67. What needs to be noted is that each of these refer to "where the provision of service is for a consideration", whether it be in the form of money, or not wholly or partly consisting of money, or where it is not ascertainable. In either of the cases, there has to be a "consideration" for the provision of such service. Explanation to sub- section (1) of Section 67 clearly provides that only an amount that is payable for the taxable service will be considered as "consideration". This apart, what is important to note is that the term "consideration" is couched in an "inclusive" definition. 19. A Larger Bench of the Tribunal in Bhayana Builders (P) Ltd. v. Commissioner of Service Tax [2013 (32) S.T.R. 49 (Tri. - LB)] observed that implicit in the legal architecture is the concept t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mined." (Emphasis supplied) 21. The aforesaid view was reiterated by the Supreme Court in Union of India v. Intercontinental Consultants and Technocrats [2018 (10) G.S.T.L. 401 (S.C.)] and it was observed that since service tax is with reference to the value of service, as a necessary corollary, it is the value of the services which are actually rendered, the value whereof is to be ascertained for the purpose of calculating the service tax payable thereupon. 22. In this connection it would also be pertinent to refer to TRU Circular dated 20 June, 2012 issued by the Central Board of Excise and Customs as an Education Guide when the Negative List based taxation regime was introduced from July, 2012 to clarify various aspects of the levy of service tax. The Board dealt with "consideration" in paragraph 2.2 of this Circular and pointed out that since the definition was inclusive, it will not be out of place to refer to the definition of "consideration" as given in Section 2(d) of the Indian Contract Act, 1872. The relevant portion of the aforesaid Circular is reproduced below : "2.2 Consideration 2.2.1 The phrase "consideration" has not been defined in the Act. What is, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere 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 situation; or (iii) consideration to do an act. 26. 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). 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; and for availing various types of services. The consideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court in Food Corporation of India v. Surana Commercial Co. and Others [(2003) 8 SCC 636]. The Supreme Court pointed out that if a party promises to abstain from doing something, it can be regarded as a consideration, but such abstinence has to be specifically mentioned in the agreement. The relevant portion of the judgment is reproduced below : "Under the main agreement, a party had contracted for the conversion of whole arhar grain into dal. Subsequently, by another supplemental agreement, the party agreed to upgrade the dal. It was held that as soon as the first agreement was complied with and dal was delivered, the contract came to an end and the supplemental agreement, which was made subsequently, was a separate and independent agreement. In this agreement, there was no consideration to be given to the promisor and thus that agreement could not be enforced in law. It was claimed that in the supplemental agreement consideration was that the bank guarantees were not to be encashed, but it was found that there was no mention of such a consideration in the supplemental agreement. Although if a party promised to abstain from doing something, it could be regarded as consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e a direct link between the service rendered and the consideration received. The sum paid must constitute a genuine consideration for an identifiable service supplied in the context of a legal relationship for which performance is reciprocal. It is in this context that Court observed : "26. Since the obligation to make a reservation arises from the contract for accommodation itself and not from the payment of a deposit, there is no direct connection between the service rendered and the consideration received (Apple and Pear Development Council, paragraphs 11 and 12; Tolsma, paragraph 13; and Kennemer Golf, paragraph 39). The fact that the amount of the deposit is applied towards the price of the reserved room, if the client takes up occupancy, confirms that the deposit cannot constitute the consideration for the supply of an independent and identifiable service. 27. Since the deposit does not constitute the consideration for the supply of an independent and identifiable service, it must be examined, in order to reply to the referring Court, whether the deposit constitutes a cancellation charge paid as compensation for the loss suffered as a result of the client's cancellation. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices as and when they receive advance, availing the permissible abated value. It is the case of the Revenue that upon cancellation by the customers, the gross amount received by the appellant qualifies the receipt under Section 66E(e). 4. Ld. Commissioner (Appeals) in confirming the demand under this head has observed that retention of such cancellation charges is not against the provisions of intended services but for not availing the said services by the customers, which the appellant has tolerated. 5. Having considered the rival contentions, I find that the aforementioned observation of the Commissioner (Appeals) are erroneous and have no legs to stand. Admittedly, the customers pay an amount to the appellant in order to avail the hotel accommodation services, and not for agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; and chargeable on full value and not on abated value. The amount retained by the appellant is for, as they have kept their services available for the accommodation, and if in any case, the customers could not avail the same, thus, under the terms of the contract, they are entitled to retain the whole ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, or to do an act. As such for invocation of the said clause, there has to be first a concurrence to assume an obligation to refrain from an act or tolerate an act etc. which are clearly absent in the present case. In the instant case, if the delivery of project gets delayed, or any other terms of the contract gests breached, which were expected to cause some damage or loss to the appellant, the contract itself provides for compensation to make good the possible damages owning to delay, or breach, as the case may be, by way of payment of liquidated damages by the contractor to the appellant. As such, the contracts provide for an eventuality which was uncertain and also corresponding consequence or remedy if that eventuality occurs. As such the present ex gratia charges made by the M/s. Parle to the appellant were towards making good the damages, losses or injuries arising from "unintended" events and does not emanate from any obligation on the part of any of the parties to tolerate an act or a situation and cannot be considered to be the payments for any services." (Emphasis supplied) 37. Much reliance has been placed by the Learned Authorized Representative of the Departme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms 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." 41. The Supreme Court also noticed that Section 74 of the Contract Act merely dispenses with the proof of "actual loss or damages". It does not justify the award of compensation, when in consequence of the breach no legal injury at all has resulted, because compensation for breach of contract can be awarded to make good the loss or damage which actually arose or which the parties knew when they made the contract 'to be likely to result from the breach'. The Supreme Court also found that there was no evidence that any loss was suffered by the plaintiff in consequences of the default by the defendant, save as to the loss suffered by being kept out of possession of the property. The Supreme Court, therefore, held that plaintiff would be entitled to retain only an amount of Rs. 1000/- that was received as earnes ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
