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TMI Blog2025 (5) TMI 1915X X X X Extracts X X X X X X X X Extracts X X X X ..... ty on Lignite excavated and fly ash manufactured during the course of generation of electricity. They have also obtained Service Tax Registration. 1.1 On perusal of records of NLC by Audit group of LTU-Audit Circle, Chennai, it was observed that the appellants have entered into various contracts with several companies for both supply of goods as well as for providing services and these contracts carry clauses for liquidated damages for the delay in supply of goods as well as services but, no service tax was being paid in respect of the amounts so collected. Department formed an opinion that as per Section 66E(e) of the Finance Act, 1994, collection of such liquidated damages constitutes 'Declared Service'. Hence, Show Cause Notice No. 03/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant. Hence, no demand is sustainable even under Section 66E(e) of the Act. 3.2 It is submitted that present proceedings are in continuation to the proceedings initiated against the Chennai unit of the appellant, wherein similar issue stands decided in favour of the assessee by Hon'ble CESTAT vide order dated 26.07.2021 reported at Neyveli Lignite Corporation Ltd. Vs. Commissioner of Customs, CE & ST, Chennai with NLC India Ltd. Vs. Commissioner of GST and CE, Trichy reprted as 2021 (7) TMI 1090- CESTAT Chennai. Further, appeal against the said order was withdrawn by the department as clarified in Circular No. 214/1/2023-ST dated 28.02.2023. Therefore, since, the issued stands settled in case of the appellant itself albeit differe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons, Learned Departmental Representative has acknowledged about the issue involved in the present appeal to no more res integra. However, has reiterated the findings of the order under challenge and has prayed for dismissal of appeal. 5. Having heard both the parties and perusing the record, we observe and hold as follows: 5.1 The impugned demand has been confirmed under Section 66E(E) of the Finance Act, 1994. We observe from the section that to be covered under Section 66E(e) of the Act, there must necessarily be as independent agreement to refrain or tolerate, or to do an act between the parties. 5.2 We also observe that the amount on which the demand has been confirmed are the amounts recovered as a penal charge which are charged wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 service per se, since neither the appellant is carrying on any activity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ees 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 consideration for the contract, but in the present case there was no such case of abstinence and there was no consideration for supplemental contract." (emphasis supplied) 5.4 Reliance is also placed on Circular No. 178/10/2022-GST dated 03.08.2022 and Circular No. 214/1/2023-ST dated 28.02.2023, wherein it was clarified that the charges collected on account of non-performance of work within agreed stipulated time are not susceptible to tax. It is a trite law that circulars are binding on the department. 5.5 In the present cas ..... X X X X Extracts X X X X X X X X Extracts X X X X
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