Payment made for independent activity of tolerating an act constitutes supply

Sarda Energy & Minerals Ltd Vs Pr. Commissioner Central GST Central Excise & Customs (CESTAT Delhi)

CESTAT Delhi held 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’.

Facts- M/s Sarda Energy & Minerals Ltd. received an amount of EURO 8.5 Millions towards damages in arbitration proceedings in connection with the purchase order dated 23.10.2007 issued for Pressure Filter Model HOSESCH FFP 1516-70/70 M60-PP/GI along with spares. This amount which the appellant claims was received as damages was considered by the department to be taxable under section 66E (e) of the Finance Act, 1994.

Accordingly, a show cause notice dated 25.10.2016 was issued to the appellant. The appellant submitted a reply denying the allegations made in the show cause notice and contended that the said amount received as damages cannot be subjected to levy of service tax.

The Commissioner, by order dated 07.08.2017, confirmed the demand proposed in the show cause notice and also imposed penalty upon the appellant for Rs. 37,199/- under section 78 of the Finance Act. It is this order dated 07.082017 passed by the Commissioner that has been impugned in this appeal.

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