Case Law Details
Fabindia Limited Vs Commissioner (CESTAT Delhi)
CESTAT Delhi held that any penalty or compensation received for any loss or damage caused by breach or non performance of the terms of the contract is not by way of consideration. Accordingly, service tax is not leviable on the same.
Facts- The appellant is engaged in manufacturing of readymade garments and made-up articles of textile falling under Chapters 62 and 63 and was paying Excise Duty @ 2% under the Notification No. 9/2016-CE dated 01.03.2016 without availing the cenvat credit.
The records of the assessee was subjected to audit and it was found that some footwear items falling under Chapter 64 from various vendors were sold after affixing their brand name “Fab India” without payment of duty. The appellant was therefore liable to pay excise duty of Rs. 6,08,901/-. Further, during the course of the audit it was also observed that the appellant had received an amount of Rs. 47,20,817/- in view of penalties from their vendors during the period October, 2014 to June, 2017 and as per the provisions of Section 66E of the Finance Act, 1994 were liable to pay service tax amounting to Rs. 7,04,381/-.
The Adjudicating Authority concluded that the activity of affixing “Fab India” label, MRP tags, barcode on the footwear amounts to “deemed manufacture” as the label, tags and barcodes are the property of the appellant and were to be affixed as per their specifications and hence is liable to pay the excise duty. On the issue of service tax liability also, the Adjudicating Authority referring to the provisions of Section 65B(44) read with Section 65E(e) of the Finance Act, 1994 observed that the amount of penalty collected or recovered from the vendors for not completing the contract within the prescribed period of time was nothing but a consideration of an activity of tolerating a situation arisen by breach of terms/ conditions by the contractors and therefore the service tax liability was made out against the appellant.
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