Madhya Pradesh State Mining Corporation Limited Vs Pr. Commissioner (CESTAT Delhi)
Summary: The Customs, Excise & Service Tax Appellate Tribunal, New Delhi, Principal Bench, allowed the appeal filed by M/s. The Madhya Pradesh State Mining, Corporation Limited against Order-in-Original dated 27.03.2019 passed by the Principal Commissioner, CGST and Central Excise, Bhopal. The impugned order had confirmed service tax with interest and penalty by invoking the extended period under section 73(1) of the Finance Act, 1994. The show cause notice had proposed service tax of Rs. 22,84,16,550/- for April 2013 to March 2017.
The first dispute concerned amounts described as “contractual adjustment”, forfeiture of security/earnest money deposits and other receipts arising from contractors’ failure to fulfil contractual conditions. The Department treated these amounts as consideration for tolerating an act or situation under section 66E(e) of the Finance Act, 1994. The Tribunal relied on South Eastern Coalfields Ltd. Vs Principal Commissioner of CGST & Central Excise, holding that contractual penalties or liquidated damages for breach or non-performance are not consideration for a service merely because they are recovered under a penal clause. The Tribunal emphasised the distinction between conditions of a contract and consideration for a contract.
The Tribunal also considered Circular No. 214/1/2023-Service Tax dated 28.02.2023 issued by the Central Board of Indirect Taxes and Customs. The Circular states that section 66E(e) applies where an agreement specifically contemplates an obligation to refrain from an act, tolerate an act or situation, or do an act, with a necessary nexus between the agreed activity and consideration. The Tribunal found that the contractual adjustments and forfeitures in the present case did not constitute such consideration and held that the corresponding demand could not be sustained.
