Western Coalfields Ltd Vs Commissioner of CGST & Central Excise (CESTAT Mumbai)
Summary: The Customs, Excise and Service Tax Appellate Tribunal, Mumbai, West Zonal Bench considered an appeal by Western Coalfields Ltd against an order determining service tax liability of ₹12,64,55,319 on total recoveries of ₹93,93,07,361 made between July 2012 and March 2016. The demand was raised under Section 73 of the Finance Act, 1994 on the premise that such recoveries represented consideration for a “declared service” under Section 66E(e). Interest under Section 75 and penalties under Sections 77 and 78 were also imposed.
At the core of the dispute was the Department’s allegation that contractual obligations enforced by the appellant against buyers, contractors and material suppliers amounted to “agreeing to the obligation to refrain from an act, or to tolerate an act or situation, or to do an act” covered by Section 66E(e). The amounts sought to be taxed comprised forfeiture of earnest money deposits tendered by bidders, forfeiture of security deposits, penalties for short-lifting by buyers, demurrage and penalties from contractors engaged for overburden removal, transportation and maintenance services, and liquidated damages recovered from suppliers under contractual arrangements.
The appellant relied upon the Tribunal’s decision in South Eastern Coalfields Ltd. v. Commissioner of Central Excise and Service Tax, 2021 (55) GSTL 549 (Tri.-Del.), contending that the identical issue had already been decided in favour of the assessee. In that decision, the Tribunal had held that penalty amounts, forfeiture of earnest money deposits and liquidated damages were not received as consideration for tolerating an act and therefore could not be subjected to service tax under Section 66E(e).
The Revenue contended that the South Eastern Coalfields decision could not appropriately be relied upon because the Revenue’s appeal against it had been admitted by the Supreme Court. Reliance was placed on Union of India v. West Coast Paper Mills Ltd., 2004 (164) ELT 375 (SC). The Revenue also advanced the proposition that the concept of “declared service” rendered the existence of an activity unnecessary and disputed the applicability of Fateh Chand v. Balkishen Das, AIR 1963 SC 1045, which had been relied upon in South Eastern Coalfields.
The Tribunal rejected the Revenue’s approach. While considering the effect of an appeal having been admitted before the Supreme Court, it referred to the reasoning in HDFC Bank Ltd. v. Commissioner of Central Excise, Thane-II, 2021 (44) GSTL 155 (Tri.-Mumbai). The Tribunal observed that although the Supreme Court in West Coast Paper Mills had stated that, after special leave was granted and an appeal admitted, the correctness of the judgment under challenge became open before the Supreme Court, that observation did not mean that an existing Tribunal decision ceased to have precedential value for subsequent disputes. Judicial consistency and tax certainty, the Tribunal observed, would be undermined if inferior appellate bodies were treated as not bound by their own rulings merely because an appeal was pending before a superior forum.
The Tribunal also rejected the Revenue’s argument that the “declared service” conceptually obviated the requirement of an activity. It referred to the statutory definition of service and declared service and observed that the element of “activity” remained integral to the statutory framework. The Tribunal found that the Revenue’s submission did not assist its case in view of the decision in South Eastern Coalfields Ltd.
On the argument concerning Fateh Chand v. Balkishen Das, the Tribunal declined to examine whether the precedent had been appropriately relied upon in South Eastern Coalfields because it had no way of knowing whether that particular ground formed part of the Revenue’s appeal before the Supreme Court.
Ultimately, the Tribunal found that the facts of the present dispute were identical to those in South Eastern Coalfields Ltd. and that the Revenue had not brought before it an acceptable and judicially distinguishable alternative. Respectfully following the earlier Tribunal decision, the CESTAT Mumbai set aside the impugned order and allowed the appeal.
Cases Discussed
- South Eastern Coalfields Ltd. v. Commissioner of Central Excise and Service Tax, 2021 (55) GSTL 549 (Tri.-Del.)
- Union of India v. West Coast Paper Mills Ltd., 2004 (164) ELT 375 (SC)
- HDFC Bank Ltd. v. Commissioner of Central Excise, Thane-II, 2021 (44) GSTL 155 (Tri.-Mumbai)
- Fateh Chand v. Balkishen Das, AIR 1963 SC 1045
FULL TEXT OF THE JUDGMENT/ORDER OF CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
Impugned before us is order-in-original no. 25-36/ST/2018/C/NGP-II dated 26th December 2018 of Commissioner of CGST & Central Tax, Nagpur -II which, under section 73 of Finance Act, 1994, has determined that appellant, M/s Western Coalfields Ltd, was liable to tax of ₹ 12,64,55,319 on total recovery of ₹93,93,07,361 effected in their several areas between July 2012 and March 2016 being consideration for ‘declared service’ enumerated in section 66E (e) of Finance Act, 1994. In addition, the adjudicating authority charged interest on the said differential tax liability under section 75 of Finance Act, 1994 besides imposing penalties under section 77 and 78 of Finance Act, 1994.
2. At the core of the dispute is the allegation that the contractual obligations enforced by the appellant, to the monetary detriment of their buyers, contractors and material suppliers, is
‘(e) agreeing to the obligation to refrain from an act, or to tolerate an act or situation, or to do an act’
of section 66E of Finance Act, 1994 and, thereby, liable to tax. It is the collection by forfeiture of earnest money deposits tendered by bidders, forfeiture of security deposits and penalty for short-lifting by buyers, demurrage and penalty from contractors engaged for overburden removal, transportation and maintenance service and liquidated damages provided for in agreements with suppliers that is sought to be taxed.
3. Learned Counsel for the appellant submitted that the issue in dispute stands covered by the decision of the Tribunal in South Eastern Coalfields v. Commissioner of Central Excise & Service Tax, Raipur [2021 (55) GSTL 549 (Tri. – Del.)] and drew our attention to
‘3. A show cause notice dated April 10, 2017 was issued to the appellant under Section 73(1) of the Finance Act mentioning therein that the appellant had collected an amount towards compensation/penalty from the buyers of coal on the short lifted/unlifted quantity of coal; collected amount towards compensation/penalty from the contractors engaged for breach of terms and conditions; and collected amount in the name of damages from the suppliers of material for breach of the terms and conditions of the contract. According to the Department this amount charged by the appellant during the period from July, 2012 to March, 2016 appeared to be taxable as a ‘declared service’ under Section 66E(e) of the Finance Act. The relevant portion of the show cause notice is reproduced below :-
“5. M/s. SECL is charging & collecting amount in the name of compensation/penalty from the buyers of coal on the short-lifted/unlifted quantity of coal & non-compliance of terms & conditions of coal supply agreements including forfeiture of EMD/SD. M/s. SECL is also collecting amount in the name of compensation/penalty from the contractors engaged by them for providing various types of services viz. transportation, OBR removal, etc. for breach of terms & conditions of the respective contracts. It is also noticed that SECL were also recovering/claiming amount in the name of liquidated damages from the material suppliers for breach of terms & conditions of the contracts. Accordingly, in terms of provisions of Section 65B of the Finance Act, 1994 read with Section 66E(e) ibid, such amount charged by SECL from the buyers of coal/service providers etc. under the respective agreements appears pertain to the declared services under clause (e) of Section 66E attracting levy of service tax. M/s. SECL and its coal producing areas have recovered Rs. 2,65,99,46,400/- towards EMD forfeitures, penalty & liquidated damages respectively from the buyers of coal, contractors and material suppliers during the period from July, 2012 till March, 2016. The location-wise details of amount collected under the above heads and the tax liability payable thereon by M/s. SECL are tabulated as per Annexure C-1 to C-16, D-1 to D-17 & E-1 to E-18. The details of year-wise & area-wise are consolidated in Annexures A & B appended herewith. It therefore, appears that SECL & its coal producing areas had collectively evaded payment of Service Tax amounting to Rs. 35,26,59,837/- (incl. Cess) and the same appears liable to be recovered from them under Section 73 of the Finance Act, 1994 along with interest under Section 75 ibid.”
4. The show cause notice involved branches of the appellant that were scattered over various Commissionerates. Therefore, by order dated November 7, 2017, the Principal Commissioner of Central Excise, Customs and Central Tax, Raipur [the Principal Commissioner] was directed to act as a common adjudicating authority. During the course of adjudication proceedings, it was noticed that certain other show cause notices had been issued to the appellant on identical issues. In such circumstances, such six show cause notices were also tagged.’
therein to contend that identical issues had plagued all the public sector coal mining companies and that, in consequence of the final determination that
‘42. The conclusion drawn by the Learned Authorized Representatives of the Department from the aforesaid decision of the Supreme Court that compensation received is ‘synonymous’ with ‘tolerating’ or that the Supreme Court acknowledged that in a breach of contract, one party tolerates an act or situation is not correct.
43. It is, therefore, not possible to sustain the view taken by the Principal Commissioner that penalty amount, forfeiture of earnest money deposit and liquidated damages have been received by the appellant towards “consideration” for “tolerating an act” leviable to service tax under Section 66E(e) of the Finance Act.’
therein, they should be relieved of the detriment to them in the impugned order.
4. According to Learned Authorized Representative, the appeal of Revenue against this decision having been admitted by the Hon’ble Supreme Court, reliance thereof is not appropriate in view of the judgement of the Hon’ble Supreme Court in Union of India v. West Coast Paper Mills Ltd [2004 (164) ELT 375 (SC)]. The applicability of this judgement to appeals filed against decisions of this Tribunal has been elaborated by the Tribunal in HDFC Bank Ltd v. Commissioner of Central Excise, Thane-II [2021 (44) GSTL 155 (Tri. – Mumbai)] thus
‘7. Learned Counsel for appellant has contended that the impugned order lacks acceptability owing to being cryptic and for inadequate acknowledgement of several issues pleaded in the adjudication proceedings. Considering the submissions, and elaborately too, made before us, we think that no purpose will be served by directing the original authority to decide the matter for the third time. Before considering the merits of the rival submissions, it would be worthwhile to pause, and deliberate upon, the contention of Learned Authorized Representative that admission of an appeal deprives the decision impugned therein of status as binding precedent. Doubtlessly, the Hon’ble Supreme Court did, in Re : West Coast Paper Mills Ltd., take note that
‘14. Article 136 of the Constitution confers a special power upon this Court in terms of an appeal shall lie against any order passed by a Court or Tribunal. Once a Special Leave is granted and the appeal is admitted the correctness or otherwise of the judgment of the Tribunal becomes wide open. In such an appeal, the Court is entitled to go into both questions of fact as well as law. In such an event the correctness of the judgment is in jeopardy.’
but its assistance to the proposition of Revenue is not immediately obvious.
8. The architecture of appellate ascendance under Customs Act, 1962, and replicated in Central Excise Act, 1944 as well as in Finance Act, 1994, leads all the way to the highest Court in the land as a statutory prerogative and the trajectory of the argument of Learned Authorized Representative would have it that, in the event of appeal before superior fora, inferior appellate bodies are not bound by their own rulings, even if in identical circumstances, and in disputes of the very same assessees. That surely goes against the grain of judicial consistency and cannot but contribute to erosion of the ideal of tax certainty. It would, therefore, appear that the context in which the Hon’ble Supreme Court did make that observation supra has been glossed over in the attempt to persuade us to discard some of the decisions of the Tribunal.
9. The dispute in Re : West Coast Paper Mills Ltd. arose from a commercial engagement of the respondents therein with Indian Railways, as carrier of freight, that, having been placed before the Railway Rates Tribunal following revision of rates on 1st February, 1964, was held to be unreasonable leading to special leave petition by the Indian Railways which was ultimately dismissed by the Hon’ble Supreme Court on 14th October, 1970. A consequential application by M/s. West Coast Paper Mills Ltd. before the Hon’ble High Court, seeking issue of writ for refund of excess charged, was dismissed on 29th October, 1973 with liberty accorded for filing of suit for recovery. The contention of Indian Railways, that these suits were barred by limitation, not having been accepted by the trial Court and not having found favour with the High Court, was carried in appeal before the Hon’ble Supreme Court.
10. While considering the plea of the Indian Railways that the bar of limitation operated with reference to the date on which the Railway Rates Tribunal pronounced its order, and in accordance with Section 58 of Limitation Act, 1963, the Hon’ble Supreme Court, in doubt over the correctness of the law laid down in P.K. Kutty Anuja Raja & Another v. State of Kerala & Another [JT 1996 (2) SC 167], referred the issue to a Larger Bench which opined that the said decision was not applicable for not having noticed certain crucial decisions and the doctrine of merger. In deciding upon the applicability of limitation, various aspects and circumstances, including the recourse to constitutional Courts under writ remedies, were taken into consideration before holding that the logical, even in the absence of statutory, recourse must be completed before the ticking of the clock commenced was decided upon. Not only was the issue entirely different but even the reference to appeal rendering the order impugned being in jeopardy was not to preclude the applicability of precedent, however tentative it may be, in deciding upon a later dispute. Hence, the reliance on the decision in Re : West Coast Paper Mills Ltd. to deprive another decision of its status as binding precedent is totally misplaced and need not concern us.’
5. Rather surprisingly, he makes the proposition that ‘declared service’ conceptually obviates existence of activity and that essence of service is not required to be evaluated for this category targeted for tax despite the inalienability of ‘activity’ – both in section 65B(22) and section 65B(44) of Finance Act, 1994 – from service. We can only conjecture that the trajectorial intent of this argument is that intangibility can be made impossibly more intangible by deeming fiction of ‘declared service’ in section 65E of Finance Act, 1994. In the light of the decision of the Tribunal in re South Eastern Coalfields Ltd, we fail to see how this submission comes to the aid of Revenue.
6. Strangely, too, Learned Authorized Representative has taken it upon himself not only to aver that the judgement of the Hon’ble Supreme Court in Fateh Chand v. Balkishen Das [AIR 1963 SC 1045]does not apply to the dispute before us but also that it has been inappropriately relied upon by the Tribunal in re South Eastern Coalfields Ltd; in his own words, he submits that
‘As such, the parallels drawn by Hon’ble Tribunal are not on the same plane.’
and as we have no way of knowing if that was a ground of appeal by Revenue before the Hon’ble Supreme Court, we do not dwell further on the appropriateness of it.
7. We find that the facts in the present dispute are identical to that in re South Eastern Coalfields Ltd. An acceptable, and judicially distinguishable, alternative has not been brought before us by Revenue. Respectfully abiding by the earlier decision of the Tribunal, we set aside the impugned order and allow the appeal.
(Order pronounced in the open court on 12/08/2022)
