Amit Metaliks Limited Vs Commissioner of Central Goods & Service Tax (CESTAT Kolkata)
As far as the compensation received from M/s Amit Mines is concerned, the Show Cause Notice mentions the leviablity of Service tax on the amount received towards the compensation for non supply of the agreed quantity of manganese ore under Section 64E(e) of Finance Act which is even otherwise is purely the transaction sale of the iron ore to the Appellant by M/s Amit Mines. Thus, the compensation amount is towards default on the sale of the goods. The sale could not be effected and, therefore, Appellant received the liquidated damage by way of raising the debit note which was honoured by M/s AML. Thus, this amount of compensation/ liquidated damage cannot be treated as service under Section 64 E(e) of the Act. The demand is thus not sustainable on this aspect also.
FULL TEXT OF THE CESTAT JUDGMENT
1. This appeal is filed by M/s Amit Metalics Limited (hereinafter referred to as the Appellant/AML) Durgapur, West Bengal against the Order-in-Original No. 29/Commr./ ST/BOL/17-18 dated 31/01/2018 passed by the Commissioner of Central Goods and Service Tax, Bolpur (for short “ the Adjudicating Authority”) by which the demand of service tax amounting to Rs. 51,17,63,188/- along with equivalent penalty and applicable interest has been confirmed under the provisions of Finance Act, 1994 ( for short “the Finance Act”). This demand has been raised in terms of Show Cause Notice, F No. 99/KZU/KOL/GR.C/14 dated 28/12/2016, issued by the Directorate General of Central Excise Intelligence for the period 2012-13.
2. The issue involved in this appeal is as to whether the amount of Rs. 45,08,09,200/- paid to the Appellant as per ‘Settlement Agreement’ and the compensation received by the Appellant from M/s Amit Mines Limited (hereinafter referred to as ‘Amit Mines/AML’) to the extent of Rs. 1,97,50,000/- for non supply of manganese ore on account of rate difference are liable for service tax under ‘Declared Service’ under Section 66 E(e) of the Finance Act or otherwise. The Appellant is engaged in the business of manufacture and sale of M.S. Billets and M.S. Rods, TMT bars etc., classifiable under tariff item 72 to the First schedule of Central Excise Tariff Act, 1985, for which they are duely registered with the Central Excise authorities under the provisions of Central Excise Act, 1944 (for short “the Act”) and Rules made thereunder. The appellant is also registered with the service tax department in accordance with provisions of Finance Act and the Rules made thereunder for the services being rendered by them.
3. The Appellant entered into a ‘Development Agreement’ dated May 21, 2010 with 31 different companies for the development of land and construction of premises thereon. The said 31 company was the owners of the land specified in the said agreement and the Appellant had entered into the said agreement as the developer of the land. The land owned by these companies was not contiguous parcel of the land and were as such not fit for the proper development. The owners of the land had given an assurance to the Appellant that remaining intermittent pieces of land would be acquired and handed over to the Appellant within a specific time frame so that the entire land becomes contiguous parcel of land which would fit for the development. As per the Development Agreement the Appellant was to be provided by the companies a contiguous piece of land for the development, however, the same could not materialise and hence as per the Development Agreement. The Appellant could not get the land as agreed upon and as per the agreements were entitled for a liquidated damage or
compensation. The owners of the land has terminated
Development Agreement, dated May 21, 2019 due to some other technical reasons also and confirmed that they were not in a position to meet the ‘Development Agreements’ and agreed for the settlement with the Appellant. Ultimately, the Development Agreement with the Appellant was cancelled and the land owners agreed to pay the Appellant a sum of Rs. 21,90,00,000/-towards full and final settlement amount for terminating the said Development Agreement. In addition to this Development Agreement, four separate Development Agreements dated April 5, 2012, were entered into between various land owners and the Appellant. This ‘Development Agreement’ also could not materialise because of the similar difficulties. In these cases also the Appellant got the settlement amount of Rs. 231809200/- from the land owners. Accordingly, the Appellant got a total amount of Rs 450809200/- as the full and final settlement for the termination of Development Agreement from the various land owners. In addition to this, the Appellant also received an amount of Rs. 19750000/- as compensation from M/s Amit Mines Limited towards the non supply of agreed manganese ore. It is these settlement amounts, which the Department is trying to tax under the Finance Act in terms of provisions of Section 65B (44) of the Act under sub-heading 65 b(44)(A)(iii) at the hand of Appellant. The details of the Development Agreements and Settlement Agreements are tabulated as under which is reproduced as under;
