Commissioner of Central Excise and Service Tax Vs South Eastern Coalfields Ltd (Supreme Court of India)
Summary: The Supreme Court dismissed as withdrawn the Civil Appeals arising from the CESTAT Delhi ruling in South Eastern Coalfields Ltd. Vs Commissioner of Central Excise and Service Tax, after the learned Additional Solicitor General appearing for the appellant(s) stated that he had instructions to withdraw the appeals. The underlying dispute concerned service tax on compensation, penalties, forfeiture of earnest money/security deposits and liquidated damages recovered by South Eastern Coalfields Ltd. (SECL) from coal buyers, contractors and material suppliers for breach or non-compliance with contractual terms. A show cause notice dated 10 April 2017 alleged that ₹265,99,46,400 recovered during July 2012 to March 2016 constituted consideration for the declared service of “agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act” under Section 66E(e) of the Finance Act, 1994, resulting in alleged service tax liability of ₹35,26,59,837 including cess.
Read SC Judgment in this case: Contractual Penalties & Liquidated Damages Not Taxable as Declared Service: CESTAT Delhi
The Principal Commissioner, by order dated 18 December 2018, confirmed the demand with interest and penalty, treating the receipts as consideration for tolerating an act. On appeal, CESTAT examined Sections 65B(44), 66B, 66E(e), 67 and 68 and held that consideration must have a nexus with the taxable service. It distinguished contractual conditions and safeguards from consideration for an agreed service.
CESTAT found that the parties intended supply of coal, goods or services, not breach of the agreements; the penal clauses protected SECL’s commercial interests, and recovery upon breach could not be treated as consideration for tolerating the default. It therefore held that penalty amounts, forfeited earnest money deposits and liquidated damages were not consideration for a declared service under Section 66E(e), set aside the adjudication order and allowed SECL’s appeal on 22 December 2020.
The Revenue challenged that decision before the Supreme Court, but subsequently withdrew the appeals. The Supreme Court accordingly dismissed the Civil Appeals as withdrawn and disposed of pending applications, without recording any independent ruling on the merits of CESTAT’s reasoning.
Cases Discussed / Relied Upon:
1. M/s K.N. Food Industries Pvt. Ltd. Vs Commissioner of CGST and Central Excise, Kanpur — 2019-TIOL-3651-CESTAT-ALL.
2. M/s Lemon Tree Hotel Vs Commissioner, Goods and Service Tax — 2020-TIOL-1114-CESTAT-DEL.
3. Commissioner of Service Tax, Chennai Vs M/s Repco Home Finance Ltd. — ST Appeal No. 511 of 2011 (LB), decided on 06/06/2020.
4. GE T & D India Limited Vs Deputy Commissioner of C. Ex., Chennai — 2020 (35) G.S.T. 89 (Mad.).
5. Fateh Chand Vs Balkishan Das — AIR 1963 SC 1405.
6. Bhayana Builders (P) Ltd. Vs Commissioner of Service Tax — 2013 (32) S.T.R. 49 (Tri.-LB).
7. Commissioner of Service Tax Vs M/s Bhayana Builders — 2018 (2) TMI 1325.
8. Union of India Vs Intercontinental Consultants and Technocrats — 2018 (10) GSTL 401 (SC).
9. Food Corporation of India Vs Surana Commercial Co. and others — (2003) 8 SCC 636.
10. Societe Thermale d’Eugenie-les-Bains Vs Ministere de l’Economie, des Finances et de l’Industrie — Case C-277/2005, European Court of Justice (First Chamber).
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
Learned Additional Solicitor General appearing for the appellant(s) submitted that he has instructions to withdraw these appeals. His submission is placed on record.
The Civil Appeals are dismissed as withdrawn.
The Civil Appeals are dismissed as withdrawn in terms of the signed order.
Pending application(s), if any, shall stand disposed of.
