2025-VIL-654-CESTAT-DEL-ST
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SERVICE TAX CESTAT Cases

Service Tax - Forfeited Amounts, Penalties, Declared Services - Appellant booked income on account of security deposit/earnest money deposit (SD/EMD) forfeited and fines/penalties recovered from contractors - Whether the income received as "forfeiture of security Deposit/Earnest Money Deposit" and "Fine penalties recovered from contractors" by the appellant is a taxable declared service under section 66E of the Finance Act, 1994 and liable to service tax – HELD - The issue is no longer res integra and has been decided in favor of the assessee in several previous decisions. The Tribunal relied on the decision in the case of South Eastern Coal Fields Ltd. vs. CCE & ST, Raipur, where it was held that there is a marked distinction between "conditions to a contract" and "considerations for the contract". The payment of the impugned amounts merely amounts to the fulfillment of the conditions envisaged in the contract and not consideration for the said contract - The issue of the leviability of service tax on penalty, liquidated damages, compensation, forfeiture amounts, and cancellation charges has been consistently held that these amounts cannot be construed as 'consideration' for 'refraining or tolerating an act' and are thus not leviable to service tax under Section 66E(e) of the Finance Act, 1994 – Further, the Department has issued a circular clarifying that the activities contemplated under Section 66E(e) are the activities where the agreements specifically refer to such an activity, and there is a flow of consideration for this activity. In the present case, the appellant has not undertaken any activity against the recovery of the amounts in question - the orders under challenge is set aside and the appeal is allowed
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