2026-VIL-1311-CESTAT-HYD-ST
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SERVICE TAX CESTAT Cases

Service Tax - Taxability of miscellaneous income recovered from sub-contractors as consideration for service under Section 66E(e) of Finance Act 1994 - Contractor paid advances to sub-contractors for execution of works and recovered sums from sub-contractors who failed to perform or absconded or delivered poor quality work - Whether such recovery amounts constitute consideration for agreed obligation to tolerate breach and refraining from act - HELD - Mere recovery of damages, compensation, forfeiture or adjustment due to breach does not automatically become taxable consideration under Section 66E(e) of Finance Act as essential ingredients of service under that section require existence of agreement or contractual understanding concerning obligation to tolerate and consideration flowing specifically for such tolerance - Service tax can be levied only on consideration for a service with quid pro quo and amounts without service nexus cannot be taxed. Compensation for breach or non-compliance of contractual terms and conditions cannot be construed as consideration for refraining or tolerating act - In present case no evidence exists on record showing any clause permitting sub-contractors to deliberately default or any agreement whereby appellant agreed to tolerate deficient performance for consideration. Poor performance is breach of contract and recovery is compensatory in nature not arising from pre-agreed contractual obligation to tolerate breach. Therefore such amounts cannot be treated as consideration for declared service under Section 66E(e) – The demand is unsustainable and set aside – The appeal is allowed - Service Tax - Taxability of service provided to HSIIDC - Exemption of construction services provided to Governmental Authority under Notification No. 25/2012-ST entry 12 - Infrastructure development contractor providing construction, erection, commissioning and installation services to Haryana State Industrial and Infrastructure Development Corporation (HSIIDC) for industrial estate development - Whether HSIIDC qualifies as Governmental Authority entitled to exemption and whether works predominantly for commerce or public utility - HELD - HSIIDC qualifies as Governmental Authority under definition provided in Notification as it is corporation set up and controlled by State Government with complete governmental participation and policy control. Functions of HSIIDC substantially overlap with Article 243W of Constitution which enumerates municipal functions. Services provided to Government, Local Authority or Governmental Authority by way of construction and commissioning of civil structures and original works meant predominantly for use other than for commerce, industry or any other business or profession are exempted under Notification entry 12. Therefore appellant is entitled to exemption and demand cannot survive - Service Tax - Invocation of extended period of limitation and imposition of penalties - Contractor was registered with Department, filing ST-3 returns regularly and subjected to periodical audit - Dispute arose from audit scrutiny of disclosed records regarding exemption and taxability of certain services - HELD - Extended period under Section 73 of Finance Act cannot be invoked merely because Department later interprets law differently. Suppression requires deliberate intent to evade duty and where material facts are available in books and returns, allegation of suppression cannot be sustained. Present dispute is interpretational regarding exemption and taxability based on disclosed records making extended period not justified. Once demand itself fails, interest and penalty automatically fail. Suppression and wilful misstatement are not established and therefore penalties under Section 78 of Finance Act are not invokable.
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