2026-VIL-1787-CESTAT-KOL-ST
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SERVICE TAX CESTAT Cases

Service Tax – Taxability of Amount Realised by Encashment of Bank Guarantee for Shortfall in Minimum Guarantee Tonnage as Declared Service under Section 66E(e) of the Finance Act, 1994 - Appellant, a port trust, rented out berths to allottees under Berth Reservation Scheme, wherein the allottees guaranteed a minimum tonnage of cargo and furnished irrevocable Bank Guarantees equivalent to the applicable wharfage charges - Where the committed tonnage was not achieved, the Appellant encashed the Bank Guarantee for the wharfage relatable to the shortfall quantity - SCN demanded service tax for the period April 2015 to June 2017 on the view that the encashment is consideration for tolerating an act and is a declared service, and the demand was confirmed with interest and penalty - Appellant contended that the amount represents penal charges for non-performance and relied on the Tribunal's decision in its own case for an earlier period - Whether the amount realised by encashment of Bank Guarantee for shortfall in tonnage is liable to service tax as declared service under Section 66E(e) - HELD - The amount realised represents penal charges imposed on the allottees for non-performance and is not related to rendering of any taxable service, so it cannot be considered as consideration for taxable service provided or agreed to be provided by the Appellant. Section 66E(e) requires a flow of consideration for agreeing to refrain from an act, to tolerate an act or a situation, or to do an act. The penal amount is charged only to deter the other party from violating the contractual terms and does not show any intention to tolerate the non-performance - The issue is covered by the Tribunal's decision in the Appellant's own case for the earlier period - Demand along with interest and penalty is not sustainable, the impugned order is set aside and the appeal is allowed with consequential relief, if any, as per law
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