Amount Recovered Towards Penalty Is Not A Service, Service Tax Not Leviable: CESTAT

The New Delhi Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has stated that the amount recovered towards penalty is not a consideration for any activity and as a result there is no 'service'. Therefore, no service tax is leviable. The Bench of Bintu Tamta (Technical) and P.V. Subba Rao (Technical) has observed that, “the amount recovered by the assessee towards penalty is not a consideration for any activity which has been undertaken by the assessee and as a result there is no 'service' in terms of Section 65B (44) of the Act.” In this case, the assessee is registered as a public sector company with the service tax department for 'Works Contract Service' and 'Legal Consultancy Service' as service recipient. During the audit, it was found that assessee had recovered the amount under 'Penalty' and 'Recovery' from their contractors and did not discharge the service tax liability. A show cause notice was issued to the assessee. The Adjudicating Authority confirmed the demand on 'Penalty' and 'Recovery' from the suppliers. The assessee has challenged the order passed by the Adjudicating Authority before the Tribunal. The assessee contended that the penal charges are charged with the intention to make good for the losses and so as to act as a deterrent to ensure that terms of the contract are not violated by the buyer or the supplier. The Tribunal observed that there is not any other independent agreement to refrain or tolerate, or to do an act between the parties hence the issue is decided in favour of the assessee. The Tribunal stated that, “the facts of the present case do not suggest that there is any other independent agreement to refrain or tolerate, or to do an act between the parties hence the issue is decided in favour of the assessee. The other issues related to invocation of extended period of limitation, penalty and interest are not required to be gone into as the issued-on merits stands decided in favour of the assessee.” In view of the above, the Tribunal allowed the appeal. Counsel for Appellant/ Assessee: Kunal Agarwal Counsel for Respondent/ Department: Rajeev Kapoor Case Title: M/s. AVVNL V. Principal Commissioner of CGST & Central Excise, Jaipur Case Number: Service Tax Appeal No. 51973 of 2019 Click Here To Read/Download The Order

Amount Recovered Towards Penalty Is Not A Service, Service Tax Not Leviable: CESTAT

Mehak Dhiman

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