Page 143 - GSTL_2nd July 2020 _Vol 38_Part 1

2020 ] K.N. FOOD INDUSTRIES PVT. LTD. v. COMMISSIONER OF CGST & C. EX., KANPUR 61
3. Entertaining a view that such receipt of ex-gratia job charges by the
appellant amounts to providing services, Revenue raised a show cause notice
dated 11-4-2016 raising demand of Service Tax for the period July, 2012 to March,
2015. The said show cause notice was contested by the appellant on merits as
also on limitation. However not finding favour with the appellant’s contentions,
the demand of Service Tax to the tune of Rs. 45,03,712/- was confirmed along
with confirmation of interest and imposition of penalty of identical amount un-
der Section 78 of the Finance Act, 1994 as also imposition of penalties under Sec-
tion 77(2) of Finance Act, 1994. The order of Original Adjudicating Authority was
upheld and hence the present appeal.
4. After hearing both the sides duly represented by Shri H.P. Kanade,
Learned Advocate appearing for the appellant and Shri Shiv Pratap Singh,
Learned AR appearing for the Revenue, we find that the short issue required to
be decided in the present appeal is as to whether the receipt of ex-gratia job
charges amount by the appellant amounts to providing any services so as to at-
tract the Service Tax on the same. We find that appellant is admittedly manufac-
turing confectionaries for and on behalf of the M/s. Parle and is clearing the
same upon payment of Central Excise duty on the basis of MRP declared by
M/s. Parle. It is only in situation when the appellant’s capacity, as a manufactur-
er, is not being fully utilized by M/s. Parle, their claim of ex-gratia charges arises
so as to compensate them from the financial damage/injury. As such, ex-gratia
amount is not fixed and is mutually decided between the two, based upon the
terms and conditions of the agreement and is in the nature of compensation in
case of low/less utilization of the production capacity of the assessee.
The Lower Authorities have invoked the provision of the Section 66E(e)
of the Act which relates to the definition of the declared services. The same is to
the effect that “(e) agreeing to the obligation to refrain from an act, or to tolerate
an act or a situation, or to do an act”. Provisions of Section 65B(44) of the Act re-
fers to the process amounting to manufacture or production of goods on which
the duty is leviable under Section 3 of the Central Excise Act, 1944 as on service.
However no Service Tax is leviable on such services, as the same is covered un-
der the negative list. Further, agreeing to the obligation to refrain from an act, or
to tolerate an act or a situation, or to do an act is a declared service on which the
Service Tax is leviable under Section 66B of the Act.
In the present case apart from manufacturing and receiving the cost of
the same, the appellants were also receiving the compensation charges under the
head ex-gratia job charges. The same are not covered by any of the Acts as de-
scribed under Section 66E(e) of the Finance Act, 1994. The said sub-clause pro-
ceeds to state various active and passive actions or reactions which are declared
to be a service namely; to refrain from an act, or to tolerate an act or a situation,
or to do an act. As such for invocation of the said clause, there has to be first a
concurrence to assume an obligation to refrain from an act or tolerate an act etc.
which are clearly absent in the present case. In the instant case, if the delivery of
project gets delayed, or any other terms of the contract gests breached, which
were expected to cause some damage or loss to the appellant, the contract itself
provides for compensation to make good the possible damages owning to delay,
or breach, as the case may be, by way of payment of liquidated damages by the
contractor to the appellant. As such, the contracts provide for an eventuality
which was uncertain and also corresponding consequence or remedy if that
eventuality occurs. As such the present ex-gratia charges made by M/s. Parle to
GST LAW TIMES  2nd July 2020  143