Facts
Chennai Metro Rail Ltd., is a joint venture between the Government of India and the Government of Tamil Nadu that builds and operates Chennai Metro, which is proposed to be a rapid transport system serving the city of Chennai, Tamil Nadu.
It appeared that the Performance Guarantee executed in the form of Bank Guarantee was encashed by CMRL for violation of agreed obligations and that it is a consideration received by CMRL from the contractors for tolerating the financial loss due to non-performance of the contractors. Besides that, CMRL have retained / collected consideration as liquidated damages for non-performance and failure to comply with the agreed obligation by various contractors / subcontractors. It appeared to the department that CMRL is liable to pay service tax of Rs.14,31,75,822/- and Rs.23,72,71,674/- on the taxable amounts received and retained by CMRL along with interest for not paying their service tax liability within the prescribed time and on account of various acts of omission and/or commission on their part have rendered themselves liable to penalty under section 76, 77 and 78 of the Finance Act, 1994. It also appeared that Shri P.K. Parthiban, Joint General Manager (Finance) is instrumental in the contraventions by CMRL leading to loss of revenue.
Submissions
P. Ravindran, counsel submitted that the Appellant M/s Chennai Metro Rail Ltd, stated that the cumulative effect of the CBIC Circular and the Tribunal case laws is in favour of the stand of the Appellant that there is no service tax liability on damages for breach of contract.
Rudra Pratap Singh, Additional Commissioner (AR) for the Revenue stated that ‘actionable claim’ is defined under sec. 3 of the Transfer of Property Act 1882. He stated that service tax liability on damages for breach of contract may be upheld and suitable orders passed.
Decision
The division bench of P. Dinesha, Member (Judicial) and M. Ajit Kumar, Member (Technical) that the main issue to be decided is the legality of demand for service tax under section 66E(e) of Finance Act 1994, on the monies received for allegedly tolerating breach of contract through encashment of performance Guarantee / Bank Guarantee and that collected/ retained as liquidated damages for non-performance and failure to comply with the agreed obligation by various contractors / sub-contractors.
The bench said that a demand for service tax on the monies received through encashment of performance Guarantee / Bank Guarantee and that collected/ retained as liquidated damages for non-performance and failure to comply with the agreed obligation by various contractors / sub-contractors, hence fails. This being so the demands for duty along with interest made and the penalties imposed by the impugned order are required to be set aside and so ordered.
Case title: Chennai Metro Rail Ltd. v/s Commissioner of GST & Central Excise
Citation: Service Tax Appeal No.40046 of 2020