No ST on amount retained on forfeiture of earnest money deposit for non-delivery of goods

Case Details: Tirupati Balaji Furnaces (P.) Ltd. v. Commissioner, Central Goods and Service Tax - [2021] 132 taxmann.com 264 (New Delhi - CESTAT)

Judiciary and Counsel Details

• • Rachna Gupta, Judicial Member
  • B.L. Yadav, Adv. for the Appellant. 
  • Mahesh Bhardwaj, AR for the Respondent.

Facts of the Case

The appellant was engaged in the manufacture of MS ingots. During the course of audit of records of the appellant, some miscellaneous income was observed on account of non performance of the agreement to sale and non-compliance of the conditions of contract of supplier of goods. The alleged that it would amount to agreeing to the obligation to refrain from any, or to tolerate an act or a situation, or to do an act’ and thus a consideration towards a ‘declared service’.

The show cause notice was issued and service tax demand raised towards the amount received on account of forfeiture of earnest money and on account of a sum being received as compensation for non-delivery of goods. The appeal was filed and it was rejected and thereafter, the appellant filed appeal before the Tribunal.

CESTAT Held

The Honorable Tribunal observed that the appellant was not carrying out any activity to receive compensation. The purpose of compensation was to ensure that the default would not be undertaken again or repeated. Moreover, from any stretch of imagination, the retention of earnest money cannot be said to be an act of receiving consideration towards toleration of the defaulting act of the other parties. Hence the question of tolerating the act of default as alleged by the department would not arise at all and appeal to be allowed.

Case Review

• • South Eastern Coalfields Ltd. v. CCE & ST [2020] 124 taxmann.com 174 (New Delhi – CESTAT)
  • Steel Authority of India Ltd. v. Commissioner of GST & Central Excise [2021] 128 taxmann.com 400 (Chennai – CESTAT) followed.
  • Union of India v. Intercontinental Consultants & Technocrats (P.) Ltd. [2018] 91 taxmann.com 67/66 GST 450 (SC) relied on.

List of Cases Referred to

• • South Eastern Coalfields Ltd. v. CCE & ST [2020] 124 taxmann.com 174 (New Delhi – CESTAT)
  • Steel Authority of India Ltd. v. Commissioner of GST & Central Excise [2021] 128 taxmann.com 400 (Chennai – CESTAT) followed.
  • Union of India v. Intercontinental Consultants & Technocrats (P.) Ltd. [2018] 91 taxmann.com 67/66 GST 450 (SC) relied on.
  • CST v. Bhayana Builders [2018] 91 taxmann.com 109/66 GST 320 (SC) (para 7).