Relief to Hindustan Zinc: CESTAT Rules Service Tax u/s 66E(e) Requires Express Agreement to Tolerate an Act, Quashes Demand [Read Order]
CESTAT ruled that penalties and forfeited amounts do not constitute "declared service" under Section 66E(e) of the Finance Act, 1994, as there was no express agreement to tolerate an act
![Relief to Hindustan Zinc: CESTAT Rules Service Tax u/s 66E(e) Requires Express Agreement to Tolerate an Act, Quashes Demand [Read Order]](https://www.taxscan.in/wp-content/uploads/2025/03/CESTAT-Hindustan-Zinc-Service-Tax-taxscan.jpg "Relief to Hindustan Zinc: CESTAT Rules Service Tax u/s 66E(e) Requires Express Agreement to Tolerate an Act, Quashes Demand [Read Order]")
The New Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ) ruled that service tax under Section 66E(e) of the Finance Act, 1994, cannot be levied unless there is an express agreement to provide a service for tolerating an act, quashing the Service Tax Demand. Hindustan Zinc Limited, the appellant, is engaged in mining operations. The dispute arose when...
The New Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ) ruled that service tax under Section 66E(e) of the Finance Act, 1994, cannot be levied unless there is an express agreement to provide a service for tolerating an act, quashing the Service Tax Demand.
Hindustan Zinc Limited, the appellant, is engaged in mining operations. The dispute arose when the department alleged that the company had provided a “declared service” by tolerating contractual breaches and, in return, received penalties, fines, and forfeited amounts from its contractors.
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The Revenue Department issued a show cause notice (SCN) in April 2018, demanding service tax on Rs. 4.48 crore, arguing that these amounts constituted "consideration" under Section 66E(e) of the Finance Act. The Commissioner (Appeals) upheld the demand in its May 2019 order.
The appellant's counsel argued that penalties and forfeited security deposits were not payments for tolerating an act but contractual enforcement measures. They argued that there was no agreement between the company and its contractors to provide a service in exchange for these amounts.
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The appellant relied on earlier tribunal rulings, including South Eastern Coalfields Ltd. v. CCE and a previous decision in its own case, which held that penalties and forfeitures do not constitute taxable consideration under service tax laws.
The two-member bench, comprising Justice Dilip Gupta (President) and Hemambika R. Priya (Technical Member) observed that for an activity to be taxable under Section 66E(e), there must be a clear agreement specifying a consideration for tolerating an act, which was absent in this case. The tribunal also observed that penalties and forfeitures serve as deterrents and are not intended as consideration for service.
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The tribunal ruled that mere deductions and penalties for contractual non-performance do not amount to “declared service” under service tax laws. The tribunal set aside the order of the Commissioner (Appeals) and quashed the service tax demand. The appeal was allowed.
To Read the full text of the Order CLICK HERE
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