The Customs, Excise & Service Tax Appellate Tribunal,(CESTAT) Ahmedabad has sent a matter for readjudication as lower authorities had failed to deal with the matter properly.
The appellant, Ratnamani Metals and Tubes limited had entered into a contract with its suppliers for supply of specified material as mentioned in the purchase order and in accordance with the terms and conditions annexed to it. Certain material supplied were found deficient to the specified quality or in deviation with the specifications agreed upon between the parties to the contract and hence thereafter recovered certain amounts from its supplier.The Revenue was of the view that these amounts recovered are in the nature of liquidated damages for compensating the appellant against the poor quality of material supplied to the appellant by its supplier. Therefore, the department demanded service tax is held to be applicable under Section 66(E)(e) of the Finance Act, 1994.
The main argument of the appellant was that the amount recovered is liquidated damages against the poor quality of material supplied, has nothing to do with any service and hence, no service provision exists. Accordingly, there is no activity falls under the declared service, hence it is not taxable under the declared service as specified under section 66E(e) of the Finance Act, 1994.
Judicial Member Ramesh Nair and Technical Member Raju allowed the appeal by the assessee and held, “vital point raised by the appellant has not been considered either by the Adjudicating Authority or by the first appellate authority. Both the authorities also have not dealt with the distinction between the „liquidated damage‟ as claimed to have received by the appellant and the „consideration‟, which department want to impose. Both the terms have been defined legally separately in the Indian Contract Act, 1872. We also observed that the appellant have relied upon various judgments on the identical issue which Adjudicating Authority and learned Commissioner (Appeals) had no occasion to consider. The judgments relied upon by the appellant shall apply directly only after verifying the facts of each case. As regards the limitation, we observe that the same has also not been considered on its true facts and the legal issue involved in the present case. In this position, we are of the view that since the above issues have not been dealt in a proper manner by both the lower authorities, the matter needs to be reconsidered as a whole. Accordingly, we set-aside the impugned order and remand the matter to the Adjudicating Authority.”
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