AGREEING TO TOLERATE AN ACT: A SUPPLY?
‘Agreeing to tolerate an act or a situation’, this phrase in the law can be interpreted to include several things, such as liquidated damages, penal interest, hotel cancellation charges, container detention charges, forfeiture of earnest money. The question that needs to be asked is whether the law makers really intended to include such payments as the consideration for a supply of service.
The judicial pronouncements in EU and UK convey reasonable boundaries to the scope of the phrase ‘agreeing to tolerate an act’. Keeping in mind that everything under the sun cannot be classified as ‘agreeing to tolerate an act’, the judiciary has time and again upheld that there needs to be a relation between the payment made as consideration and the supply of service, failing which the tax cannot be levied.
This paper proceeds in four main parts i.e. firstly, the theoretical foundation of the law relating to the supply of service; secondly, international jurisprudence on the scope of the phrase ‘agreeing to tolerate an act’; thirdly, the stand of Indian judiciary/authorities on the said sections of CGST Act, and fourthly, the analysis and conclusion of the approaches taken by domestic as well as the international courts in this area.