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2022 (9) TMI 1457 - AT - Service TaxLevy of Service tax - charges collected by the respondent towards penalty/late delivery charges - section 66E (e) of the Finance Act 1994 the Finance Act - Central Government Public Sector Undertaking - HELD THAT - This issue as to whether the amount collected towards liquidated charges can be subjected to service tax under section 66E (e) of the Finance Act has been decided by a Division Bench of the Tribunal in M/S SOUTH EASTERN COALFIELDS LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX RAIPUR 2020 (12) TMI 912 - CESTAT NEW DELHI which was subsequently followed by the Tribunal in M.P. POORVA KSHETRA VIDYUT VITRAN CO. LTD. VERSUS PRINCIPAL COMMISSIONER CGST AND CENTRAL EXCISE BHOPAL 2021 (2) TMI 821 - CESTAT NEW DELHI where it was held that it is not possible to sustain the order passed by the Principal Commissioner confirming the demand of service tax on the amount collected towards liquidated damages and theft of electricity. It therefore follows that the liquidated damages collected by the respondent as penalty/late delivery charges cannot be subjected to service tax under section 66E (e) of the Finance Act - appeal of Revenue dismissed.
Issues Involved:
- Whether charges collected towards penalty/late delivery can be subjected to service tax under section 66E (e) of the Finance Act, 1994. Analysis: 1. The appeal was filed by the Principal Commissioner to challenge the order passed by the Commissioner (Appeals) confirming the demand of service tax for a specific period. The Additional Commissioner had upheld the demand for service tax with interest and penalty, which was later set aside by the Commissioner (Appeals), leading to this appeal. 2. The main issue in this appeal revolved around the charges collected by the respondent as penalty/late delivery charges and whether they could be subjected to service tax under section 66E (e) of the Finance Act. The respondent, a Central Government Public Sector Undertaking, engaged in the manufacture of plant and machinery, explained that the charges were deducted from the contractual value if there was a delay in delivery of goods/services, termed as Liquidated Damages Clause. 3. The show cause notice alleged that the respondent was collecting penalty/late delivery charges but not paying service tax on these amounts under section 66E (e) of the Finance Act. The Additional Commissioner confirmed the demand, which was later challenged by the respondent in an appeal before the Commissioner (Appeals), eventually allowed on 19.07.2019. 4. The Department's representative argued that the respondent's activity constituted a declared service, and the contract contained clauses for tolerating certain acts or situations for a consideration. On the other hand, the respondent's counsel cited precedents where similar issues had been decided by the Tribunal, notably referring to the judgments in M/s South Eastern Coal Fields Ltd. and M.P. Poorva Kshetra Vidyut Vitran Co. Ltd. 5. The Division Bench's judgment in M/s South Eastern Coal Fields Ltd. was crucial in determining that the liquidated damages collected by the respondent could not be subjected to service tax under section 66E (e) of the Finance Act. The Bench analyzed the provisions of the Act and emphasized the need for consideration in agreements where one party agrees to refrain from an act, tolerate a situation, or do an act for a payment. 6. The Tribunal's decision in M/s South Eastern Coal Fields Ltd. was further supported by another Division Bench in M.P. Poorva Kshetra Vidyut Vitran Co. Ltd., reinforcing the conclusion that the charges collected by the respondent as penalty/late delivery charges were not taxable under section 66E (e) of the Finance Act. 7. In conclusion, the appeal was rejected based on the precedent set by the Division Benches' judgments, establishing that the liquidated damages collected by the respondent could not be subjected to service tax under section 66E (e) of the Finance Act.
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