2022 (7) TMI 823 - AT - Service Tax

Levy of Service Tax - amount collected as liquidated damages - period from April 2016 to June 2017 - present proceedings arise from the subsequent show cause notice - HELD THAT - The Additional Commissioner confirmed the demand of tax but this order was set aside by the Commissioner (Appeals) by order dated January 13, 2020. In regard to the show cause notice dated October 05, 2017 issued for the previous period pertaining to 2012-13 to 2015-16 though the adjudicating authority had confirmed the demand, but the said order was set aside 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 . The Tribunal examined whether the amount collected by the respondent towards liquidated damages would be for a declared service under section 66E(e) of the Finance Act, 1994 the Finance Act , which is a service for agreeing to the obligation to refrain from an act, or to tolerate an act for a situation, or to do an act. The Tribunal noticed the earlier decisions 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 , in M/S LEMON TREE HOTEL VERSUS COMMISSIONER, GOODS SERVICE TAX, CENTRAL EXCISE CUSTOM 2019 (7) TMI 767 - CESTAT NEW DELHI and M/S K.N. FOOD INDUSTRIES PVT. LTD. VERSUS THE COMMISSIONER OF CGST CENTRAL EXCISE, KANPUR 2020 (1) TMI 6 - CESTAT ALLAHABAD and held that service tax could not be demanded on the amount collected by the respondent towards liquidated damages. The Commissioner (Appeals) committed no error in setting aside the demand confirmed by the Additional Commissioner - Appeal dismissed.

Summary

Issues:
Appeal against the order confirming demand of service tax on liquidated damages for the period April 2016 to June 2017.

Analysis:
The appeal was filed by the Commissioner to challenge the order passed by the Commissioner (Appeals) confirming the demand of service tax with interest and penalty. The dispute revolved around the levy of service tax on the amount collected as liquidated damages during the period from April 2016 to June 2017. It was noted that the respondent's trial balance showed income under 'miscellaneous income not pertaining to revenue,' which the respondent clarified as amounts received as penalties from contractors/suppliers for various breaches of contract.

For the period from 2012-13 to 2015-16, a show cause notice was issued to the respondent, followed by another notice for the subsequent period from April 2016 to June 2017 on the same issue. While the Additional Commissioner confirmed the tax demand, the Commissioner (Appeals) overturned this decision in the order dated January 13, 2020. Reference was made to a previous case where the Tribunal had set aside a similar demand in M.P. Poorva Kshetra Vidyut Vitran Co. Ltd. vs. Principal Commr., CGST & C. Ex., Bhopal.

The Tribunal analyzed whether the amount collected as liquidated damages would fall under a declared service under section 66E(e) of the Finance Act, 1994. Citing previous decisions, including M/s. South Eastern Coalfields Ltd., M/s. Lemon Tree Hotel, and M/s. K.N. Food Industries Pvt. Ltd., the Tribunal concluded that service tax could not be imposed on liquidated damages. This view was consistent with decisions in other cases such as Neyveli Lignite Corporation Ltd. and Steel Authority of India Ltd.

Based on the Tribunal's previous decisions and the legal interpretation of the Finance Act, the Commissioner (Appeals) was found to have made no error in setting aside the demand for service tax on liquidated damages. Consequently, the appeal filed by the Commissioner was dismissed.