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2022 (9) TMI 1005 - AT - Service TaxLevy of service tax - charges collected by the appellant towards penalty/late delivery charges - deduction of contractual value - section 66E (e) of the Finance Act, 1994 - appellant is a 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 Coal Fields Ltd. Vs. 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. Vs. Principal Commissioner, CGST And Central Excise, Bhopal 2021 (2) TMI 821 - CESTAT NEW DELHI , where it was held that It is, therefore, not possible to sustain the view taken by the Principal Commissioner that penalty amount, forfeiture of earnest money deposit and liquidated damages have been received by the appellant towards consideration for tolerating an act leviable to service tax under section 66E(e) of the Finance Act. The liquidated damages collected by the appellant as penalty/late delivery charges cannot be subjected to service tax under section 66E (e) of the Finance Act. Appeal allowed - decided in favor of appellant.
Issues involved:
Whether charges collected by the appellant towards penalty/late delivery charges can be subjected to service tax under section 66E (e) of the Finance Act, 1994? Detailed Analysis: The appeal before the Appellate Tribunal CESTAT New Delhi was filed by the Dy. General Manager (Finance) of Bharat Heavy Electrical Limited Bhopal to challenge the order confirming the demand of service tax for the period July 2012 to March 2017. The issue at hand was whether the charges collected by the appellant as penalty/late delivery charges could be subjected to service tax under section 66E (e) of the Finance Act. The appellant, a Central Government Public Sector Undertaking engaged in the manufacture of plant and machinery, explained that the charges collected were under a Liquidated Damages Clause in contracts. A show cause notice alleged that the appellant was not paying service tax on these charges. The appellant contested this, citing previous Tribunal judgments in similar cases. The Division Bench of the Tribunal in M/s South Eastern Coal Fields Ltd. had analyzed the provisions of Section 66E (e) of the Finance Act. It was observed that for a service to be taxable under this section, there must be a flow of consideration from one party to another for refraining from an act, tolerating an act or situation, or doing an act. The intention of the parties in the contract was crucial. The recovery of liquidated damages/penalty was deemed not towards any service per se, as the purpose was to ensure compliance with the contract terms, not to impose penalties. The Tribunal held that the liquidated damages collected by the appellant could not be subjected to service tax under section 66E (e) of the Finance Act. Citing the previous judgments, the Tribunal set aside the Commissioner's order confirming the demand of service tax, thereby allowing the appeal. In conclusion, the Tribunal's decision clarified that the charges collected by the appellant as penalty/late delivery charges were not liable for service tax under section 66E (e) of the Finance Act, based on the analysis of relevant provisions and previous judicial interpretations.
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