2024 (10) TMI 1647 - AT - Service Tax

Levy of service tax on the amount collected as liquidated damages - HELD THAT - The issue as to whether the service tax can be demanded on liquidated damages has been settled by a division bench of this Tribunal in Madhya Pradesh Poorva Kshetra Vidyut Vitran Co. Ltd. 2021 (2) TMI 155 - CESTAT NEW DELHI and it has been held that liquidated damages cannot be subjected to levy of service tax. The impugned order to the extent it confirms the demand of service tax on liquidated damages deserves to be set aside and is set aside. The appeal is accordingly allowed.

Summary

In the case before the CESTAT New Delhi, the appellant, Madhya Pradesh Poorva Kshetra Vidyut Vitran Co. Ltd., challenged the order of the Commissioner (Appeals) which confirmed the demand for service tax on liquidated damages. The appellant's representative, Shri Pradeep Mutreja, argued that the issue had been previously resolved in favor of the appellant by a division bench of the Tribunal in the case of Madhya Pradesh Poorva Kshetra Vidyut Vitran Co. Ltd. vs. Principal Commissioner, CGST and Central Excise, Bhopal. This previous decision held that liquidated damages are not subject to service tax under section 66E(e) of the Finance Act, 1994. The Tribunal, consisting of Hon'ble Justice Dilip Gupta and Hon'ble Mr. P. V. Subba Rao, agreed with the appellant's position, referencing the prior decision, and set aside the impugned order to the extent it confirmed the service tax demand on liquidated damages. The appeal was thus allowed.