2024 (3) TMI 1176 - AT - Service Tax

Levy of service tax - liquidated damages - Circular No. 178/10/2022-GST dated 3.8.2022 - HELD THAT - The issue as contended by the learned Advocate in the case on hand has already been addressed to in M/S SOUTH EASTERN COALFIELDS LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX RAIPUR 2020 (12) TMI 912 - CESTAT NEW DELHI and settled in favour of the taxpayer 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 service tax liability fastened on the appellant on the liquidated damages received does not survive - the impugned order set aside - appeal allowed.

Summary

Issues: Whether Revenue authorities justified in demanding service tax on liquidated damages?

Summary:
The appeal was filed against an Order in Appeal passed by the Commissioner (Appeals - II), Chennai, regarding the imposition of service tax on liquidated damages. The appellant's Advocate argued that previous CESTAT decisions and Circular No. 178/10/2022-GST support that liquidated damages do not attract service tax. On the other hand, the Revenue authorities defended their findings. The Tribunal noted that the issue had already been addressed in previous cases like M/s. South Eastern Coalfields Ltd. Vs. CCE & ST, Raipur and subsequent cases, all ruling in favor of the taxpayer. Additionally, Circular No. 214/1/2023-ST accepted the CESTAT's view, leading the Tribunal to conclude that the service tax liability on liquidated damages does not stand. Therefore, the impugned order was set aside, and the appeal was allowed with any consequential benefits as per law.