2024 (10) TMI 329 - AT - Service Tax

Levy of service tax - amount received towards liquidated damages - period from July 2015 to June 2017 - declared service or not - HELD THAT - The Adjudication authority has no reason to confirm demand of service tax on the amount received by the Appellant as compensation for short lifting of electricity, since it was not on account of any obligation to tolerate an act, hence is not a service under Section 66E(e) of the Finance Act, 1994, Hence, the impugned order deserves to be set aside. The impugned order is set aside with consequential relief - Appeal allowed.

Summary

Issues:
Service tax liability on liquidated damages received.

Analysis:
The appeal dealt with the issue of service tax liability on the amount received as liquidated damages. The Appellant, a power generator, had entered into Power Purchase Agreements (PPAs) with customers, including provisions for payment of liquidated damages in case of failure to supply the agreed capacity. The Adjudication authority initiated proceedings under Section 66E(e) of the Finance Act, 1994, confirming the demand for service tax, interest, and imposing a penalty. The Appellant challenged this decision in the appeal.

During the hearing, the Appellant's Counsel argued that previous decisions had established that liquidated damages for short lifting of goods should not be considered a service liable to service tax. The Counsel cited various cases to support this argument. Additionally, the Counsel referred to Circular No. 214/1/2023-ST, stating that liquidated damages for short lifting of power should not be subject to service tax under Section 66E(e) of the Finance Act, 1994. The Counsel contended that there was no suppression of facts and that the issue was a matter of interpretation.

The Authorized Representative for the Revenue reiterated the findings in the impugned order during the hearing. After hearing both sides and examining the records, the Tribunal concluded that the Adjudication authority had no basis to confirm the demand for service tax on the compensation received for short lifting of electricity. The Tribunal held that since the payment was not due to tolerating an act, it did not constitute a service under Section 66E(e) of the Finance Act, 1994. Therefore, the impugned order was set aside, following the rationale of the cited judgments and decisions.

In conclusion, the Tribunal ruled in favor of the Appellant, setting aside the impugned order and providing consequential relief, if any, in accordance with the law. The judgment was pronounced in open court on 03.10.2024.