2025 (3) TMI 681 - AT - Service Tax

Levy of service tax on the amount of penalty/liquidated damages (LD) collected by the appellant - declared service in terms of Section 66E(e) of the Finance Act with effect from 01.07.2012 - HELD THAT - The Department s case is that the same would be covered within the ambit of declared service under Section 66E(e) of the Finance Act with effect from 01.07.2012. It is further found that the case laws cited cover the same issue and in some cases also relied on some other judgments including the judgment of South Eastern Coal Fields 2020 (12) TMI 912 - CESTAT NEW DELHI to come to the conclusion that no service tax can be charged on the Liquidated Damages amount received by the appellant. Therefore the issue is fairly covered in the favour of the appellant in the cited judgments and the matter is therefore no longer res-integra. In view of the same the impugned order is set aside. Conclusion - No service tax is chargeable on the liquidated damages collected by BHEL. Appeal allowed.

Summary

In the case of M/s Bharat Heavy Electricals Ltd. (BHEL) vs. Commissioner of Central Tax, Medchal, the Appellate Tribunal (CESTAT Hyderabad) addressed a Miscellaneous Petition for early hearing of Appeal No. ST/30611/2018. The appellant, BHEL, sought an early hearing on the grounds that the issue of service tax on liquidated damages (LD) had already been settled in their favor in previous judgments, specifically citing BHEL vs. Commissioner of Central Tax, Medchal [2022 (9) TMI 1587 - CESTAT-HYD] and similar rulings by Co-ordinate Benches, including South Eastern Coal Fields Ltd. vs. CCE & ST, Raipur [2020 (12) TMI 912 - CESTAT, New Delhi] and Principal Commissioner vs. BHEL [2022 (9) TMI 1457 - CESTAT, New Delhi]. These cases established that liquidated damages collected as penalty or late delivery charges do not fall under the ambit of declared service as per Section 66E(e) of the Finance Act, effective from 01.07.2012.The Tribunal noted that the Department's attempt to levy service tax on LD was not sustainable, as the legal position was well-settled and no longer res-integra. The Learned Authorised Representative for the Respondent conceded that the issue was covered by the cited case laws. Consequently, the Tribunal allowed the Miscellaneous Petition for early hearing, set aside the impugned order (Order-in-Appeal No. HYDEXCUS-MD-AP2-0327-17-18-ST dated 28.03.2018), and allowed the appeal, confirming that no service tax is chargeable on the liquidated damages collected by BHEL.