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2023 (3) TMI 641 - AT - Service TaxLevy of Service tax - liquidated damages - Section 66E(e) of the Finance Act, 1994 - HELD THAT - The CBIC has issued a circular No.178/10/2022-GST dated 3rd August, 2022 in which it has stated its stand on the issue of taxability of various transactions claimed to be liquidated damages . At the time of adjudication by commissioner and hearing before tribunal, this circular was not available on record and therefore, the adjudicating authority could not take benefit of the same. While the issue of levibility of service tax on liquidated damages is a debatable issue, the CBIC has vide Circular No. 178/10/2022-GST clarified its stand on the subject in respect of GST - The said circular also clarified the stand of CBIC on the issue of forfeiture of salary or payment of bond made in the event of employee leaving the employment before the minimum agreed period. Para 5(e) of Schedule-II of CGST Act, is identically worded as Section 66E(e) of the Finance Act, 1994 - The circular was not available to the adjudicating authority when the matter was decided and he could not examine the issue in the light of the aforesaid circular. The issue in dispute can be decided in the light of the aforesaid circular. The matter is remanded to the original adjudicating authority to decide the issue afresh.
Issues Involved:
1. Demand of service tax on liquidated damages under Section 66E(e) of the Finance Act, 1994. 2. Applicability of CBIC Circular No. 178/10/2022-GST dated 03rd August, 2022. Summary: Issue 1: Demand of Service Tax on Liquidated Damages This appeal was filed by M/s. Linde Engineering India Private Limited against the confirmation of a demand for service tax on amounts claimed by the appellant as liquidated damages. The demand was made under Section 66E(e) of the Finance Act, 1994. The appellant contended that the amounts received from their vendors for delays or defaults in contracts were wrongly taxed by the revenue under the said section. The learned counsel for the appellant argued that, according to CBIC Circular No. 178/10/2022-GST dated 03rd August, 2022, no service tax is payable on such amounts. Issue 2: Applicability of CBIC Circular No. 178/10/2022-GSTThe Tribunal noted that the CBIC Circular No. 178/10/2022-GST addresses the taxability of transactions claimed as liquidated damages. This circular was not available during the adjudication by the commissioner or the hearing before the tribunal, and thus, the adjudicating authority could not benefit from it. The circular clarifies that payments such as liquidated damages for breach of contract are not a consideration for tolerating an act or situation and thus are not taxable. It emphasizes that such payments are compensatory in nature and not for any independent activity of tolerating an act. The circular further clarifies that these payments do not constitute a supply within the meaning of the Act. Conclusion:The Tribunal set aside the impugned order and remanded the matter to the original adjudicating authority to decide the issue afresh in light of the arguments given in the aforesaid CBIC circular. The decision was pronounced in the open court on 14.03.2023.
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