2024 (1) TMI 937 - AT - Service Tax

Levy of Service Tax - liquidated damages for delay in supply contract and service charges as per the written agreement with their suppliers - HELD THAT - The same very issue has been considered by the tribunal in the decisions referred to be the counsel for appellant in the case of appellant s different unit THE PRINCIPAL COMMISSIONER, CGST, CENTRAL EXCISE SERVICE TAX, BHOPAL (M.P.) VERSUS M/S BHARAT HEAVY ELECTRICALS LIMITED (BHEL) 2022 (9) TMI 1457 - CESTAT NEW DELHI , and the matter has been decided in the favour of the appellant, setting aside the demand of service tax. There are no merits in the impugned order demanding service tax on the liquidated damages. As the demand for service tax is set aside so is the demand of interest and penalty imposed. Appeal is allowed.

Summary

Issues Involved:
1. Demand and recovery of Service Tax.
2. Interest on the demanded Service Tax.
3. Imposition of penalty.

Summary:

1. Demand and Recovery of Service Tax:
The appeal challenges the order demanding Service Tax of Rs 3,14,05,595/- u/s 73(2) of the Finance Act, 1994 read with Section 174 of the CGST Act, 2017. The appellant, a Public Sector Undertaking, faced identical show cause notices demanding service tax on liquidated damages collected during 01.07.2012 to 30.06.2017. The tribunal had previously set aside similar demands in other units of the appellant, supported by a Circular No 214/1/2023_ST dated 28.02.2023 favoring the appellant.

2. Interest on the Demanded Service Tax:
The impugned order also levied interest on the demanded amount u/s 75 of the Finance Act, 1994 read with Section 174 of the CGST Act, 2017. The tribunal, referring to prior decisions, found no merit in the demand for service tax, thus nullifying the interest demand.

3. Imposition of Penalty:
A penalty equivalent to the demanded Service Tax amount was imposed u/s 78 of the Finance Act, 1994 read with Section 174 of the CGST Act, 2017. The tribunal, referencing prior judgments including M/s South Eastern Coal Fields Ltd. and M.P. Poorva Kshetra Vidyut Vitran Co. Ltd., concluded that liquidated damages do not constitute a taxable service u/s 66E(e) of the Finance Act, 1994. Consequently, the penalty was also set aside.

Conclusion:
The tribunal set aside the demand for Service Tax, interest, and penalty on liquidated damages, aligning with previous rulings that such damages do not fall under taxable services u/s 66E(e) of the Finance Act, 1994. The appeal was allowed.