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TMI Blog2024 (1) TMI 676X X X X Extracts X X X X X X X X Extracts X X X X ..... (105) of section 65 of the Finance Act, 1994 [the Finance Act ] . Thus, no service tax could have been levied on the amount of liquidated damages so collected - For the period w.e.f. 01.07.2012, the impugned order has observed that as the appellant received the amount as consideration for the failure on the part of the contractors to honor the terms of the contract or violating the conditions of the contract, it would be taxable under clause (e) of section 66E of the Finance Act. In M/S SOUTH EASTERN COALFIELDS LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX, RAIPUR [ 2020 (12) TMI 912 - CESTAT NEW DELHI ], the Tribunal held that liquidated damages recovered on account of breach or non-performance of contract are not cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levied on the amount of liquidated damages so collected. 5. For the period w.e.f. 01.07.2012, the impugned order has observed that as the appellant received the amount as consideration for the failure on the part of the contractors to honor the terms of the contract or violating the conditions of the contract, it would be taxable under clause (e) of section 66E of the Finance Act. 6. In South Eastern Coalfields Vs. Commissioner of Central Excise and Service Tax [2020 (12) TMI 912-CESTAT, New Delhi] , the Tribunal held that liquidated damages recovered on account of breach or non-performance of contract are not consideration in view of any service but are in the nature of deterrent imposed so that such a breach or non-performance i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to receive compensation nor can there be any intention of the other party to breach or violate the contract and suffer a loss. The purpose of imposing compensation or penalty is to ensure that the defaulting act is not undertaken or repeated and the same cannot be said to be towards toleration of the defaulting party. The expectation of the appellant is that the other party complies with the terms of the contract and a penalty is imposed only if there is non-compliance. 29. The situation would have been different if the party purchasing coal had an option to purchase coal from A or from B and if in such a situation A and B enter into an agreement that A would not supply coal to the appellant provided B paid some amount to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thing cannot be said to have taken place unless there are two parties, one of which expressly or impliedly agrees to do or abstain from doing something and the other agrees to pay consideration to the first party for doing or abstaining from such an act. Such contractual arrangement must be an independent arrangement in its own right. There must be a necessary and sufficient nexus between the supply (i.e. agreement to do or to abstain from doing something) and the consideration . 5. The issue also came up in the CESTAT in Appeal No. ST/50080 of 2019 in the case of M/s Dy. GM (Finance) Bharat Heavy Electricals Ltd in which the Hon'ble Tribunal relied on the judgment of divisional bench in case of M/s South Eastern Coal Fields Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X
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