CESTAT held that retention charges from customers who cancelled ...

Retention Charges from Cancelled Reservations and Employee Meal Recoveries Not Taxable Under Section 66E(e)

March 24, 2025

Case Laws     Service Tax     AT

CESTAT held that retention charges from customers who cancelled reservations were not taxable under Section 66E(e) of the Finance Act as there was no agreement to tolerate an act. These amounts constituted damages/compensation rather than consideration for service. Similarly, amounts recovered from employees for subsidized canteen food were not taxable as providing such food was a legal obligation under labor laws, distinct from the restaurant's commercial operations. The Tribunal concluded that service tax could not be levied on either the retention charges or employee meal recoveries, and consequently dismissed the Revenue's appeal, rejecting associated interest and penalty demands.

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