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2023 (2) TMI 606 - AT - Service TaxLevy of Service tax - gross amount/consideration being received by the Appellant for execution of IT projects for the Government of Rajasthan - amount deducted in the name of liquidated damages for violating the terms of Agreement. HELD THAT:- The present appeal filed is against a periodical show cause notice issued to the appellant, consequent to an Audit of the records of the assessee. An identical issue stand decided by this Tribunal in M/S RAJCOMP INFO SERVICE LIMITED VERSUS THE COMMISSIONER, OFFICE OF THE COMMISSIONER, CGST AND CENTRAL EXCISE COMMISSIONERATE (VICE-VERSA) [2022 (2) TMI 955 - CESTAT NEW DELHI] wherein the previous demands made have been set aside - The impugned Order-in-Original has demanded service tax on two issues. The audit of the record of the appellant reveal that they were providing taxable service to various Government departments in which supply, installation of various hardware and /or software or provision of service was involved. M/s. Rajcomp was found paying service tax only on the service charges so received from the concerned Department, instead of paying the service tax on the gross value of the amount so received - it was held that the appellant acted as a pure agent as a result of which the amount collected by the appellant from the State Government for payment to the vendors cannot be subjected to service tax. Whether the appellant is liable to pay service tax on the amount deducted from the payment of various service providers /vendors in the name of liquidated damages for violating terms of agreement entered into? - HELD THAT:- This issue was examined at length by the Division Bench of the Tribunal in M/S SOUTH EASTERN COALFIELDS LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX, RAIPUR [2020 (12) TMI 912 - CESTAT NEW DELHI] and it was held that It is, therefore, not possible to sustain the view taken by the Principal Commissioner that penalty amount, forfeiture of earnest money deposit and liquidated damages have been received by the appellant towards “consideration” for “tolerating an act” leviable to service tax under section 66E(e) of the Finance Act - CBIC Circular No. 178/10/2022-GST dated 03.08.2022 has clarified that liquidated damages cannot be said to consideration received for tolerating the breach or non- performance of contract. They are rather payments for not tolerating the breach of contract. Thus, the service tax levied on the amount received from the Departments of the State Government and which has been paid to the vendors cannot sustain. The demand of service tax on amount received as liquidated damages also does not sustain. Appeal allowed.
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