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2023 (4) TMI 919 - AT - Service TaxLevy of service tax with interest and penalty - consideration received by them on account of liquidated damages - reimbursement of expenses paid to foreign entity - Circular No. 214/1/2023-ST dt. 21.02.2023 - HELD THAT:- This Bench in the case of M/S BHARAT DYNAMICS LTD. VERSUS COMMISSIONER OF CENTRAL TAX, HYDERABAD. [2022 (9) TMI 1445 - CESTAT HYDERABAD] on this issue, wherein it was held such amounts collected by way of penalty/liquidated damages for non-compliance of contract, cannot be considered as consideration for tolerating an act and hence, not leviable to service tax under section 66E (e) of the Finance Act. While the above Orders have been passed by the Tribunal in 2022, subsequently, CBIC has issued Circular No. 214/2023-Service Tax dt. 28.02.2023. In this Circular, the issue of leviability of Service Tax on Liquidated Damages has been considered in elaborate details - The Department has not disputed in the present case that the amount received by the Appellant is on account of Liquidated Damages only. Service Tax on reimbursement of expenses paid to foreign entity and equal amount of penalty under section 78 - HELD THAT:- The appellant has not been able to prove that they have followed the procedure so as to be eligible for abatement on account of reimbursable expenses. Since the statute is very clear and they have been following the other procedures correctly, the escapement of Service Tax on account of this aspect of reimbursements of expenses cannot be considered as a bonafide mistake since the same erroneous system was followed by them for more than two years till the issue was pointed out by the Audit in the 4th year. Accordingly, the appeal towards confirmed demand of Rs. 13,28,164/- along with interest is rejected - the Penalty is to be paid @ 25% of this amount, if the confirmed demand, interest and Penalty are paid within 30 days from date of communication of this Order. Appeal allowed in part.
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