2023 (5) TMI 1080 - AT - Service Tax

Recovery of Service tax with interest and penalty - levy of service tax on the amount deducted by the appellant from the vendors towards liquidated damages as they failed to supply the goods/execute the work within the stipulated time - HELD THAT:- For the period prior to 01.07.2012 collection of amount towards liquidated damages was not included in any of the specified taxable services under any of the clauses of sub-section (105) of section 65 of the Finance Act, 1994. Thus, no service tax could have been levied on the amount of liquidated damages so collected.

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 consideration in view of any service but are in the nature of deterrent imposed so that such a breach or non-performance is not repeated.

The Circular dated 28.02.2023 issued by the Central Board of Indirect Tax and Customs also provides that service tax cannot be levied on the amount collected for the said purpose.

It is, therefore, not possible to sustain the demand - Impugned order set aside - appeal allowed.