2025 (6) TMI 1269 - AT - Service Tax

Levy of service tax - liquidated damages (LD) /penalties recovered by the appellant under section 66E(e) of the Finance Act - HELD THAT - There is no dispute that the demand is based on the LD received from their vendor/contractor which the department had felt would be liable to service tax in terms of declared service under section 66E(e). However in view of various citations including Steel Authority of India Ltd Salem Vs CGST CE 2021 (7) TMI 1092 - CESTAT CHENNAI and South Eastern Coal Fields Ltd Vs CCE ST Raipur 2020 (12) TMI 912 - CESTAT NEW DELHI where under the similar facts and circumstances the Tribunals have held that no service tax is payable on the amount collected towards LD as such LD/penalty cannot be considered as receipts towards any service per se. Therefore in view of the same there is no leviability of service tax on the amount of LD collected by the appellant. Conclusion - There is no leviability of service tax on the amount of LD collected by the appellant. It is not found that the Order passed by the adjudicating authority is not proper and legally tenable and accordingly is set aside - appeal allowed.

Summary

The Appellate Tribunal (CESTAT Hyderabad) allowed the appeal filed by M/s Bharat Dynamics Ltd against the demand of service tax on liquidated damages (LD) confirmed by the Commissioner/adjudicating authority under section 66E(e) of the Finance Act. The key legal issue was whether service tax is leviable on LD/penalties recovered from vendors/contractors. Relying on precedents including South Eastern Coal Fields Ltd Vs CCE & ST, Raipur [2021 (55) GSTL 549 (Tri-Del)] and Steel Authority of India Ltd, Salem Vs CGST & CE [2021 (7) TMI 1092 (Chennai)], the Tribunal held that "no service tax is payable on the amount collected towards LD as such LD/penalty cannot be considered as receipts towards any service, per se." The Tribunal also noted its prior order in the appellant's own case (Final Order No. A/30130/2022 dt.14.09.2022) allowing a similar appeal. Consequently, the impugned order confirming the demand was set aside as "not proper and legally tenable," and the appeal was allowed with consequential benefits.