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2022 (4) TMI 773 - AT - Service TaxLevy of Service Tax - liquidated damages received by the appellants from the other parties who failed to perform as per the contracts - HELD THAT:- This issue was not specifically dealt in the final order dated 14 January 2021 in respect of the appellant. However, this matter was dealt with in several cases by the Tribunal, such as, M/S SOUTH EASTERN COALFIELDS LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX, RAIPUR [2020 (12) TMI 912 - CESTAT NEW DELHI] where it was held that In the present case, the agreements do not specify what precise obligation has been cast upon the appellant to refrain from an act or tolerate an act or a situation. It is no doubt true that the contracts may provide for penal clauses for breach of the terms of the contract but, as noted above, there is a marked distinction between ‘conditions to a contract’ and ‘considerations for a contract’. Southeastern Coalfields was followed in several other decisions by this Tribunal In short, the view constantly held by this Tribunal is that there is a distinction between a consideration under a contract and the compensation for failure to fulfill the contract. While the consideration is something done by one party at the desire of the other party. Compensation or damages are paid when one party fails to perform - Consideration is the result of the performance of the contract. Compensation/damages are the result of frustration of contract or not performing the contract as per the conditions laid down in it. Compensation can be of two forms - HELD THAT:- If the suffering party sues the other in a court and damages are award by the court such damages are un-liquidated damages. The quantum of damages is decided by the court taking into account the facts and circumstances of the case and the damage suffered. Liquidated damages are those damages and which are built into the contract itself. They provide that the defaulting party shall pay to the other a certain amount in case of default. The purpose of the liquidated damages in a contract is to dissuade the parties from reneging from the contract - What is chargeable to service tax is where the tolerance itself is the purpose of the contract. Liquidated damages are a compensation for failure of the defaulting party to perform as per the contract. Therefore, no service tax can be levied on liquidated damages received under any contract. The demand of service tax on late payment surcharge meter renting charges and supervision charges are set aside. The demand of service tax on works contract service and lease rent is upheld and the same stands already deposited by the appellant. The penalties for the extent of service tax on works contract service and lease rent is upheld and the remaining penalties are set aside - Appeal disposed off.
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