Gujarat Industries Power Company Wins Tax Dispute Over Liquidated Damages, Clarifies Non-Taxability of Contract Penalty Charges Under Section 66E(e)

CESTAT ruled that liquidated damages/penalty charges collected by M/s. Gujarat Industries Power Company Limited from vendors/suppliers for contract breach do not constitute a declared service under Section 66E(e) of the Finance Act, 1994. The tribunal consistently held that service tax demand on liquidated charges is unsustainable, specifically affirming that penalties for non-completion of contractual timelines are not taxable. The appeal was consequently allowed, exempting such penalty amounts from service tax liability. .....

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