The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), quashed the service tax demand on liquidated damages, thereby granting relief to M/s. Bharat Heavy Electricals Limited (BHEL), the appellant.
It appeared that during the course of discharging of contractual obligations towards the customer relating to supply, erection, commissioning and installation activities, the appellant entered into agreements / contracts with vendors and/or sub-contractors for supply of various equipment / materials for erection, commissioning and installation thereof and time being the essence of contract, it is the duty of the appellant to complete the agreed projects within the prescribed time as per the terms agreed to in the contracts with its customers.
Entertaining a doubt, based on specific intelligence that the appellant is charging and recovering liquidated damages for delay in supply and service contract as per the written agreements between them but did not pay the service tax on it, it appears that there was an enquiry against the appellant by the Directorate General of Goods and Service Tax Intelligence (DGGI).
The only issue for consideration is whether the Liquidated Damages received by the appellant for tolerating the delay would amount to “declared service” within the meaning of Section 66E (e) of the of the Finance Act, 1994, and consequently, whether the appellant would be liable to Service Tax on the same in terms of Section 66B of the Finance Act, 1994.
In Union of India v. M/s. Intercontinental Consultants and Technocrats Pvt. Ltd. and Fateh Chand v. Balkishan Das and thereafter, it was concluded that the penalty amount, forfeiture of earnest money deposit and liquidated damages received by the appellant therein towards “consideration” for “tolerating an act” as being amenable to Service Tax under Section 66E (e) of the Finance Act, was not sustainable.
The Tribunal of Vasa Seshagiri Rao, Technical Member and P Dinesha, Judicial Member concluded that it is a clear view that the issue is required to be answered in favour of the assessee, for which reason the impugned order cannot sustain.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
