The Hyderabad Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that no service tax is payable on the amount collected towards Liquidated Damages.
The bench of Angad Prasad (Judicial Member) and A.K. Jyotishi (Technical Member) has observed that no service tax is payable on the amount collected towards Liquidated Damages as such Liquidated Damages/penalty cannot be considered as receipts towards any service, per se. Therefore, there is no leviability of service tax on the amount of LD collected by the appellant.
The appellant, M/s Bharat Dynamics Ltd are in appeal by which the Commissioner/adjudicating authority has confirmed the demand of service tax on account of liquidated damages (LD).
The appellant submits that the issue is no longer res integra as the demand of service tax on liquidated damages cannot be sustained.
The issue involved in this appeal is whether demand of service tax on LD/penalties recovered by the appellant under section 66E(e) of the Finance Act is legally correct or otherwise. There is no dispute that the demand is based on the Liquidated Damages 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).
The tribunal relied on the decision in the case of Steel Authority of India Ltd, Salem Vs CGST & CE and South Eastern Coal Fields Ltd Vs CCE & ST, Raipur, 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.
The tribunal allowed the appeal of the appellant, who had come against the confirmation of demand of service tax on the amount received as Liquidated Damages.
Case Details
Case Title: Bharat Dynamics Ltd Versus Commissioner of Central Tax Hyderabad – GST
Case No.: Service Tax Appeal No. 30173 of 2020
Date: 16.06.2025
Counsel For Appellant: Siddhant Indrajit
Counsel For Respondent: M. Anukathir Surya
Read More: 56th GST Council Meet Likely to Convene in Early July
