The Delhi Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that the Oil & Natural Gas Corporation Ltd. (ONGC) is not liable to pay service tax on liquidated damages received from contractors located outside India.
The bench of Binu Tamta (Judicial Member) and Hemambika R. Priya (Technical Member) has observed that the amount received from the contractors or vendors located abroad would be deemed to have been provided outside India and cannot be taxed in India.
The appellant/assessee is engaged in exploration of oil and natural gases and was registered with the Service Tax Authorities. On an intelligence, the officers of Directorate General of Central Excise, Delhi, now known as Directorate General of GST Intelligence3 alleged that the appellant had collected an amount of Rs.34,13,05,380/- in the form of fines/penalties, liquidated damages, forfeiture of performance guarantees/Earnest Money deposits/security deposits/bid security etc. from the contractors as a compensation for the losses incurred for failure to provide the services within the agreed stipulated time and breached the terms and conditions of the contract/bid agreement.
Therefore, it was alleged that the said amounts retained/collected by appellant is in lieu of “tolerating the act‟ of contractors like poor performance or not meeting the obligations in full, less than expected quality of work and poor or unsatisfactory work as per terms of contract, and hence, falls within the ambit of “Declared Service‟ in terms of Section 66E(e) of the Finance Act and is susceptible to tax.
The issue in the present appeal for demand of service tax under Section 66E(e) of the Act on the amounts collected as “Liquidated damages, forfeiture of security deposits, fines/penalties/Earnest Money deposit, etc.” as compensation for the losses incurred on account of delay on part of the contractors/vendors in completion of the work project etc., amounts to toleration of an act, hence is a “Declared Service‟ and taxable in terms of Section 66E(e) of the Act on account of breach of the terms of the contract.
The tribunal held that the amount received from the recipients located abroad is set aside. The order deserves to be set aside. The appeal is, accordingly, allowed.
Case Details
Case Title: M/s. Oil & Natural Gas Corporation Ltd. Versus Commissioner of Central Goods & Service Tax, Dehradun
Case No.: Service Tax Appeal No.52596 of 2019
Date: 18.03.2025
Counsel For Appellant: Sukriti Das
Counsel For Respondent: Jaya Kumari
