Facts –

• The appellant, Bharat Heavy Electrical Limited Bhopal, is a Central Government PSU engaged in the manufacture of plant and machinery. The appellant supplies goods and services to the engineering industry on the contractual price representing the price of goods/services which is payable by the customer subject to the conditions of Liquidated Damages Clause.
• The authorities issued a show cause notice dated 15.09.2017 to the appellant, for not paying the service tax under section 66E (e) of the Finance Act, on the amount charged by the appellant in the name of penalty/late delivery charges from the contractors/material supplier on account of delay in supply of goods or delay in execution of work.
• The Commissioner, CGST & Central Excise, Bhopal confirmedthe demand of service tax for the period July 2012 to March 2017 with interest and penalty in its order dated 28.09.2018.
• Aggrieved, an appeal was filed.

Issues –

• Whether the amount collected by the appellant towards liquidated charges can be subjected to service tax under section 66E (e) of the Finance Act, 1994?

Order –

• The Hon’ble Tribunal, while relying on the case M/s South Eastern Coal Fields Ltd. Vs. Commissioner of Central Excise and Service Tax, Raipur – Cestat New Delhi (2020), observed that the recovery of liquidated damages/penalty from other party cannot be said to be towards any service per se, since neither the appellant is carrying on any activity to receive compensation nor can there be any intention of the other party to breach or violate the contract and suffer a loss.
• The Tribunal thus held that the liquidated damages collected by the appellant as penalty/late delivery charges cannot be subjected to service tax under section 66E (e) of the Finance Act.
• Hence, the appeal is allowed.