Order date – 10 August 2022

Facts – 

• The Appellant, GUJARAT STATE PETRONET LTD, are rendering various taxable services like Transmission of gas through pipelines, business support service, Man power supply service, etc.
• A show cause notice dated 03.04.2018 was issued to them alleging that the appellants are charging and recovering certain amounts under the head of “liquidated damages” for delays in supply contracts or service contracts as per various agreements entered into between them and their vendors.
• Accordingly demand of service tax, interest and imposition of penalty was confirmed.
• Aggrieved the appellant filed an appeal.

Issue – 

• Whether confirmation of demand of service tax, interest and imposition of penalty on the issue related to taxability of various transactions claimed to be “liquidated damages” is sustainable?

Order – 

• While the issue of levibility of Service tax on liquidated damages is a debatable issue, the CBIC has vide Circular No. 178/10/2022-GST clarified its stand on the subject in respect of GST. 
• Prime facie Para 5(e) of Schedule-II of CGST Act, is identically worded as Section 66E(e) of the Finance Act, 1994. The circular expresses the stand of CBIC in case of GST on an interpretation of an identical expression namely: - agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act.
• The issue in dispute can be decided in the light of the aforesaid circular. 
• The impugned order is set aside and the matter is remanded to the original adjudicating authority to decide the issue afresh in the light of the arguments given in the aforesaid circular.