South Eastern Coalfields Ltd Vs Principal Commissioner of CGST & Central Excise (CESTAT Delhi)
Service Tax Cannot Be Levied on Contractual Penalties Without Specific Agreement to Tolerate Breach; Liquidated Damages and Penalty Recoveries Not Consideration for Service; CESTAT Grants Relief on ₹1.07 Crore Service Tax Demand Over Liquidated Damages; No Service Tax on Dead Rent Under Pre-2016 Mining Agreements: CESTAT.
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Delhi Bench, disposed of three appeals involving common issues relating to service tax demands raised against a public sector undertaking engaged in coal mining and sale of coal. The demands related to liquidated damages and penalties, royalty, dead rent, renting of immovable property, security and detective agency services, and interest for delayed payment of service tax.
The adjudicating authority had confirmed demands including service tax on liquidated damages and penalty amounting to Rs.1.07 crore, dead rent of Rs.2.05 lakh, renting of immovable property service of Rs.1.19 lakh, security and detective agency service of Rs.1.45 lakh, and interest liability of Rs.32,713 for delayed payment of service tax.
On the issue of service tax on liquidated damages and penalties, the appellant relied on an earlier Tribunal decision in its own case. The Tribunal examined whether recovery of liquidated damages for breach of contractual terms amounted to a “declared service” under Section 66E(e) of the Finance Act, covering agreements to tolerate an act or situation.
