South Eastern Coalfields Ltd. Vs Commissioner of Central Excise and Service Tax (CESTAT Delhi)
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Delhi allowed the appeal filed by South Eastern Coalfields Ltd. against the order dated 18.12.2018, whereby the Principal Commissioner had confirmed the demand of service tax, interest and penalty by invoking the extended period of limitation under Section 73 of the Finance Act, 1994. The dispute concerned whether compensation, penalties, forfeiture of earnest money deposits (EMD), security deposits, and liquidated damages recovered by the appellant for breach of contractual terms constituted a taxable “declared service” under Section 66E(e) of the Finance Act, 1994.
The appellant, a public sector undertaking and subsidiary of Coal India Ltd., is engaged in mining and sale of coal and operates through 18 mines/offices. Its commercial contracts with buyers, contractors and suppliers contained penalty clauses to safeguard its interests in cases of breach of contractual terms. A show cause notice dated 10.04.2017 alleged that, during the period July 2012 to March 2016, the appellant recovered compensation/penalties from coal buyers for short-lifted or un-lifted coal, penalties from contractors for breach of contractual obligations, and liquidated damages from suppliers for delayed or deficient performance. The Department treated these recoveries as consideration for a declared service under Section 66E(e) and proposed recovery of service tax amounting to ₹35,26,59,837, along with interest and penalty. Since the issues involved multiple Commissionerates, the proceedings were centralized before a common adjudicating authority, and six similar show cause notices were also tagged.
