Commissioner of Central Excise and Service Tax Vs South Eastern Coalfields Ltd (Supreme Court of India)
Summary: The Supreme Court dismissed as withdrawn the Civil Appeals arising from the CESTAT Delhi ruling in South Eastern Coalfields Ltd. Vs Commissioner of Central Excise and Service Tax, after the learned Additional Solicitor General appearing for the appellant(s) stated that he had instructions to withdraw the appeals. The underlying dispute concerned service tax on compensation, penalties, forfeiture of earnest money/security deposits and liquidated damages recovered by South Eastern Coalfields Ltd. (SECL) from coal buyers, contractors and material suppliers for breach or non-compliance with contractual terms. A show cause notice dated 10 April 2017 alleged that ₹265,99,46,400 recovered during July 2012 to March 2016 constituted consideration for the declared service of “agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act” under Section 66E(e) of the Finance Act, 1994, resulting in alleged service tax liability of ₹35,26,59,837 including cess.
Read SC Judgment in this case: Contractual Penalties & Liquidated Damages Not Taxable as Declared Service: CESTAT Delhi
The Principal Commissioner, by order dated 18 December 2018, confirmed the demand with interest and penalty, treating the receipts as consideration for tolerating an act. On appeal, CESTAT examined Sections 65B(44), 66B, 66E(e), 67 and 68 and held that consideration must have a nexus with the taxable service. It distinguished contractual conditions and safeguards from consideration for an agreed service.
