Service Tax: CESTAT Hyderabad Rules Liquidated Damages Not Taxable

Bharat Heavy Electricals Ltd Vs Commissioner of Central Tax (CESTAT Hyderabad) In Bharat Heavy Electricals Ltd vs Commissioner of Central Tax, the core issue was whether liquidated damages and penalties recovered by BHEL from its contractors were subject to service tax under Section 66E(e) of the Finance Act, 1994. The tax department argued that these amounts qualified as “declared services” on the basis that they represented consideration for “agreeing to tolerate an act or a situation.” Based on this interpretation, two show cause notices were issued for the periods J...