Case Law Details
Steel Authority of India Ltd. Vs Principal Commissioner (CESTAT Delhi)
The case of Steel Authority of India Ltd. Vs Principal Commissioner (CESTAT Delhi) revolves around whether service tax could be levied on liquidated damages, penalties, and forfeiture of security deposits in case of non-fulfilment of contractual obligations.
Analysis: In the original order dated November 22, 2017, the Principal Commissioner affirmed the demand for service tax along with interest and penalty from the Steel Authority of India Ltd. The service tax was demanded on the basis of amounts collected by the appellant in terms of liquidated damages, penalties, and forfeiture of security deposits under section 65B(44) and section 66E of the Finance Act, 19941.
However, the appellant argued that these charges were not taxable services but safeguards included in their contracts to ensure timely and quality delivery of services. The Principal Commissioner, despite these arguments, confirmed the service tax demand.
The CESTAT Delhi, referencing prior tribunal rulings, observed that service tax could only be levied when there is a flow of consideration for a specific activity. In this case, penalties, liquidated damages, and forfeitures are not considered ‘services’ but are compensatory mechanisms triggered due to non-compliance with the contract. The tribunal also cited Circular No. 214/1/2023-Service Tax dated: 28th February, 2023 which stated that service tax could not be levied on amounts collected as liquidated damages.
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