Neyveli Lignite Corporation Ltd. Vs Commissioner of Customs, Central Excise & Service Tax (CESTAT Chennai)
The Hon’ble CESTAT, Chennai in the matter of Neyveli Lignite Corporation Ltd. v. Commissioner of Customs, Central Excise & Service Tax, Chennai [Final Order No. 41702-41706 of 2021 in ST Appeal Nos. 41666, 41747 of 2016 & Ors., dated July 26, 2021] has held that, no service tax is to be imposed on liquidated damages recovered for not adhering to time limits mentioned in the contract as the same would not be covered in ‘Declared Services’ mentioned under Section 66E(e) of the Finance Act, 1994 (Finance Act).
Facts:
Neyveli Lignite Corporation India Limited (“the Appellant”) is a Public Sector Undertaking engaged in excavation of lignite from captive mines. The Appellant executed a contract with Bharat Heavy Electricals Limited (“BHEL”) for design, engineering, manufacture, supply, erection, testing, commissioning, and supply etc. wherein, BHEL failed to adhere to the time limits as per the contract, for which the Appellant recovered liquidated damages in terms of the contract for non-adherence to the time schedule for supplies from other contractors/vendors.
Subsequently, a Show Cause Notice dated June 3, 2015 (“SCN”) was issued by the Revenue Department (“the Respondent”) to the Appellant for alleged non-submission of service tax on liquidated damages received for not adhering to time limits, since the same is covered under Section 66E(e) of the Finance Act and imposing interest and penalty on the same under Section 75, Section 76 and Section 78 of the Finance Act respectively.
Accordingly, the Appellant submitted a detailed reply to the SCN requesting to drop the proceedings for the reason that no service tax was payable on liquidated damages and penalties recovered under the contract. The Respondent vide order (“the Impugned Order”) rejected the contentions raised by the Appellant and confirmed the proposed demand.
Being aggrieved, this appeal has been filed.
Issue:
Whether the Appellant is liable to pay service tax under Section 66E(e) of the Finance Act on liquidated damages recovered on account of non-adherence to the time limits mentioned in the contract?
Held:
The Hon’ble CESTAT, Chennai in Final Order No. 41702-41706 of 2021, dated July 26, 2021 held as under:
