2023-VIL-933-CESTAT-CHE-ST
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SERVICE TAX CESTAT Cases

Service Tax - Section 65B(44) of the Finance Act, 1994 - Demand of service tax on amount received through encashment of performance Guarantee / Bank Guarantee and amount collected as liquidated damages for non-performance and failure to comply with the agreed obligation by contractors / sub-contractors - HELD - The contract entered into by the appellant with the contractors/ sub-contractors is not aimed at any activity to receive compensation by a breach of contract, similarly it cannot be said that it was the intention of the contractors to breach or violate the contract and incur a loss - Revenue has not pointed out any such contractual arrangement which is an independent arrangement in its own right to receives damages by tolerating breach of contract. The amounts retained towards liquidated damages and also invoked as bank guarantee are not a consideration for tolerating breach of contract. Any amount, which is not a consideration for provision of service, cannot be subjected to service tax – It cannot be said that appellant had received a consideration for tolerating the delay in execution of the projects contracted by them - the issue is no longer res integra and has been clarified by the CBIC Circular No. 214/1/2023-Service Tax dated 28.02.2023 - demand for service tax on the monies received through encashment of performance Guarantee / Bank Guarantee and that retained as liquidated damages for non-performance and failure to comply with the agreed obligation by various contractors / sub-contractors, fails - the impugned orders are set aside and appeal is allowed
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