2026-VIL-828-CESTAT-HYD-ST
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SERVICE TAX CESTAT Cases

Service Tax - Levy of service tax on liquidity damages - Appellant entered into various contracts for supply of materials and services, which contained a penalty clause for recovering 'liquidity damages' from the supplier/vendor in case of delay - Department of the view that the amount received as 'liquidity damages' is consideration towards an act of tolerance, which is liable to service tax as 'declared service' under section 66E(e) of the Finance Act, 1994 w.e.f. 01.07.2012 - Whether the 'liquidity damages' collected by the appellant can be subjected to service tax as a 'declared service' under section 66E(e) – HELD - The appellants were collecting certain amount, which they had declared as liquidity damages in their books of accounts from their supplier/service. These liquidity damages were charged only when the supplier or the service provider failed to deliver the goods or perform the service within the time limit specified in the contract. Appellant deducted 0.5% / 1% of the total contract value per complete week of delay or part thereof subject to maximum of 5% / 10%. Therefore, in certain cases of purchase of goods or procurement of service, they had invoked this clause and had collected liquidity damages - The issue of levying service tax on liquidity damages is no longer res integra, as in a catena of judgments, various Benches of the Tribunal have held that no service tax can be levied on liquidity damages. The ratio of such judgments is squarely applicable in the present factual matrix – The impugned order is set aside and the appeal is allowed
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GSTAT Appeal filed wrongly...
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