2026-VIL-1735-CESTAT-KOL-ST
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SERVICE TAX CESTAT Cases

Service Tax – Taxability of amount realised from transporters for short delivery and damage of cement as Declared Service under Section 66E(e) of the Finance Act, 1994 - Appellant realised amounts from transporters for failure to deliver the actual quantity of cement or in good condition as per the agreement, and the Respondent treated the recovery as Declared Service, being an obligation to refrain from an act or tolerate an act or a situation, and demanded service tax with interest and penalties - Whether the amount realised from the transporters as compensation or liquidated damages is chargeable to service tax as Declared Service under Section 66E(e) - HELD - The realisation of a small amount for loss suffered by the Appellant on account of failure of the transporters to deliver the actual quantity of cement is in the form of liquidated damages and cannot be considered as consideration for rendering any service. The freight and the amount realised relate to services by way of transportation of goods and not to tolerating an act of the transporter. Services by way of transportation of goods by road, other than those of a goods transportation agency or a courier agency, fall under the negative list under Section 66D(p), and once a service falls under the negative list, the activity cannot be classified as a Declared Service. The Appellant had already paid service tax on the freight paid to the transporters under Section 68(2) read with Rule 2(d)(i)(B), and the amount realised forms part of the value on which tax was paid, so tax cannot be demanded again on the same amount. Amounts collected as penalty or liquidated damages for breach of contract are not consideration for any service, and the contention that such compensation is synonymous with tolerating an act or situation is not acceptable. Under the Explanation to Section 67(1), only the amount payable for a taxable service is consideration - The decisions relied upon by the Appellant are squarely applicable, the demand of service tax with interest under the category of Declared Service is not sustainable and is set aside - Service Tax – Penalties under Sections 78, 77(1)(a) and 77(2) of the Finance Act, 1994 - Respondent imposed penalty under Section 78 on the demand, and penalties under Section 77(1)(a) and Section 77(2) for violation of provisions of Section 70 - Whether the penalties are imposable on the Appellant - HELD - As the demand is not sustainable and the allegation of non-payment of service tax is not sustained, no penalty is imposable under Section 78. The penalty under Section 77(1)(a) is upheld. The penalty under Section 77(2) is also upheld as it has been imposed for violation of provisions of Section 70 - The penalty under Section 78 is set aside, the penalties under Sections 77(1)(a) and 77(2) are upheld.
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