No Service Tax on liquidated damages recovered for not adhering to time limits mentioned in contract

Last updated: 09 August 2021

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The CESTAT Chennai has ruled that service tax cannot be imposed on liquidated damages recovered due to a failure to meet contractual time limits. The tribunal found that such damages do not constitute a 'declared service' under Section 66E(e) of the Finance Act, as there is no flow of consideration for tolerating an act. Consequently, the demand for service tax, interest, and penalties was set aside.

Court :
CESTAT, Chennai

Brief :
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 ("the Finance Act").

Citation :
Final Order No. 41702-41706 of 2021 in ST Appeal Nos. 41666, 41747 of 2016 &Ors., dated July 26, 2021

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