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Customs, Excise and Services Tax Appellate Tribunal (CESTAT): The Coram of Dilip Gupta (President) and P.V. Subba Rao (Technical Member) allowed the appeals which were related to demand of service tax on liquidated damages recovered by the appellant for acts of default, like delayed or deficient supplies by various suppliers.

The appellant was a Public Sector Undertaking engaged in excavation of lignite from the captive mines at Neyveli in Tamil Nadu and at Barsingsar in Rajasthan. Lignite is principally consumed in the generation of electricity at the thermal power stations of the appellant.

The appellant had executed a contract dated 10-08-2006 with Bharat Heavy Electricals Limited for design, engineering, manufacture, supply, erection, testing, commissioning, and supply of two Circulating Fluidised Bed Combustion steam generators, complete with all accessories and auxiliaries and two Steam Turbines. BHEL was required to complete successful performance guarantee tests for UNIT 1 within 35 months of date of Letter of Award and for UNIT 2 within 39 months of date of Letter of Award. As BHEL failed to adhere to the above time limits, the appellant recovered liquidated damages in terms of the contract. Likewise, the appellant recovered liquidated damages for non-adherence to the time schedule for supplies from other contractors/Vendors. The appellant was served with show cause notice and he filed a detailed reply in which he mentioned that proceedings may be dropped for the reason that no service tax was payable on liquidated damages and penalties recovered under the contract.

The Commissioner not accepting his contentions had passed an impugned order against the appellant, thus the instant appeal was filed.

Ms Krithika Jaganathan, counsel appearing for the appellant submitted a number of case laws which supported their contention that the amount of liquidated damages/penalty collected for non-compliance of the terms of the contracts cannot be subjected to levy of service tax.

The Tribunal was convinced with the arguments of the counsel of the appellant that no service tax was payable on the amount collected towards liquidated damages considering the decision relied on by the counsel in South Eastern Coalfields Ltd. v. Commr. of Central Excise and Service Tax, 2020 (12) TMI 912.

The Tribunal observed that the Commissioner, however, did not accept the contention advanced on behalf of the appellant and confirmed the demand of service tax holding that the amount received by the said appellant towards penalty, earnest money deposit forfeiture and liquidated damages would tantamount to a consideration “for tolerating an act” on the part of the buyers of coal/contractors, for which service tax would be levied under section 66 E(e) of the Finance Act.

The Tribunal rejected the contentions advanced on behalf of the Department that penalty amount, forfeiture of earnest money deposit and liquidated damages had been received by the said appellant towards “consideration” for “tolerating an act” leviable to service tax under section 66E(e) of the Finance Act.

The Tribunal while allowing the appeal held that the view taken by the Commissioner that since BHEL did not complete the task within the time schedule, the appellant agreed to tolerate the same for a consideration in the form of liquidated damages, which would be subjected to service tax under section 66E(e) of the Finance Act cannot be sustained.[Neyveli Lignite Corprn. Ltd. v. Commr. Of CCE & ST, 2021 SCC OnLine CESTAT 2511, decided on 26-07-2021]


Suchita Shukla, Editorial Assistant has reported this brief.

Hot Off The PressNews

As reported by the media reports, Centre by an Advisory has asked the State Governments to not lower the penalties as prescribed under the amended Motor Vehicles Act that came into force on 01-09-2019.

With the enforcement of the amended MV Act, the penalties were enhanced.

As reported by Hindustan Times

‘The transport ministry advisory was triggered by the Gujarat government’s announcement to reduce steep fines for traffic violations that was cleared by Parliament in the amended Motor Vehicles Act last September.

Several other states had proposed to emulate Gujarat and amend the penalties listed in the central law, provoking the Centre to ask the law ministry if the states had the powers to tweak penalties in the first place.’

Motor Vehicles (Amendment) Act, 2019 is parliamentary legislation and the state governments do not have the power to lower the penalties as prescribed under the same.

Article 256 of the Constitution of India provides that the executive power of every state shall be so exercised as to ensure compliance with the laws made by Parliament and any existing laws which apply in that state, and the executive power of the Union shall extend to the giving of such directions to a state as may appear to the Government of India to be necessary for that purpose.


*Please read the Act here:

The Motor Vehicles (Amendment) Act, 2019

Hot Off The PressNews

Centre has Notified Some Provisions of the Act on 29-08-2019.

The Ministry of Road Transport and Highways notified yesterday, i.e. 28-08-2019, through S.O. No 3110(E), the provisions of the Motor Vehicles Amendment Act 2019 that will be applicable with effect from 1st of September 2019. These are provisions which require no further amendments in the Central Motor Vehicles Rules 1989. Important among the provisions notified today are the provisions for enhanced penalties.

For the remaining provisions, the Ministry has initiated the process of formulating draft rules. As and when the process is completed, the relevant provisions would be notified for implementation.

A brief of the provisions was notified on 28-08-2019 and would be applicable from the 1-09-2019.

Follow the link to see the detailed table of provisions.


Ministry of Road Transport & Highways

[Press Release dt. 28-08-2019]