The Delhi Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that the Ajmer Vidyut Vitran Nigam Ltd. (AVVNL) is not liable to pay service tax on the amount recovered towards penalty.
The bench of Binu Tamta (Judicial Member) and P.V. Subba Rao (Technical Member) has observed that the amount recovered by the appellant towards penalty is not a consideration for any activity which has been undertaken by the appellant and as a result there is no ‘service’ in terms of Section 65B(44) of the Finance Act, 1994.
The appellant/assessee is registered as a public sector company with the service tax department for ‘Works Contract Service’ and ‘Legal Consultancy Service’ as service recipient.
During the audit of the records of the appellant for the period from October, 2015 to June, 2017, it was found that they had recovered the amount under the head of ‘Penalty’ and ‘Recovery’ from their contractors amounting to Rs.17,84,65,282 and did not discharge the service tax liability amounting to Rs.2,39,18,841.
The issue in the present appeal for demand of service tax under Section 66E(e) of the Finance Act, 19942 on the amounts collected as damages/penalties on account of breach of the terms of the contract.
The appellant submitted that the penal charges are charged with the intention to make good for the losses and so as to act as a deterrent to ensure that terms of the contract are not violated by the buyer or the supplier.
The tribunal held that there is no other independent agreement to refrain or tolerate, or to do an act between the parties hence the issue is decided in favour of the appellant.
Case Details
Case Title: M/s. AVVNL Versus Principal Commissioner of CGST & Central Excise, Jaipur
Case No.: Service Tax Appeal No. 51973 of 2019 [DB]
Date: 03.03.2025
Counsel For Appellant: Kunal Agarwal
Counsel For Respondent: Rajeev Kapoor
Read More: Seizure Under GST Can Be Made Citing Under-Valuation: Allahabad High Court
