Declared service taxation fails for liquidated damages and theft charges recovered by an electricity utility.

Liquidated damages recovered for contractual default and theft charges recovered for unauthorised use of electricity were not consideration for a declared service under section 66E(e) of the Finance Act, 1994. Liability under that provision requires a service involving agreement to refrain from an act, tolerate an act or situation, or do an act, together with consideration for that specific activity. The penalty clauses were only performance safeguards triggered on breach and not consensual toleration, while theft charges were compensatory and punitive rather than payment for any service. Accordingly, the amounts were not taxable as declared services.

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Issues: Whether liquidated damages and theft charges collected by an electricity distribution utility were taxable as consideration for a declared service under section 66E(e) of the Finance Act, 1994.

Analysis: The dispute concerned amounts recovered for contractual breaches and for unauthorized use of electricity, not amounts charged for the supply of electricity itself. Liability under section 66E(e) arises only when there is a service involving an agreement to refrain from an act, to tolerate an act or situation, or to do an act, and there must be a flow of consideration for that specific activity. The contractual penalty clauses were safeguards to secure performance and were triggered only on default; they were not the object of the contract nor consideration for any consensual toleration of breach. Likewise, theft charges recovered for unauthorized use of electricity were compensatory and punitive in nature, and did not constitute consideration for any service provided by the appellant.

Conclusion: The amounts collected towards liquidated damages and theft of electricity were not taxable as declared services under section 66E(e) of the Finance Act, 1994.

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