BHEL Wins Appeal: Liquidated Damages Not Taxable Service Under Section 66E(e) of Finance Act

The Appellate Tribunal (CESTAT Hyderabad) granted M/s Bharat Heavy Electricals Ltd. (BHEL) an early hearing for their appeal, acknowledging that previous rulings had established that liquidated damages do not constitute a taxable service under Section 66E(e) of the Finance Act. The Tribunal set aside the contested order, confirming that service tax is not applicable to the liquidated damages collected by BHEL. The Department's position to levy service tax on these damages was deemed unsustainable, as the legal precedent was clear and uncontested.

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In the case of M/s Bharat Heavy Electricals Ltd. (BHEL) vs. Commissioner of Central Tax, Medchal, the Appellate Tribunal (CESTAT Hyderabad) addressed a Miscellaneous Petition for early hearing of Appeal No. ST/30611/2018. The appellant, BHEL, sought an early hearing on the grounds that the issue of service tax on liquidated damages (LD) had already been settled in their favor in previous judgments, specifically citing BHEL vs. Commissioner of Central Tax, Medchal [2022 (9) TMI 1587 - CESTAT-HYD] and similar rulings by Co-ordinate Benches, including South Eastern Coal Fields Ltd. vs. CCE & ST, Raipur [2020 (12) TMI 912 - CESTAT, New Delhi] and Principal Commissioner vs. BHEL [2022 (9) TMI 1457 - CESTAT, New Delhi]. These cases established that liquidated damages collected as penalty or late delivery charges do not fall under the ambit of declared service as per Section 66E(e) of the Finance Act, effective from 01.07.2012.The Tribunal noted that the Department's attempt to levy service tax on LD was not sustainable, as the legal position was well-settled and no longer res-integra. The Learned Authorised Representative for the Respondent conceded that the issue was covered by the cited case laws. Consequently, the Tribunal allowed the Miscellaneous Petition for early hearing, set aside the impugned order (Order-in-Appeal No. HYDEXCUS-MD-AP2-0327-17-18-ST dated 28.03.2018), and allowed the appeal, confirming that no service tax is chargeable on the liquidated damages collected by BHEL.

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