Liquidated damages are not a declared service, so service tax cannot be levied on breach-related recoveries.

Liquidated damages collected for breach or delay do not amount to a declared service under Section 66E(e) of the Finance Act, 1994, and are therefore not liable to service tax. The Tribunal treated the issue as settled by prior decisions and supported by Board circulars, and held that penalty, late delivery charges and similar recoveries cannot be taxed as consideration for a service. On that basis, the service tax demand was held unsustainable, the appellate order was set aside, and the assessee obtained relief by deletion of the demand on liquidated damages.

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Issues: Whether service tax was leviable on liquidated damages collected by the assessee from contractors and suppliers under Section 66E(e) of the Finance Act, 1994, and whether the demand and impugned appellate order were sustainable.

Analysis: The issue was treated as already settled by prior Tribunal decisions and supported by the Board's circulars. The Tribunal noted that liquidated damages or penalty/late delivery charges do not constitute a declared service under Section 66E(e), and therefore cannot be subjected to service tax.

Conclusion: The demand of service tax on liquidated damages was not sustainable and the impugned order was set aside.

Final Conclusion: The appeal succeeded and the assessee obtained relief by deletion of the service tax demand on liquidated damages.

Ratio Decidendi: Liquidated damages collected for breach or delay do not amount to a declared service and are not liable to service tax under Section 66E(e) of the Finance Act, 1994.

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