Liquidated damages are not taxable as service consideration when recovered for breach of contract under declared service rules.

Liquidated damages recovered for breach of contract were treated as compensation, not consideration for any service. Applying prior Tribunal decisions on similar facts, CESTAT held that such receipts do not fall within the scope of declared service under section 66E(e) of the Finance Act, 1994, and no service tax was payable on the amounts collected.

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Issues: Whether service tax was leviable on liquidated damages recovered by the appellant under section 66E(e) of the Finance Act, 1994.

Analysis: The liability was examined on the basis that the amounts recovered represented liquidated damages from vendors or contractors and not consideration for any service. Relying on prior Tribunal decisions on similar facts, the Tribunal held that liquidated damages or penalty recovered for breach of contract do not constitute receipts towards any service and therefore do not fall within the scope of the declared service under section 66E(e).

Conclusion: No service tax was payable on the liquidated damages collected by the appellant, and the demand was unsustainable.

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