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The Appellate Tribunal held that liquidated damages/penal interest charged at 2% by the appellant cannot be construed as additional consideration but is a penal interest on account of delayed payment of loans, on which no service tax can be levied. Such charges are penal in nature and not relatable to taxable services rendered by the appellant. Liquidated damages/penal interest do not form part of the "declared service" u/s 66E of the Act, as there is no separate agreement between the parties for such liability, and no consideration flows for refraining from or tolerating an act or situation. Consequently, the Tribunal ruled that liquidated damages/penal interest are not exigible to service tax under the provisions of the Act.
The Appellate Tribunal held that liquidated damages/penal interest charged at 2% by the appellant cannot be construed as additional consideration but is a penal interest on account of delayed payment of loans, on which no service tax can be levied. Such charges are penal in nature and not relatable to taxable services rendered by the appellant. Liquidated damages/penal interest do not form part of the "declared service" u/s 66E of the Act, as there is no separate agreement between the parties for such liability, and no consideration flows for refraining from or tolerating an act or situation. Consequently, the Tribunal ruled that liquidated damages/penal interest are not exigible to service tax under the provisions of the Act.
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