Ruling: Delay Payment Charges for electricity supply must be included in initial value; exempt vs. taxable supplies

The authority ruled that Delay Payment Charges, collected for the delay in payment of consideration for the supply of electricity, cannot be treated as a separate service and must be included in the value of the initial supply. The portion of these charges attributable to exempted supplies will be exempt from GST, while the portion attributable to taxable supplies will be taxable at the applicable rate.

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Issues Involved:
1. Eligibility for GST exemption on Delay Payment Charges under Entry no. 25 of Notification 12/2017-Central Tax (Rate).
2. Applicable rate of tax and HSN/SAC code for Delay Payment Charges if exemption is not applicable.

Issue-wise Detailed Analysis:

1. Eligibility for GST Exemption on Delay Payment Charges:
The applicant, a public sector undertaking engaged in the distribution and supply of electricity, sought clarification on whether Delay Payment Charges collected from consumers fall under the GST exemption for "Transmission or Distribution of electricity by an electricity transmission or distribution utility" as per Entry no. 25 of Notification 12/2017-Central Tax (Rate) dated 28/06/2017.

The applicant argued that since they are a power distribution utility under the Electricity Act, 2003 and the Delay Payment Charges are part of the tariff prescribed by the Madhya Pradesh Electricity Regulatory Commission (MPERC), these charges should be exempt from GST. They referenced the exemption provided under Notification No. 12/2017, which states that the transmission or distribution of electricity by an electricity transmission or distribution utility is exempt from GST.

However, the concerned officer from the Department contended that as per Section 15(2)(d) of the CGST Act, 2017, the value of supply includes interest or late fees or penalties for delayed payment of any consideration for any supply. Therefore, Delay Payment Charges should be taxable at 18% under HSN/SAC code 9969.

The authority noted that the Rajasthan Authority for Advance Ruling had previously ruled that Delay Payment Charges are taxable. However, the Rajasthan Appellate Authority for Advance Ruling later ruled that no GST is chargeable on Delay Payment Charges collected for the delay in payment of consideration for the supply of electricity, as the main supply (electricity) is exempt.

2. Applicable Rate of Tax and HSN/SAC Code for Delay Payment Charges:
The authority examined the nature of Delay Payment Charges, concluding that these charges are a part of the tariff prescribed by MPERC and are billed to consumers when payments are made after the due date. As per Section 15(2)(d) of the CGST Act, 2017, any amount recovered as interest, late fees, or penalties for delayed payment of any consideration for any supply should be included in the value of such supply.

The authority observed that Delay Payment Charges are directly related to the value of the supply to which they relate and do not have an independent status. Therefore, these charges should be included in the value of the initial supply. The ruling clarified that the portion of Delay Payment Charges attributable to exempted supplies (such as distribution and transmission of electricity) will be exempt, while the portion attributable to taxable supplies (such as metering charges and other services) will be taxable at the applicable rate.

Ruling:
The authority ruled that Delay Payment Charges cannot be treated as a separate service and must be included in the value of the initial supply. The portion of Delay Payment Charges attributable to exempted supplies will be exempt from GST, while the portion attributable to taxable supplies will be taxable at the rate applicable to the corresponding supply.

This ruling is subject to the provisions under Section 103(2) until declared void under Section 104(1) of the GST Act.

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